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Financial Planning > Tax Planning

4 Ways Inflation Can Help Clients Cut Taxes in 2023

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What You Need to Know

  • Thanks to inflation, more income can now pass through the lower brackets than ever before.
  • On top of that, we are in a low-tax environment — for now.
  • High-net-worth clients who can afford to make big gifts now could save on estate taxes later.

Financial advisors have a slew of new retirement and estate tax planning opportunities to capitalize on in 2023. Hit the ground running by communicating these ideas to your clients early in the year. Timing is everything, and that’s especially true when it comes to tax planning.

Inflation Benefits

Sure, inflation is a problem, but when it comes to tax planning, it’s an opportunity. The cost-of-living increases (inflation-adjusted amounts) for 2023 are the largest in history, expanding tax brackets and other tax benefits. Not only are we in a low-tax environment, but more income can now pass through the lower brackets than ever before.

1. Clients can save more for retirement on a tax-preferred basis.

More funds can be contributed to all types of retirement savings accounts in 2023. Many clients who are working can take advantage of these increases and may be able to contribute more to both IRAs and company plans (assuming they have the disposable income to do so). Identify clients who may be able to save more across several retirement accounts.


Joe, age 55, has a 401(k) plan with his company.

He can contribute a total of $7,500 to an IRA (or a Roth IRA as long as his income is below the Roth contribution income limits, which also increased for 2023). The regular IRA or Roth IRA contribution limit increased from $6,000 to $6,500 for 2023.

Since Joe is 55, he can also take advantage of the $1,000 catch-up contribution for those age 50 or older. It’s interesting that in this inflationary time, the $1,000 IRA catch-up contribution is one of the few limits in the tax code that does not increase. The tax law does not provide for it.

Joe can also contribute a total of $30,000 to his 401(k) plan in combined pre-tax or Roth contributions (if his company offers Roth contributions). Unlike the Roth IRA, there is no income limit for making Roth 401(k) contributions. The base contribution limit for 2023 is $22,500, and the increased catch-up contribution of $7,500 bumps the limit up to $30,000.

Assuming Joe has the disposable income or savings to make the maximum contributions, he can stash away a total of $37,500 [($7,500 in his IRA + $30,000 in his 401(k)].

If Joe is married and his spouse is 50 or older and also works for a company that sponsors a 401(k), the combined amount they can save for retirement this year alone is an impressive $75,000! ($37,500 x 2 = $75,000.) We have not seen these huge savings opportunities before, but thanks to inflation, they’re here now. Advisors should connect with clients who may be in a position to take advantage of this.

Self-employed clients can also increase their SEP or SIMPLE IRA contributions for 2023.

2. Thousands of dollars of income will be taxed at lower rates.

Now let’s look at the 2023 tax brackets:

Taxable Ordinary Income Brackets for 2023

Marginal Tax Rate Single Married Filing Jointly
10% $0 – $11,000 $0 – $22,000
12% $11,001 – $44,725 $22,001 – $89,450
22% $44,726 – $95,375 $89,451 – $190,750
24% $95,376 – $182,100 $190,751 – $364,200
32% $182,101 – $231,250 $364,201 – $462,500
35% $231,251 – $578,125 $462,501 – $693,750
37%* Over $578,125 Over $693,750

* The top rate is effectively 40.8% for those subject to the 3.8% Medicare surtax on net investment income (those with MAGI over the thresholds of $250,000 joint filers/$200,000 single filers).

In 2022, the 24% bracket for married-joint filers topped out at $340,100. It now goes to $364,200 — an increase of $24,100. That’s $24,100 of additional income that can still be taxed at the low 24% rate. The bracket expansions are even larger for the higher tax brackets.

More clients should be taking advantage of these brackets now because this tax party may soon end. Under the Tax Cuts and Jobs Act, these low rates are slated to end after 2025 (assuming no change in the law) and retreat to the higher pre-2018 levels.

3. Standard deductions shelter more income.

The new standard deductions are:

  • Single: $13,850, up from $12,950 in 2022
  • Married filing jointly: $27,700, up from $25,900
  • Married filing separately: $13,850, up from $12,950
  • Head of household: $20,800, up from $19,400

Extra Standard Deduction for Age 65 or Blind

  • Married filing jointly: $1,500
  • Single or head of household: $1,850

Thanks to inflation increases, for 2023 a married couple filing jointly (if each spouse is 65 or older) can now enjoy a standard deduction topping $30,000 for the first time ever. The actual amount is $30,700. They receive the basic standard deduction of $27,700, plus each spouse receives an additional standard deduction of $1,500 for being 65 or older ($27,700 + $1,500 + $1,500 = $30,700).

More income can be sheltered this year for more clients. These larger amounts will mean that even more clients will be taking the standard deduction this year (and not itemizing their deductions).

4. The estate and gift tax exemption just got much bigger — for now.

For 2023, the lifetime exemption for estate, gift and generation-skipping transfer tax is $12.92 million per individual. That’s up from $12.06 million in 2023. The annual gift tax exclusion is $17,000, up from $16,000 in 2022.

Like with the income tax brackets, these inflation increases are the largest ever. Because the estate exemption is so large to begin with, the inflation increase is exponentially larger. The exemption amount increases by $860,000. For a married couple, the 2023 exemption doubles to $25,840,000.

But this party probably won’t last for long. After 2025, these amounts are scheduled to be cut to half their current value.

Even for clients who don’t die before 2025, these exemption amounts can be accessed earlier through lifetime gifting.

In addition, the IRS has ruled that if the larger exemption is used now and the client dies after 2025 when the exemption is cut in half, there will be no clawback. In effect, even the IRS is saying use it now or lose it later. That can be done with lifetime gifting.

Some clients may think that estate tax exposure is not an issue because the value of their estate is nowhere near $12 or $25 million. Things can change, though. The exemption will likely go down and assets will hopefully go up.

Gifting is relatively easy but is for cash gifts only. It is not for appreciated property like stocks that can receive a step-up in basis after death, eliminating the tax on lifetime appreciation. Highly appreciated property should generally be held until death to gain that big tax benefit.

Remember to first make sure that clients are financially able to make gifts, without having to worry about needing those funds later. Gifting now can reduce estates that later could be subject to heavy estate taxes. Help clients capitalize on tax-free gifting opportunities before they are no longer available.

As you can see, there’s plenty to talk about for the new year and lots of opportunities to add value. So, ring in 2023 by bringing these planning ideas to your clients now!

For more 2023 planning tips from Ed Slott, check out Why Advisors Should Rethink the ‘M’ in RMD.

(Photo: Natalie Brasington)

Ed Slott, CPA, America’s IRA expert, is a nationally recognized speaker, television personality and author known for turning advanced tax strategies into understandable, actionable and entertaining advice. He was named “The Best Source for IRA Advice” by The Wall Street Journal.

Slott is a professor of practice at The American College of Financial Services and has been recognized by leading industry organizations for his significant thought leadership and contributions. He is one of the top pledge drivers of all time with his popular public television specials and the creator of Ed Slott’s Elite IRA Advisor Group.

He most recently published the updated book, “The New Retirement Savings Time Bomb: How to Take Financial Control, Avoid Unnecessary Taxes and Combat the Latest Threats to Your Retirement Savings” (Penguin Random House, 2021).


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