Tax Rates and Brackets for 2023
Not to be confused with tax form preparation, income tax planning is the analysis of a financial situation to determine how after-tax wealth can be maximized.
An essential first step is determining the applicable tax bracket, also known as the marginal tax rate. The table below shows the newly revised tax rates for 2023.
| Rate | Individuals | Married Filing Jointly |
|---|---|---|
| 10% | Up to $11,000 | Up to $22,000 |
| 12% | $11,001 to $44,275 | $22,001 to $89,450 |
| 22% | $44,276 to $95,375 | $89,451 to $190,750 |
| 24% | $95,376 to $182,100 | $190,751 to $364,200 |
| 32% | $182,101 to $231,250 | $364,201 to $462,500 |
| 35% | $231,251 to $578,125 | $462,501 to $693,750 |
| 37% | Over $578,125 | Over $693,750 |
The standard deduction is now $13,850 for individuals and $27,700 for married couples.
Capital Gains Rates for 2023
Here are the rates for long-term capital gains (assets held for more than a year) and qualified dividends. Please note that the Affordable Care Act 3.8% investment income tax remains in place, and state taxes are also a consideration when selling assets. It is also important to note that capital gains stack on top of ordinary income. For example, a single taxpayer with $100,000 of ordinary taxable income will pay 15% on long-term capital gains.
| Rate | Individuals | Married Filing Jointly |
|---|---|---|
| 0% | Up to $44,625 | Up to $89,250 |
| 15% | $44,626 to $492,300 | $89,251 to $553,850 |
| 20% | Over $492,300 | Over $553,850 |
How We Increase Your Tax Efficiency
Here are some of the methods used by Clarity to increase the tax-efficiency of our clients’ portfolios.
- Advising on account types to maximize current tax deductions or future tax-free income.
- For clients in high marginal tax brackets, municipal bond funds may be used in taxable accounts.
- For clients in high tax states like California, state-specific municipal bond funds may be used.
- Tax management of equities is implemented by using only low turnover funds. Furthermore, foreign equities may be limited to holdings that pay qualified dividends.
- While some advisors use asset location as a justification to have retirement accounts hold only bonds and real estate investment trusts, we do not take this approach because we consider a small gain in tax efficiency not to be worth the cost of having drastically different returns across different accounts. Also, having only equities in taxable accounts can be frustrating for older investors who find that there is a cost to withdrawing their funds (either capital gains in taxable accounts or ordinary income tax in non-Roth retirement accounts).
At Clarity, we will work with your tax professionals to ensure that they have all the information they need from us to properly complete your taxes. Likewise, we will obtain from them the information we need to efficiently trade your accounts such as marginal tax rates and loss carryforwards.