Inflation Adjustments Could Impact Tax Brackets and Boost Returns

As the year comes to a close, Texans are being reminded that their most significant payday might be just a tax filing away in 2023. Tax season, set to open in late January, offers an opportunity for individuals to file early and potentially receive refunds sooner, thanks to inflation adjustments that could impact tax brackets.

Mark Steber, chief tax officer at Jackson Hewitt, advises taxpayers to prepare and file their taxes as early as possible, emphasizing the potential for quicker refunds. Last year, the average tax refund by the April deadline was $2,753, a slight decrease from the previous year, attributed in part to diminishing pandemic benefits.

Inflation adjustments play a crucial role in shaping the financial landscape for taxpayers in 2023. The IRS has increased income thresholds for tax brackets by a record 7%, potentially placing individuals in lower tax brackets with corresponding lower tax rates. Standard deductions have also seen a 7% boost, providing more relief from taxable income.

Contributions to 401(k) and IRAs have higher limits, allowing individuals to shield more income from taxes. Steber highlights the importance of understanding these adjustments and their potential impact on taxpayers’ financial situations.

Filing taxes early not only offers the prospect of a substantial refund but also provides additional advantages. It secures personal information, reducing the risk of identity theft and fraudulent filings. Additionally, early filing allows more time for accuracy, enabling corrections in case of errors and minimizing the likelihood of IRS inquiries or audits.

Taxpayers are encouraged to commence preparations as soon as they receive all necessary tax information from employers, banks, and financial institutions, which typically begins in January. While official submissions to the IRS cannot occur until the agency opens tax season, early preparation positions individuals to be among the first to file, potentially expediting the refund process.

In summary, as the new year approaches, Texans are urged to prioritize tax preparation to navigate potential inflation-driven benefits and ensure a smoother financial start to 2023.