You are probably well aware of the obvious ways inflation can affect your finances. For example, your money won’t get as far at the grocery shop. As the Federal Reserve raises short term interest rates to combat inflation, credit cards and variable-rate debt are becoming more expensive. Savings accounts are also seeing rates rise, although they do so more slowly.
Other ways that inflation can help or hurt have received less attention. These are the top changes you should be looking out for in 2023.
Big tax changes benefit most taxpayers
The standard deduction was increased by the IRS by $1,800 for married couples who file jointly, and $900 for single filers. In 2023, the standard deduction amount will be $27.700 for married couples and $13,850 to singles.
The IRS also adjusted the federal tax brackets by about 7%. Taxpayers will pay less in 2023 due to the larger deduction, higher brackets, and other changes, particularly if their incomes aren’t keeping up with inflation.
Edward Karl, vice-president of tax policy advocacy for the American Institute of CPAs, says that it’s putting more money into people’s pockets.
The IRS amended dozens of tax provisions. It increased the maximum earned income tax credit by $495 to $7.430 for a qualifying family having at least three children. It also raised the maximum adoption credit from $1,060 up to $15,950.
The annual exclusion for gifts, the amount that you can give to an individual before filing a gift tax return, goes up from $1,000 to $17,000. You will not owe gift taxes if the annual exclusion for gifts exceeds the lifetime exemption limit of $12,920,000. This is an increase of $860,000 over 2022.
However, higher earners may have to pay more FICA taxes by 2023. Social Security will increase the maximum salary that can be taxed to $13,200 to $160,000.
To see how these changes will affect you, consult a tax professional or a tax refund calculator. These numbers can be run at midyear to make adjustments and ensure that you are withholding the correct amounts.
Retirement contributions can increase
For those under 50, the amount that can be contributed to 401(k), 403(b), and other workplace retirement plans will increase by $2,000 to $22,500. The catch-up contribution for those 50 years and older increased by $1,000 to $7500. This means that older persons can contribute $30,000 in 2023.
Roth IRA contributions were subject to income caps that increased. The 2023 phaseout range is $138,000-153,000 for singles or heads of households, as opposed to 2022’s range from $129,000 to $144,000. The phaseout range for married couples filing jointly is $218,000-228,000. This is an increase of $204,000-214,000. Additionally, the income limits for married couples filing jointly have increased to $218,000 to $228,000. This is an increase of $204,000 to $214,000.
To take advantage of these changes, increase your retirement contributions if you can. You’ll not only be able to enjoy the tax benefits but you will also make your future better.
Premiums are rising, but you might need more coverage
Consider shopping for cheaper auto insurance. As repairing and replacing vehicles became more costly, auto insurance premiums have risen. However, you might be able find a cheaper deal if you’ve been with the same insurer for some time. Insurers may not reward loyalty but instead rely on your inertia and charge you more.
The premiums for homeowners insurance are also rising, but an even bigger concern is inadequate coverage, according to Amy Bach, executive director at United Policyholders (an insurance-focused consumer advocacy organization). According to the National Association of Home Builders, the cost of building materials have risen by more than 35% in the time since the outbreak. Bach states that many homeowners are not covered because the insurance software often underestimates the cost of rebuilding. Bach suggests speaking to a local builder to get a current, realistic estimate of the cost to replace your home. Compare this figure with the estimate of your insurance company and you might consider increasing your coverage.
This article was originally published by The Associated Press and was written by NerdWallet.