The IRS Announced Tax Inflation Adjustments For Tax Year 2023

As we approach the end of the year and many of you begin tax planning for 2023, its great timing because the Internal Revenue Service announced the new tax inflation adjustments and tax brackets for tax year 2023. As the October 17th extended tax deadline just passed for tax year 2022, now is a great time to start thinking about changes you can make and projecting out what your taxes may look like for next tax year.

For the 2023 tax inflation adjustments, see the text below from the IRS. For more information and details, head to their website here.

“The tax items for tax year 2023 of greatest interest to most taxpayers include the following dollar amounts:

  • The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
  • Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).The other rates are:35% for incomes over $231,250 ($462,500 for married couples filing jointly);
    32% for incomes over $182,100 ($364,200 for married couples filing jointly);
    24% for incomes over $95,375 ($190,750 for married couples filing jointly);
    22% for incomes over $44,725 ($89,450 for married couples filing jointly);
    12% for incomes over $11,000 ($22,000 for married couples filing jointly).The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
  • The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).
  • The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
  • For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.
  • For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.
  • For tax year 2023, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up $350 from 2022. For tax year 2023, for family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.
  • For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.
  • Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
  • The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.
  • The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022″

At Sherman Wealth, we are very tax focused and work with our clients in a tax efficient manner. If you have any questions about the tax implications within your portfolio or financial situation, email us at info@shermanwealth.com or schedule a complimentary intro call here.

Does Money Negatively Impact Your Mental Health

Mental health awareness and wellbeing is so important and should be constantly discussed and talked about. With World Mental Health Day just having passed, we thought it would be timely to discuss not only the importance of mental health, but also mental health as it relates to finance. It’s obvious that finances and money can be extremely anxiety producing and stressful for many. In fact, according to a recent survey from BankRate and Psych Central, “42% of U.S adult say money is negatively impact their mental health.” So, while it’s clear that many individuals feel overwhelmed by their finances, it’s also true that there are many ways to alleviate that stress to avoid negative mental health. So let’s dive in to see what those are. 

At Sherman Wealth, we are constantly advocating for, spreading, and teaching financial literacy topics and education. Financial literacy is lacking greatly in our country and is one of the largest reasons so many individuals feel so insecure and unconfident when it comes to their personal finances, because they lack common and simple financial facts and knowledge. So, starting with the basics is extremely important. Seek out financial literacy courses or seminars, do some research, and make sure you are understanding everything you have, where it all lives, and how it works. 

Another way to feel less overwhelmed by your finances is to get organized. We always preach the importance of organization, consolidation, and automation. Make sure you are automating your finances, that they live and you can see them all in one place, and that you don’t have accounts all over the place. By not consolidating, it’s very easy to mix-up or lose old accounts you may forget about. Budgeting is a large part of financial security and financial planning. Make sure you are tracking what you spend and know how much money is coming in as well. We have also found that building and funding an emergency fund helps individuals feel more secure about their financial picture. If you are seeking financial literacy courses or would like to utilize our financial software to automate your finances, email us at info@shermanwealth.com for more information. 

Next, establishing a financial plan can help alleviate stress and maintain positive mental health. At Sherman Wealth, we build customized financial roadmaps that are unique to the needs, risk tolerance, and goals of each client. If you do not feel comfortable creating a financial plan yourself, seek help! Working with a financial advisor may lift some pressure off your shoulders as you will have an unbiased and conflict-free second opinion, accountability partner, and financial concierge in your corner as you tackle your financial life. As we approach the last quarter of the year, it’s a great time for end of the year financial planning. Keeping and maintaining positive mental health is our top priority so we are here and happy to help you in any way that we can. If you have any questions or are seeking financial assistance or reinforcement, email us at info@shermanwealth.com. 

Is Lifestyle Creep Impacting You?

Brad Sherman:  Today we want to discuss lifestyle creep, a big topic in the news, along balancing increasings costs, inflation, home prices, and more. We also want to talk about saving for your future and paying yourself first. Ashley, I know you wanted to talk about it being a really important balance strike, so do you want to share some thoughts and ideas that you may have about it?

Ashley Perlmutter: Yeah, well, for starters, for those of you who don’t know what lifestyle creep is, it’s pretty much when your income is rising or has rise, but your discretionary spending rises as well. So oftentimes, when you’re making more, you start to spend more, whether it’s voluntary or not. Obviously this varies per person, but sometimes life style creep makes it feel like your raise or increase in pay no longer feels like a raise, because your spending is going up as well. So a lot of times, we see individuals let their lifestyle creep get carried away. Brad, do you want to talk about some tips that you have for people who maybe let lifestyle creep take over when they get a pay raise?

Brad Sherman: Yeah, to bring it back where we started from, I think there’s two separate things here, there’s inflation that that people are concerned about. And then there’s lifestyle creep. So getting a $10,000 raise at work doesn’t necessarily mean buying a more expensive car, or going out to more dinners or taking greater vacations. I think that you should stick with your financial plan, regardless of the amount of money that you’re making. And certainly we want you to increase your lifestyle. But as you define lifestyle creep, it really is when your expenses are far exceeding your raise or increase in pay. So certainly understand the environment that we’re in where things cost more, but find a balance between saving and paying yourself first. I think that paying yourself first is really important. We always advocate to maybe increase your 401 K contribution. If you’re not already maxing that out. If you’re eligible for a Roth IRA, start contributing to that, maybe focus on your long term goals. And then we talked about this last week, but 70% of the folks out there don’t even have a financial plan, so it’s really hard to know where you’re going without a map in mind.

Ashley Perlmutter: Yeah, that statistic was really interesting and surprising. We wrote a blog last week about how important having a financial plan is, especially given the current market environment. Like Brad said, try not to increase your discretionary spending too much when you get a raise, and stick to those long term financial goals. And like we said earlier, with inflation, things are just becoming more expensive on the day to day, so keep that in mind if you decide to spend more.

Brad Sherman: Great, let’s keep all that stuff in check, like we said, if you get a 10% raise, maybe you allocate a certain percentage to going out to dinner more, something that makes you happy, whether that’s concerts, food, but don’t go too crazy to where you’re spending the raise in excess of what you can afford. So anything else you want to touch on?

Ashley Perlmutter: No, I think that is a great place to wrap up. Let us know if you have any questions about lifestyle creep. If you feel like you need to revisit your budget, I think that’s a great place to start, especially given inflationary prices and everything going on. If you’re stressed about your investments and your portfolio allocation, now’s a great time to revisit that as well. So let us know if you have any questions and if we can help in any way. Email us at info@shermanwealth.com or schedule a complimentary 30-minute intro meeting here.

Are You Nervous About The Extreme Market Volatility?

Wow, what a rough and volatile week, month, and quarter its been in the U.S stock markets. In fact, the S&P 500 has seen its worst start to the year since the 1930s. We know the volatility within the markets and the Federal Reserve hiking interest rates is uneasy for all; however, as we always say at Sherman Wealth, transparency, communication, financial literacy, knowledge and confidence is extremely important.

So, thanks to our friends at Y-Charts, we will share some visuals of how the stock market has performed over the last few months and since the beginning of the year as it’s been digesting this new economic environment with the Federal Reserve hiking interest rates to combat inflation. 

U.S stocks recovered a little to start October after closing out a rough September with consumer prices rosing higher than expected showing that the Federal Reserve still has a lot of work to do to combat inflation. As you can see in the chart pictured above, September had an ugly month, setting a new 2022 closing low ending the month down about 9%.

Due to inflation remaining high, Federal reserve officials have made it clear that monetary tightening will continue despite the risk of a recession. Zooming out even further, the stock market saw its worst quarter since 2008, as show in the chart below. 

 

We will continue to monitor the direction of the US economy and stock market as the Federal Reserve continues to do its job to fight inflation. Despite this gloomy economic data, now is the time to get a hold of your finances, to make sure you are comfortable with your risk tolerance and asset allocation, and to make sure you have a sound financial plan in place. If you are extremely anxious and having trouble sleeping at night, this might be your message to revisit your finances and seek help from a financial professional. If you have any questions or concerns, let us know we’re here and happy to help! Email us at info@shermanwealth.com or schedule a complimentary introduction call here. 

The Extended Tax Deadline Is Approaching. Here’s What To Know

For those of you who have yet to file your 2021 tax return, there is a little under one month until the October 17th tax deadline extension. If you are utilizing the tax extension this year, now is the time to prepare and make sure you have everything you need in order, which includes getting organized, communicating with your financial advisor and tax preparer, or CPA. 

For those of you working with a CPA or tax professional, make sure you are promptly providing them with all the information necessary to file your return. Surprisingly, according to the IRS, an estimated all-time high of 19 million American taxpayers filed an extension for their 2021 returns. With these shockingly high numbers, think about filing your return as quickly as possible to try to avoid any complications or hiccups. 

Before filing this year, make sure you are accounting for all COVID-19 reliefs, such as the stimulus checks and the child tax credits. Make sure all your deductions and withholdings are in order and that you are aware of and prepared for any tax payments due or returns. In all, when dealing with your tax return, whether you file it on time or on the extension, it’s important you are prepared and aren’t waiting til the last minute to get your documents in order.

If you have any questions about your tax return or are looking for tax advice, email us at info@shermanwealth.com and we are happy to help or refer you to a tax professional. If you would like to schedule a complimentary 30-minute intro call, schedule it here. 

 

Financial Literacy Scores In The U.S Are Declining

Financial literacy and empowerment stands as a core value of Sherman Wealth. We have long been strong advocates of improving financial education in our country and within the school system to educate our youth on financial concepts throughout their development. Understanding personal finance and feeling confident enough to make your own financial decisions is crucial in the society we live in and a predecessor to financial success. 

Despite thought leaders efforts to improve financial literacy in our country, it has still steadily decreased over the last 12 years. A FINRA Foundation National Financial Capability Study found that of 30,000 U.S. adults surveyed, the average respondent of the study only answered 2.6/5 financial literacy questions correctly, down from 3 of 5 questions in 2009. These findings are quite alarming and pose a warning that financial education and literacy needs to improve.

In the world we live in today, with constant change and unprecedented events such as the COVID-19 pandemic, it’s important to know the full scope of your finances, from the location of your various accounts, to your risk tolerance and asset allocation, your planning opportunities and tax consequences, your workplace benefits and more. Many individuals who lack financial knowledge are missing out on prudent opportunities in their young careers and life that could lead to long-term financial success. 

If you are feeling discouraged about your financial knowledge and confidence, now is a great time to think about working with a financial advisor such as Sherman Wealth, that will not only help you create a customized financial plan, but teach you everything you need to know in the process. If you have a child or grandchild in high school or college and want them to learn more personal financial tools before they embark in the real world, email us at info@shermanwealth.com to learn more about what financial literacy courses and tools we provide.  For more financial literacy content, check out our Q&A blog. To sign up for a complimentary introductory call, click here. 

President Biden’s Federal Student Loan Forgiveness Plan

For those of you who have been taking advantage of the federal student loan relief since 2020, we know you have been anticipating this week’s announcement from President Biden on the Federal Student Loan Re-Payment/Forgiveness plan as you have been preparing to begin your student loan payments again. This payment pause included a suspension of loan payments, a 0% interest rate, and a stopped collection on defaulted loans since the COVID-19 pandemic.

However, earlier this week, President Biden finally announced a three-part plan to aid American’s with federal student loan debt as they continue to recover from the economic strains of the COVID-19 pandemic. Within his three-part plan, he announced that he would be extending the pause on federal student loan repayment “one final time” through December 31, 2022, with resuming payments starting January 2023. He also announced that the Department of Education will provide up to $20,000 in debt cancellation to individuals who received Pell Grants in college from the Dept. Of Education and $10,000 in canceled debt to non-Pell Grant borrowers. In order to qualify for the debt cancellation, borrowers individual income must be less that $125,000 or $250,000 for married couples/head of household. For more granular details on Pell Grants and other items in Biden’s three-part plan, visit the White House fact sheet here.

We know there are many unsure details and unanswered questions from President Biden’s announcement; however, we will continue to monitor more detailed clues and announcements on eligibility, rollout, and claiming relief in the coming weeks. If you have been taking advantage of this federal student loan relief for the last two years and believe that this new forgiveness plan applies to you, let us know and we are happy to help you figure out what your situation will look life. Email us at info@shermanwealth.com with questions or comments.

Women Feel Less Prepared For Retirement

Building your wealth and saving for retirement is such a prudent part of your life and career. Many individuals often times overlook the importance of starting early and learning ways to maximize their savings. While both men and women show a lack of financial literacy as it relates to their finances,  we saw some research from the TIAA Institute that found that “women have 30% less retirement savings than men”, as well as research from AARP that found “that a quarter of women nearing retirement age don’t feel confident they’ll have enough money to support themselves”. We find this statistic shocking and a wake up call for employers and individuals to help spread and teach financial literacy to their employees. In fact, further research from the TIAA Institute Personal Finance Index found that “women have lower rates of financial literacy than men, which makes them more ‘financially fragile’. Individuals who are financially illiterate have great trouble making sound financial decisions that ultimately may lead to them derailing their financial plan and harming their financial future.

So, now that we know financial literacy is lacking in many women across the globe, what are some retirement tips and facts they should know? Well first and foremost, for those who may not know, a 401(K) is a retirement vehicle often available within your workplace that allows you to save a portion of your paycheck towards your retirement savings. It is a great way to set aside money each month and build your wealth. Starting early and often is something that we always share with prospects and clients, as time in the market is more beneficial than trying to time the market, as you can take advantage of letting your money compound for the long haul. Next, it’s important to analyze your risk tolerance. Given the extreme market volatility we’ve seen since the beginning of the year, we’ve noticed that many individuals are actually inaccurately allocated in their investments, which can cause anxiety for folks. If you are interested in learning what your risk tolerance is, email us at info@shermanwealth.com to take our customized risk tolerance questionnaire. 

Some more about workplace 401(k)s, many companies offer a company match up to a certain percentage, which is essentially free money to take advantage of from your employer. Check out our blog for more information on why company matches are so crucial to take advantage of. Another great tip when it comes to your 401(K) and retirement savings is setting up automatic contributions. This way you are able to set aside the same amount of money per month, having it become automatic and consistent in nature. In conclusion, educating yourself on your workplace benefits, becoming financially literate about financial topics, and starting early on your retirement savings are all great ways to advance your financial future. If you have questions about your workplace benefits or how to maximize your retirement savings, email us at info@shermanwealth.com and we are happy to help. 

 

Preparing For Your Student Loan Re-Payments To Resume

If you have been taking advantage of the COVID-19 Emergency Relief and federal student loan forbearance program the last two years, you should know that the student loan forbearance is scheduled to stop at the end of this month, on August 31, 2022. This payment pause included a suspension of loan payments, a 0% interest rate, and a stopped collection on defaulted loans since the COVID-19 pandemic.

While it is still unclear whether the Biden Administration will extend this student loan forbearance program, it is a good time to start preparing to make payments again next month. So, you may be asking yourself, “How do I prepare for repayment to resume?” Well, first and foremost, login to your profile on your loan servicer’s website to ensure all your information, including email, phone number, and address is up to date, since you may have not taken a look at it in a year or two. Next, for those of you wondering what your new payment will look like, it’s a good idea to reach out to your loan servicer to get an estimation. 

Once you receive some clarity on what your new payment will look like, you may want to revisit your budget to see how this additional payment will fit in. Make sure you are projecting your budget for the rest of the year and beyond to include this payment whether there is another extension or not. We will continue to monitor updates on the forbearance and how you should be preparing for the re-payments to resume. 

As we’ve been discussing, we are over halfway through the year which marks a great time to check-in and adjust your financial plan in general. Call or reach out to your student loan servicer with more particular questions as you look into your situation. Additionally, if you have further questions on your student loans and how to adjust your budget, please email us at info@shermanwealth.com or schedule a complimentary call here as we are here and happy to help you talk and work through it.

The Month Of July In The Markets

Happy August everybody-crazy summer is almost over! As we head into the last month of summer, we want to take a moment to review what a month July was in the markets. As you can see in the chart below, we had a good start after July 4th, then came down and rocketed higher. On the week of July 15, after we had the CPI inflation data announced hotter than expected at 9.1%, the markets fell for two days following that news, but since then we’re pretty much up in a straight line from there with the NASDAQ leading the way at 11.35% to mark its best month in two years. We also saw the S&P500 hitting almost 8% and the Dow at 5.6%.

A lot of folks, of course, are calling this a bear market rally or some type of relief rally. Even with July’s strong numbers we are still down significantly year to date marking the worst first six months of the year since the 1970s. 


So will we see the rally continue into August? Or is this just a bear market rally? We will find out soon. A lot of what we found has been tied to interest rates. We see from this chart, mortgage rates completely rolling down to 5.3% as of last week, and the chart as high as 5.8%. Housing is obviously a huge part of the US economy, so many folks are worried about how this will impact their housing agendas, but we will continue to track it for you. 

Additionally, we saw Treasury yields slip and as you can see from here, the yield curve is inverted. Remember that means that short term rates are higher than long term rates. So you see the 10-Year Treasury rate down to 2.6% fallen from a high of 3.5% in the middle of June when the market was really at its lows, so a real massive rally in both bond price and market price with almost a 100 basis point drop there from 3.5% to 2.6%. 

So if you are in the market for a home, talk with your lender, see if you can get a lower rate. Of course, we’re also seeing people still in 0% interest rates on their FDIC insured savings at money center bank still earning zero, while we’re seeing high yield savings in the mid-1% range. And if you want to tie up the money for a bit longer, CDs are in the 2% to 3% range.

 

Next we want to talk about what we discussed in June, consumer sentiment, which is still close to all time lows, even though we saw a very, very slight uptick in the last reading. However, we want to hear from you- What are you feeling about the talks of a recession and such high inflation?  We’ve heard that the Federal Reserve will be hiking rates once again in their next meeting in September and probably in October. What are you doing differently in this type of environment? Where did your consumer sentiment fall in July? Let us know at info@shermanwealth.com.