The year 2023 comes with significant changes in the financial world, particularly regarding long-term capital gains tax. The IRS has made multiple inflation adjustments, including the long-term capital gains brackets, a move that could considerably affect your financial planning, especially if you're planning to sell some investments this year. If you're a Maryland resident, understanding these changes can be crucial in optimizing your financial strategy, particularly when considering capital gains tax Maryland law applies.
Inflation Adjustments in 2023: What Do They Mean?
One of the significant changes in 2023 is the inflation adjustment to the long-term capital gains brackets. This adjustment means that taxpayers can have more taxable income before reaching the 15% or 20% capital gains tax brackets.
According to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo, this shift is "pretty significant." With these higher standard deductions and income thresholds for capital gains, it's more likely you'll fall into the 0% bracket in 2023.
For instance, in 2023, single filers with taxable income of $44,625 or less and married couples filing jointly with $89,250 or less may qualify for the 0% long-term capital gains rate. In contrast, the 2022 figures were $41,675 for single filers and $83,350 for married couples filing jointly.
These rates use "taxable income," which is calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
Impact on Capital Gains Tax in Maryland
As previously explained, Maryland treats capital gains as regular income for state tax purposes. With the federal adjustments in 2023, Maryland residents may find themselves in a more favorable position regarding the capital gains tax. This is particularly the case for those with taxable income below the new thresholds, as they can sell profitable assets without worrying about tax consequences.
An Excellent Tax Planning Opportunity
These adjustments present a significant tax planning opportunity. Selling profitable assets when your taxable income is below the threshold allows you to diversify your portfolio without incurring tax penalties.
However, comprehensive financial planning involves more than just considering your capital gains. Jim Guarino, a CFP, certified public accountant, and managing director at Baker Newman Noyes, points out that you need to have a handle on your "entire reportable picture." This includes estimating year-end payouts from mutual funds in taxable accounts, which can cause a surprise tax bill.
Additional loss harvesting could make sense if you have a significant capital gain coming up. However, the decision ultimately depends on your taxable income, including those payouts, as you won't have taxable gains in the 0% capital gains bracket.
Understanding the nuances of the capital gains tax Maryland law imposes and leveraging the changes in the tax brackets can significantly impact your financial planning. As always, consulting with a tax professional or attorney can provide the most accurate, up-to-date information tailored to your specific circumstances.
