With high inflation rates and increased pricing, it’s no wonder people are stressed about money.
Whether you live on your own, with a spouse, or dependents; household budgets have gotten tight this year. That’s why having a solid financial plan is crucial to avoid unexpected bills and debt. One of the things we always advise our clients to plan ahead for is their tax liability.
Tax bills can come as a surprise, especially if the tax codes have recently changed. Continue reading below where we’ve outlined some recent changes and explained how they could impact you.
1. The Inflation Reduction Act
Designed to address healthcare, corporate taxation, and climate change The Inflation Reduction Act has recently undergone some changes that could impact tax liability. These include:
Clean Energy Credits
The first change in the act to consider is the clean energy tax credit for homeowners. This credit was extended to the year 2032 and is meant to incentivize homeowners to add solar or wind-powered devices to their homes.
This credit could result in a 30% savings (for eligible homeowners) on their purchases. After 2032, the tax credit will drop to 26%. So, if you are thinking of remodeling or upgrading your home consider this rebate that could save you a considerable amount.
Electric Vehicle Purchases
Tax credits for purchasing electric vehicles have also been extended until December 2032. This means that any ‘clean’ vehicle purchased is eligible for a credit of up to $7500 for new vehicles or $4000 for used ones. But, to qualify, the vehicle must have been assembled in North America and have been priced under $55,000 for a car or $80,000 for trucks and SUV’s.
Affordable Care Act
People will be happy to know that subsidies for health insurance under the Affordable Care Act have now been extended to 2025 due to the recent changes announced in The Inflation Reduction Act.
2. Secure 2.0 Act
Changes to the SECURE 2.0 Act could impact your personal finances and tax bill for the year. Notable updates include:
RMD Delays
As of January 1st, 2023, the age to begin RMDs shifted to 73 (when it was previously 72). Note, that this age will shift upward again on January 1st, 2033 to 75. If you fall into this age bracket the changes could result in a delay in acquiring the distributions. In turn, this delays the tax liability associated with it and results in a larger payout. Although it might sound nice to have a larger payout keep in mind that the larger amount could mean a larger tax bill for it.
Increased ‘Catch-Up’ Contributions
Individuals who are fifty years old (or older) are now allowed to make increased contributions of $7500 to their workplace retirement plans. This number has risen from a maximum of $6500. These maximums will be changing again on January 1st, 2025 which will allow workers aged 60 to 63 to make catch-up contributions of up to $11250 per year.
Additions to Penalty-Free Distributions
Included in the Secure 2.0 Act are some new provisions that allow for early withdrawals (prior to age 59 ½) from retirement plans. But, this is only for those who are terminally ill, those who are victims of domestic abuse, or if the money is needed to cover any long-term care premiums.
Ultimately, understanding your tax liability can be tricky without the help of a professional. But that’s why we’re here to help. We have a team of experts that can take care of your filing and review any recent changes to the laws. That way, you can rest assured you are getting the most out of your money.
If you’d be interested in learning how we can help you, give us a call at 407-328-5001 or contact us here.
Image: Unsplash
