2023 Tax Minimization

Tax Planning: 2023 Free Money!

Enjoying Ourselves in Cancún (December of 2022)

It’s with moderate enthusiasm and a tinge of sadness that I finally write the 2023 edition of Free Money!  Normally, this is my favorite post of the year, but this year it’s different.

I know what you’re thinking:  “Gerry, do you suddenly dislike FM!?”

Of course, you already know my response:  “Don’t be an idiot!  I love FM! more than ever!”

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The reason for my FM! melancholy is that my son turned 17 in February of 2023, so he’s no longer eligible for the child-tax credit.  Don’t take this the wrong way because I love my son dearly, but the little $hit is going to cost me some money in 2023.  (It’s okay son; I still love you.)

What Exactly Is Free Money! ?

My “Free Money!” posts are a yearly attempt to provide my readers with some basic tax-planning information, the amount of income they can earn before they owe any federal income tax.  My calculations are pretty basic and consist of two components:  1.) the standard deduction and 2.) the child-tax credit.  Explained another way, “Free Money!” represents the amount of income you can earn at a 0% tax rate.  (Remember, that’s your federal income tax rate, not your state or FICA tax rate.)  

Before we get too deep into this post, you should know…

Newsflash:  I’m Still No Tax Expert

Okay readers, it’s time for me to cover my derriere.  First, this post is intended to provide you with a basic income-tax estimate for 2023; please do not consider this personalized tax advice.  Second, as I say every year, I am NOT a CPA, accountant, or tax preparer.  I’m a “retired” high school teacher and basketball coach who is simply trying to keep his tax obligation in check.  Be wise and read this post with a critical eye. 

Here’s are my FM! amounts for 2023:

Free Money! Comparison: 2023 vs. 2022
2023 FM!
2022 FM!
MFJ Standard Deduction
$27,700
$25,900
1 Child-Tax Credit
$0
$20,000
Total Free Money Amounts
$27,700
$45,900
A 2023 Free Money! Decrease of $18,200...YIKES!

As you can see, our only FM! comes from the standard deduction of $27,700.  Overall, our FM! amount will decrease by $18,200.  Gulp!

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Because we’ll need more than $27k to live on in 2023, we next have to decide how much we’re willing to pay in federal income taxes.  (Yes, we get to choose the amount!)

Here are our 2023 income options based on federal income taxes of $1k, $2k, and $3k:

2023 Income with
Tax Bill of $1k, $2k, & $3k
$1k Tax Bill
$2k Tax Bill
$3k Tax Bill
2023 Free Money!
$27,700
$27,700
$27,700
Additional Income @ 10%
$10,000
$20,000
$22,000
Remaining 10% Money
$12,000
$2,000
$0
12% Money
$0
$0
$6,667
Total Income
$37,700
$47,700
$56,367
- Tax Owed
-$1,000
-$2,000
-$3,000
Total After-tax Income
$36,700
$45,700
$53,367
Effective Tax Rate
2.65%
4.19%
5.32%
Remember, YOU Decide How Much You'll Pay in Taxes!

Take a look at those effective tax rates ranging from 2.7% to almost 5.5%.  Those rates almost look to good to be true, but those numbers are correct.  Not bad at all!

Nota Bene:  Because the 10% tax bracket for MFJ is $22,000, the calculations are pretty easy.  For the $1k example, a tax bill of $1,000 results in $10,000 of additional income ($1,000/.10%).  For the $2k example, a tax bill of $2,000 results in $20,000 of additional income ($2,000/.10%).  Finally, the tax bill of $3k yields an additional $28,867 of income ($2,200/.10%) + ($800/.12%).

(If you’re confused by this sexy tax math, don’t feel bad because these numbers don’t come naturally to me either!  Full disclosure:  I had to take accounting 3 times to finally earn a B in the course.  Oh the irony that I’m writing about taxes!)

Here’s what our 2023 income options look like after taxes:

2023 Income Options
After Taxes
Tax Bill of $0
($27,700)
Tax Bill of $1k
($36,700)
Tax Bill of $2k
($45,700)
Tax Bill of $3k
($53,367)
Month
$2,308
$3,058
$3,808
$4,447
Week
$533
$706
$879
$1,026
Day
$76
$101
$125
$146
More Than $2.3k a Month No Matter How You Slice It!

Final Thoughts

That’s a look at our tax planning for 2023.  Sure, we’ll be on the hook to pay more in taxes this year, but at least we now have a tax plan.  As you probably already know, nothing is worse than big tax surprises on April 15th.

As always, I have included tax tables to help my awesome readers as they do their own tax planning; see below.

Finally, thanks to all those who prodded me to finish this blog post.  It’s no secret that my blogging mojo is waning, but this is the one post that people expect from me…every year!

Yours in Bridled Tax Enthusiasm,
Gerry

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If you don’t have any children and file “Single, MFS, MFJ,” here’s your table:

2023 Free Money for:
Single & MFS
MFJ
Standard Deduction
$13,850
$27,700
Credits
$0
$0
Total Free Money
$13,850
$27,700
Remaining 10% Bracket
$11,000
$22,000
Free Money + 10%
$24,850
$49,700
Tax Owed
$1,100
$2,200
Effective Tax Rate
4.43%
4.43%
Effective tax rate of 4.43% with the entire 12% bracket remaining!
Remaining 12% Bracket
$33,725
$67,450
Free Money + 10% + 12% Brackets
$58,575
$117,150
Tax Owed
$5,147
$10,294
Effective Tax Rate
8.79%
8.79%
Effective tax rate of 8.79% at the end of the 12% tax bracket.

If you have children and file “MFJ,” here’s your table:

MFJ + Children:
+ 1
+ 2
+ 3
+ 4
+ 5
Standard Deduction
$27,700
$27,700
$27,700
$27,700
$27,700
Credits
$20,000
$37,000
$53,667
$70,333
$87,000
Total Free Money
$47,700
$64,700
$81,367
$98,033
$114,700
Remaining 10% Bracket
$2,000
$0
$0
$0
$0
Free Money + 10%
$49,700
$64,700
$81,367
$98,033
$114,700
Tax Owed
$200
$0
$0
$0
$0
Effective Tax Rate
0.40%
0%
0%
0%
0%
Effective tax rate of 0% to 0.40% with some room available in the 12% tax bracket.
Remaining 12% Bracket
$69,450
$52,450
$35,783
$19,117
$2,450
Free Money + 10%
+ 12% Brackets
$117,150
$117,150
$117,150
$117,150
$117,150
Tax Owed
$8,534
$6,294
$4,294
$2,294
$294
Effective Tax Rate
7.28%
5.37%
3.67%
1.96%
0.25%
Effective tax rates of 0.25% to 7.28% for six-figure income!

If you file “Head of Household,” here’s your table:

HH + Children:
+ 1
+ 2
+ 3
+ 4
+ 5
Standard Deduction
$20,800
$20,800
$20,800
$20,800
$20,800
Credits
$19,283
$35,950
$52,617
$64,995
$74,086
Total Free Money
$40,083
$56,750
$73,417
$85,795
$94,886
Remaining 10% Bracket
Child tax credit of $2k per child covers the entire 10% bracket!
Free Money + 10%
$40,083
$56,750
$73,417
$85,795
$94,886
Tax Owed
$0
$0
$0
$0
$0
Effective Tax Rate
0%
0%
0%
0%
0%
Effective tax rate of 0% with some room available in the 12% tax bracket.
Remaining 12% Bracket
$40,567
$23,900
$7,223
$0
$0
Free Money + 10%
+ 12% Brackets
$80,650
$80,650
$80,650
$85,795
$94,886
Tax Owed
$4,868
$2,868
$868
$0
$0
Effective Tax Rate
6.04%
3.56%
1.08%
0%
0%
Effective tax rate of 0% to 6% for $80k (or more) of income!

If you have children and file “Married Filing Separately,” here’s your table:

MFS + Children:
+ 1
+ 2
+ 3
+ 4
+ 5
Standard Deduction
$13,850
$13,850
$13,850
$13,850
$13,850
Credits
$18,500
$35,167
$48,602
$57,693
$66,784
Total Free Money
$32,350
$49,017
$62,452
$71,543
$80,634
Remaining 10% Bracket
Child Tax Credit of $2k per child covers the entire 10% bracket!
Free Money + 10%
$32,350
$49,017
$62,452
$71,543
$80,634
Tax Owed
$0
$0
$0
$0
$0
Effective Tax Rate
0%
0%
0%
0%
0%
Effective tax rate of 0% with some room available in the 12% tax bracket.
Remaining 12% Bracket
$12,375
$0
$0
$0
$0
Free Money + 10%
+ 12% Brackets
$44,725
$49,017
$62,452
$71,543
$80,634
Tax Owed
$1,485
$0
$0
$0
$0
Effective Tax Rate
3.32%
0%
0%
0%
0%
Effective tax rate of 0% to 3.32% for $44k (or more) of income!

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