Inflation is perceived as a negative, yet this economic phenomenon can potentially be a latent boon for your business. The little-known truth is inflation can help clients reduce their tax burden in 2023. Here’s how.
Lower Rates May Add Money to Your Pocket
Inflation makes money worth less. The silver lining to the devaluing of money is it can move through lower tax brackets in greater quantities, ultimately saving business owners, managers, and employees a tidy sum of money. Due to inflation, tax brackets have changed, empowering hardworking people in Hammond, LA and beyond save that much more money when tax season rolls around.
The 2023 ordinary income tax brackets tax thousands of dollars of income at lower rates. However, the lower tax rate brackets are set to expire at the end of 2025 unless lawmakers change their position on the issue. If the changes are implemented at the end of 2025, the tax rates will return to their levels before 2018.
For example, married joint tax filers topped out at the 24% tax bracket rate of $340,100 in ’22. The same tax bracket is now elevated to $364,200, meaning married joint tax filers can rake in more than $24,000 of extra income and still pay 24% in taxes.
You May Save More for Retirement
More money can be added to a wide range of retirement accounts in ’23. Whether you are looking for ways to save more money for your own retirement, have employees with their eyes set on retirement, or run a business that serves clients planning for retirement, inflation has created a golden opportunity to save that much more money for the golden years.
Workers are encouraged to take full advantage of the opportunity to pad their retirement savings accounts. This is the time to contribute more earnings to employer retirement savings plans such as 401(k) accounts and IRAs. For example, the contribution limit for a Roth IRA or conventional IRA has jumped from $6,000 in ’22 to $6,500 in ’23.
Increase in Gift and Estate Tax Exemptions
The gift and estate tax exemptions have increased. The lifetime exemption for generation-skipping transfer, gift, and estate taxes for 2023 is nearly $13 million per person. This figure increased from just over $12 million in the previous year. The yearly gift tax exclusion jumped from $16,000 in ’22 to $17,000 in ’23.
The estate exemption climbed by $860,000 for the year, while the exemption for married couples has increased 100% to a whopping $25,840,000. However, the increases are temporary as the caps will be cut by 50% of their current value following 2025.
Mind Those Assets and the Subtleties of Accounting
Inflation reduces the value of assets that are nominally fixed simply because the USD value is ever-increasing. Deferred, depreciated, amortized, and capitalized costs will decrease in value in the years ahead as they can be used in the form of deductions at that point.
So, now is the time for business owners and managers to consider options for planning to ramp up deductions and possibly push back revenue to points in the future for financial gain.
Schedule Your Tax Planning Inflation Consultation With Sensible Services ABC
Tax planning and offsetting the impact of inflation are only two examples of the hurdles that our consultants help businesses overcome. We also provide financial and business consulting, bookkeeping, payroll services, and more. We aim to expedite your business’s growth while minimizing costs. We streamline books, eliminate errors, and add to the bottom line.
Contact us today to schedule an initial consultation in-person, over the phone, or via video conference. We serve Hammond, LA and the rest of the United States. You can call us at (985) 222-2088 or online through our convenient contact form.