October, 2022 | Live a Life By Design

Remember as a younger person when you first heard the phrase, “the only constant in life is change”? At the time you, perhaps, thought the person to be either a great philosopher or speaking gibberish. As I am approaching the inspirational age of 60 years young, the aforementioned statement of change has been proven true more times than I can recall. To provide additional truth to this historic statement, the IRS does its part by changing the laws governing your annual filing of income tax returns.

The standard deduction is the allowance of a certain amount to accommodate your lifestyle needs such as food, shelter, and clothing without the need to itemize these deductions on your individual income tax return. Each year the IRS considers the inflation rate in the United States to determine if adjustments should be made to the standard deduction amount for the various filing statuses. In recent years, the IRS simplified this process by combining the original standard deduction with the exemptions a filer could claim to reduce his taxable income.

Due to the altitudinous inflation experienced in the United States in the past two years, most recent rate provided by the U.S. Bureau of Labor Statistics to be 8.2%, the IRS recently issued the increased standard deduction amounts for the 2023 tax year (i.e., your return you will file in 2024). For those filing jointly, the standard deduction has increased $1,800 over the 2022 amount to a deduction of $27,700. If you qualify as a single filer or choose to file as married but filing separate from your spouse, the standard deduction is $13,850 which is $900 higher than the previous allowed deduction. For those individuals who are single and maintain a household for a minor or special dependent, the head of household status allows a greater deduction than a single filer. Their amount for 2023 standard deduction will be $20,800 which is $1,400 higher than in 2022.

For taxpayers that owe little or nothing for a residence, contribute smaller amounts to charities and have medical coverage for major illnesses or infirmities, the standard deduction provides a benefit. Time is a considerable savings for filers who do not meet the standard deduction limit with their itemized deductions. To simplify the process of filing your individual return each year, consider the standard deduction amount allowed and perform a quick mathematical equation to confirm your potential deductions are more than your standard deduction.

The United States Tax Code provides seven tax rates, or brackets, for purposes of calculating your annual income tax liability. From a rate as low as 10% on taxable income of $11,000 or less to a maximum rate of 37% for filers with taxable income above $578,125 for single individuals and above $693,750 for married filing joint taxpayers. To add a little complexity to the process, the Congress assesses a surtax on certain filers to assist in the funding of the Medicare and Social Security programs.

One of the easiest methods of completing your annual tax filing obligation is to start early. Employers are required to mail Forms W-2 to employees on or before January 31, 2023. Start now by gathering your potential itemized deduction receipts and as income documents are sent you, begin the process of completing your returns. It is recommended that you file electronically to facilitate the processing of your returns and, hopefully, the electronic deposit of a refund check to your bank account.

A quote attributed to one of the greatest planners of the last one hundred years, President Dwight D. Eisenhower, as the commanding general in WWII, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” applies to tax “battles.” The planning for targeted outcomes is critical to the realization of your goals.

Tax planning is necessary for you to prepare yourself for the best results possible in filing and paying your annual income taxes. If you need assistance achieving your retirement planning goals, one of which should be the lessened impact of taxation on your wealth, seek the assistance of a CERTIFIED FINANCIAL PLANNER^™professional to guide you through this important planning process. Go play in the Autumn breeze this weekend!

Related Podcasts

One of the most critical benefits affecting American citizens is the Medicare Program. For those individuals who qualify at age 65, this program provides health coverage for inpatient care (Part A), outpatient care (Part B), prescriptions (Part D) and other areas. This article will focus on these three most common areas of care.

To qualify for Medicare benefits, you must have worked in a job that withheld Medicare contributions from your paycheck while working at least forty quarters (i.e., 10 years). This is a very low bar to meet eligibility for such a comprehensive medical plan. Of course, as with many federal laws, exceptions apply to the general guidelines.

The important concept of medical coverage through Medicare is that it functions similar to the private insurance you may have received while employed in your career. For example, Medicare covers 80% of your covered qualified medical charges for inpatient care. This means your hospital stay may be covered but you will be expected to pay the remaining 20% unless you purchase a Medicare Supplement Plan.

Supplement plans are relatively inexpensive and can be the difference between destroying your lifetime savings and the security your family needs. There are many carriers of such plans and each state may differ as to the carriers available. It is critical that you determine the appropriate Medicare Supplement Plan you desire that is contracted with your various medical providers. Supplement plan consultants are often helpful to narrow the field of possible plans and to assist in the selection of a plan that meets your budget.

To enroll, or to change plans, you should be aware of the upcoming Open Enrollment Period. For 2022, the period is October 15 through December 7. It is critical that you review your current plan for potential savings as new plan changes and plan providers are introduced into the marketplace. Often people will purchase a supplement plan and, like the infomercial, “set it and forget it”. This is a big mistake that could cost you thousands of dollars.

Let’s review the outcomes of such a person who failed to obtain a supplement plan and suffered a significant health issue. While in the Intensive Care Unit of a major hospital, the medical care she received was excellent. She left the hospital after 10 days of care and felt so much better… until she started receiving the bills! The total cost of the hospital stay was more than $120,000 for all the medical care provided her. Without a supplemental plan, she was responsible for more than $24,000 of the total cost.

Medicare Part D is a complicated area of law. It is vital that you seriously consider enrolling in this program when you are first eligible or you will be penalized for each month you delay enrollment. This sounds rather harsh but the method of funding the program is through premiums assessed individuals who utilize the benefit. Considering that most people may live a relatively healthy life until age 75, the ten-year period of qualification to election date may cause you to incur a significant penalty at a time when you may need your savings for other priorities.

The cost of medical care continues to rise at an unprecedented pace in the United States. We highly recommend those individuals enrolling for their Medicare Benefits to seriously consider purchasing a supplement plan. Monthly premiums vary depending upon the level of care and the carrier issuing the policy.

If you are approaching your 65^th birthday, it is critical that you file for your Medicare Benefits approximately 60 – 90 days prior to your birthday. It will be a lot easier to blow the candles off your cake if you aren’t worrying about medical bills. Seek the assistance of a CERTIFIED FINANCIAL PLANNER™ professional to guide you through this critical and difficult process. Make it a wonderful week!

Month: October 2022

The One Constant is Change

Related Podcasts

Medicare Benefits Planning

Related Podcasts