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Tax Planning

January 24, 2023

Getting Ready for Tax Season: What to Consider

Executive Summary

  • Inflation has impacted not only the cost of energy and groceries but also taxes.
  • What has increased for this tax season? Tax rate brackets, contribution limits to retirement plans, state revenues and wealth transfer tax exemptions/exclusions.
  • Special provisions enacted during the pandemic have been eliminated or postponed.
  • Tax deadlines are anticipated to be the same; however, recent natural disasters may provide delayed deadlines for some taxpayers.

With the approaching April 18 tax filing deadline, we review some of the most significant developments that could affect your federal or state income tax returns for 2022 and beyond.

Review withholding

The new year provides an opportunity to review your federal income tax withholding. The 2023 federal income tax rates are the same (10%, 12%, 22%, 24%, 32%, 35% and 37%), but the tax brackets — the income amounts that are charged at progressively higher rates — underwent major inflation adjustments. The upper limits for each bracket increased 7% from 2022. It’s important to review your withholding now so you aren’t having too much, or too little, tax withheld each pay period.

Retirement account contributions

Contribution limits to retirement accounts received higher-than-normal increases due to inflation, with the 401(k) limit increasing from $20,500 to $22,500. For those ages 50 and older, the catch-up contribution is now $7,500, allowing for a total of $30,000 to be contributed in 2023. Be sure to review your contribution elections to confirm you’re contributing the maximum amount possible.

The annual contribution limit to an IRA is now $6,500. The catch-up contribution limit for those ages 50 and over remains $1,000, as it is not subject to an annual cost-of-living adjustment.

State rebate checks

Budget surpluses were reported in more than half the states for fiscal 2021. A few states chose to return surplus revenue to eligible taxpayers through direct tax rebates last year, ranging from a flat amount starting at $50 to those based on a percentage of the prior year tax liability. The rebates, for the most part, won’t be taxable income by the issuing states. However, the payments might be taxable income at the federal level. Your tax advisor will be able to determine the appropriate treatment of the rebate on both your state and federal income tax returns.

Wealth transfer taxes

The gift tax annual exclusion is now $17,000. Annual gifts are one of the most effective estate tax-saving techniques, allowing the transfer of substantial amounts of assets to loved ones during your lifetime without any gift tax. Additionally, payments made directly to healthcare or health insurance providers or tuition payments made directly to educational institutions are not considered taxable gifts and do not offset the available $17,000 exclusion.

Further, the lifetime exemption amount increased $860,000 in 2023 to $12,920,000 per individual or $25.84 million per couple. The current lifetime exemption level is scheduled to revert to pre-2017 law at the end of 2025, so it’s important to begin planning conversations now to determine if this change will impact you.

Charitable deductions

One provision of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) included a charitable contribution deduction for nonitemizers — $300 (single) and $600 (married filing jointly). The deduction was available for cash donations made in 2020 and 2021, but it does not apply for tax years 2022 and beyond. Additionally, the charitable contribution limit on deductions reverted from the 100% of adjusted gross income allowance under the CARES Act back to 60%. When you consider the $10,000 limitation on state and local taxes and the loss of the nonitemizer charitable deduction, bunching charitable contributions in one year and using the standard deduction in the following years is an even more attractive option. One way to accomplish charitable bunching is to use a donor advised fund (DAF). The initial contribution to the DAF should be sufficiently large to allow for itemizing in the current year. The fund can then be used to make charitable gifts in subsequent years when the standard deduction (2023 inflation-adjusted amounts: $13,850 single and $27,700 married filing jointly) is claimed.

1099-K reporting postponed

Form 1099-K is an information form provided to freelancers or small business owners who receive payments of income from a client via a third-party payment system, such as Venmo or PayPal. Third-Party Settlement Organizations are required to provide annual Forms 1099-K to the IRS and taxpayers.

Companies were required to report transactions for a payee if (1) they exceeded $20,000 and (2) the number of transactions with that payee exceeded 200. In March 2021, the requirement for reporting these transactions was lowered to any amount over $600 for one or more transactions beginning in 2022. Because of the concern and confusion on how to correctly report Form 1099-K transactions and the potential impact to individuals using the applications for personal reasons such as to reimburse friends or make gifts, the IRS delayed the new reporting requirements for one year.

The new reporting requirements cover the 2023 tax year. When using third-party payment systems this year, such as Venmo and PayPal, make sure personal payments like gifts or reimbursements to friends are properly classified as an amount paid for something other than goods or services. If electronic payment systems are used for business, you might want to consider creating a separate personal account to ensure transactions are reported correctly.

Tax due dates

Federal individual returns for tax year 2022 are due April 18, 2023. When April 15 falls on a weekend, the business day immediately following is used. However, Monday, April 17, 2023, is Emancipation Day, a holiday recognized in Washington, D.C. Most states follow the same calendar for state income tax returns, but it’s important to confirm the due date for your state.

If you reside in a state recently affected by severe weather or wildfire, there may be a delayed due date for filing and paying taxes. The IRS regularly provides relief to taxpayers in disaster situations. The best source of how you may be impacted is their website at:

If you have any questions on these items or any other tax-related questions, please contact your Relationship Management team.

Glenmede Resources

Bunching Charitable Gifts to Maximize Tax Savings

The Rise of Donor-Advised Funds

Top 5 Advantages of Donor-Advised Funds for Charitable Giving

This material provides information of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. Any opinions, recommendations, expectations and/or projections expressed herein may change after the date of publication. Information obtained from third-party sources is assumed to be reliable but may not be independently verified, and the accuracy thereof is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss any matter discussed herein with their tax advisor, attorney or Glenmede Relationship Manager.