facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Military Finances 101: 2023 by the (Tax) Numbers Thumbnail

Military Finances 101: 2023 by the (Tax) Numbers

Taxes

Everyone is talking about the big increase to military retirement pay and Social Security. That's not the only thing (besides your bills) that is changing due to inflation. A lot of things related to your taxes have changed too. Some help. Some hurt. Here is a summary.

Changes that Help

In most cases inflation increases things that help you. The following should help you out:

  • The limits for deferrals to qualified retirement accounts (401(k), 403(b) and TSP) have increased significantly. If you are younger than 50, you'll be able to contribute up to $22,500 (a $2,000 increase). If you're 50 or older, you can contribute an additional $7,500 (an increase of $1,000) for a total of $30,000. Combined employer and employee contributions cannot exceed $66,000
  • You can now contribute up to $6,500 to an IRA (an increase of $500). Catch-up contributions for those 50 and older remain at $1,000.
  • The income limits for contributions to IRAs also increased. The phase out for contributions to a Roth IRA increased to $218,000 - $228,000 of Adjusted Gross Income (AGI) for those Married Filing Jointly (MFJ). For single taxpayers the phase-out range is $138,000 - $153,000 AGI. If you are covered by a retirement plan at work, your spouse can make deductible contributions to a Traditional IRA subject to the same income limits as for Roth contributions. If you're covered by a retirement plan at work, you're likely above the income limit to make deductible contributions to a Traditional IRA (and if you are below the limit, Roth contributions are probably a better idea)
  • Tax brackets are increasing. So, more of your income will be taxed at a lower rate
  • For MFJ the standard deduction will increase to $27,700 and for Single taxpayers the standard deduction will be $13,850. This one is actually a toss-up. If you don't itemize, it helps you out. If you do itemize, less of your mortgage interest (or other deductions) do you any good.
  • The Gift Tax annual exclusion increases to $17,000

Changes that don't Necessarily Help

  • Income subject to Social Security tax will increase to $160,200, a $13,200 jump. That means that if you earn at or over the limit, you'll pay an additional $818.40 in Social Security taxes in 2023.

Things that Won't Change

There are a few things that won't change and more likely than not, they are a stealth tax increase.

  • The phase out for the American Opportunity Credit and the Lifetime Learning Credit remains at $160,000 - $180,000 AGI for MFJ and 1/2 of that for those filing Single. That means fewer Americans will qualify for the credit
  • The phase-out for deducting rental real estate losses remains at $100,000 - $150,000 AGI. This one has been the same since I started renting real estate (1996).
  • The threshold for the additional Medicare Tax remains at $250,000 of wages for MFJ and $200,000 of wages for Single taxpayers.
  • The threshold for the Net Investment Income Tax is unchanged at $250,000 AGI for MFJ and $200,000 AGI for Single

Military Finances are Different

As we used to say, "you write your own OPR". In the same vein, "you write your tax return in 2023, not when you file it", so make sure you take advantage of the things you can and be aware of the things you can't. Or if you'd like to chat with us about how we can help you with your finances and/or taxes, use the button below to schedule a free initial consultation.

If you found this article useful, you might like the following blog posts:

Retired Military Finances 201: I Contributed Too Much to my 401(k). Now What?


The Court has Spoken: The Rumor You Heard About Tax Free Military Retirement Pay is Not True


Get a Bigger Tax Refund than Expected the Year You Retired from the Military?


Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.