Subscribe To These Year-end Tax Ideas!
Wouldn’t it be nice if we could just unsubscribe, unfollow, or quietly ignore the annual friend request we get from the IRS every year?
But as effective as that might’ve been with the kid who sat next to you in 10th grade science class – taking that approach with the IRS isn’t in the cards.
Taxes are inevitable. Taxes can also be complicated, but knowing some tax basics can empower you and save you money. As the year draws to a close, make this year’s tax planning more about tax understanding. This can help you this year and in years to come. We’ll break down some key tax topics to understand.
Spousal IRAs
Your service member has the Thrift Savings Plan (TSP) to save for retirement, and frankly, it’s a great plan to help set you both up to be able to stop working someday. But did you know you can also have a retirement account in your name, even if you are not currently employed?
Spousal IRAs can be set up and funded all the way up to your required tax filing date, generally April 15th of the following year. If you establish a Traditional IRA, you may be able to deduct your contributions on your return and save taxes for that year. Or if you go the Roth IRA route, you pay taxes on the contributions now, but the compounded earnings grow tax-free when you make qualified withdrawals in retirement.
Most banks, credit unions, mutual fund companies and brokerage firms (including online brokerages) offer IRAs, so there’s lots of information out there for you to research. Or go straight to the definitive source, irs.gov, and search “Spousal IRA.”
Moving expenses
If you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household, according to IRS Publication 3, The Armed Forces Tax Guide.
Obviously, it’s a little more complicated than that (tax rules, after all), but if you PCSed and incurred expenses that weren’t reimbursed, such as transporting a second vehicle or some extended lodging expenses, you might be able to make a tax deduction and save some money. Learn the basic rules, then seek additional help from Military OneSource professionals as needed.
Income tax refunds
Contrary to common thinking, getting a big tax refund might not be the best financial move. Why? Unless you’re receiving refundable credits (where the IRS is essentially giving you money you’ve qualified for based on your tax situation), most refunds are simply the result of you giving the IRS more money throughout the year than you end up owing. The refund is simply the IRS giving you back the overpayment when you file…without interest.
Granted, the forced savings aspect of this (out of sight, out of mind) is a way some people can build up a substantial amount of money. However, those with financial discipline and control of their situation can often put that money to better use each month than letting the government use it, interest-free. If this latter description fits you, it may be time to change your withholding amounts on your W-4 form.
Tax brackets
The final tax topic we’ll cover for now is one that is widely misunderstood: tax brackets. People often think if they’re in a particular tax bracket, all their income is taxed at that level. Thankfully, that’s not true. Here’s how they really work.
Suppose your taxable income is $90,000 as a married couple in 2023. If you buy into the myth, you think your entire $90,000 is taxed at 22%. However, using the chart below for the rates of Married Filing Jointly for 2023, you see that your first $22,000 is taxed at 10% ($2,200 of tax). Your income from $22,001 – $89,450 is taxed at 12% ($8,094 total tax) and only your income above $89,450 (or $550 in this case) is taxed at 22% ($121 total tax). Be aware that tax brackets can change over time so be sure to review each year. When you know how tax brackets work, you can plan for and have a better way of estimating your tax obligation.
| Tax rate | Taxable income bracket | Taxes owed |
|---|---|---|
| 10% | $0 to $22,000. | 10% of taxable income. |
| 12% | $22,001 to $89,450. | $2,200 plus 12% of the amount over $22,000. |
| 22% | $89,451 to $190,750. | $10,294 plus 22% of the amount over $89,450. |
| 24% | $190,751 to $364,200. | $32,580 plus 24% of the amount over $190,750. |
| 32% | $364,201 to $462,500. | $74,208 plus 32% of the amount over $364,200. |
| 35% | $462,501 to $693,750. | $105,664 plus 35% of the amount over $462,500. |
| 37% | $693,751 or more. | $186,601.50 plus 37% of the amount over $693,750. |
While we can’t avoid taxes, it’s wise to empower yourself with more knowledge to prepare for the next tax season with confidence.
MilSpouse Money Mission® is a Department of Defense resource that offers FREE personal financial education specifically geared toward spouses. There is a Money Ready guide for various stages of financial life, a MilLife Milestones section to help you through the big moments in your military journey, a blog, spouse videos, quizzes, calculators and more!
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Subscribe To These Year-end Tax Ideas!
Wouldn’t it be nice if we could just unsubscribe, unfollow, or quietly ignore the annual friend request we get from the IRS every year?
But as effective as that might’ve been with the kid who sat next to you in 10th grade science class – taking that approach with the IRS isn’t in the cards.
Taxes are inevitable. Taxes can also be complicated, but knowing some tax basics can empower you and save you money. As the year draws to a close, make this year’s tax planning more about tax understanding. This can help you this year and in years to come. We’ll break down some key tax topics to understand.
Spousal IRAs
Your service member has the Thrift Savings Plan (TSP) to save for retirement, and frankly, it’s a great plan to help set you both up to be able to stop working someday. But did you know you can also have a retirement account in your name, even if you are not currently employed?
Spousal IRAs can be set up and funded all the way up to your required tax filing date, generally April 15th of the following year. If you establish a Traditional IRA, you may be able to deduct your contributions on your return and save taxes for that year. Or if you go the Roth IRA route, you pay taxes on the contributions now, but the compounded earnings grow tax-free when you make qualified withdrawals in retirement.
Most banks, credit unions, mutual fund companies and brokerage firms (including online brokerages) offer IRAs, so there’s lots of information out there for you to research. Or go straight to the definitive source, irs.gov, and search “Spousal IRA.”
Moving expenses
If you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household, according to IRS Publication 3, The Armed Forces Tax Guide.
Obviously, it’s a little more complicated than that (tax rules, after all), but if you PCSed and incurred expenses that weren’t reimbursed, such as transporting a second vehicle or some extended lodging expenses, you might be able to make a tax deduction and save some money. Learn the basic rules, then seek additional help from Military OneSource professionals as needed.
Income tax refunds
Contrary to common thinking, getting a big tax refund might not be the best financial move. Why? Unless you’re receiving refundable credits (where the IRS is essentially giving you money you’ve qualified for based on your tax situation), most refunds are simply the result of you giving the IRS more money throughout the year than you end up owing. The refund is simply the IRS giving you back the overpayment when you file…without interest.
Granted, the forced savings aspect of this (out of sight, out of mind) is a way some people can build up a substantial amount of money. However, those with financial discipline and control of their situation can often put that money to better use each month than letting the government use it, interest-free. If this latter description fits you, it may be time to change your withholding amounts on your W-4 form.
Tax brackets
The final tax topic we’ll cover for now is one that is widely misunderstood: tax brackets. People often think if they’re in a particular tax bracket, all their income is taxed at that level. Thankfully, that’s not true. Here’s how they really work.
Suppose your taxable income is $90,000 as a married couple in 2023. If you buy into the myth, you think your entire $90,000 is taxed at 22%. However, using the chart below for the rates of Married Filing Jointly for 2023, you see that your first $22,000 is taxed at 10% ($2,200 of tax). Your income from $22,001 – $89,450 is taxed at 12% ($8,094 total tax) and only your income above $89,450 (or $550 in this case) is taxed at 22% ($121 total tax). Be aware that tax brackets can change over time so be sure to review each year. When you know how tax brackets work, you can plan for and have a better way of estimating your tax obligation.
| Tax rate | Taxable income bracket | Taxes owed |
|---|---|---|
| 10% | $0 to $22,000. | 10% of taxable income. |
| 12% | $22,001 to $89,450. | $2,200 plus 12% of the amount over $22,000. |
| 22% | $89,451 to $190,750. | $10,294 plus 22% of the amount over $89,450. |
| 24% | $190,751 to $364,200. | $32,580 plus 24% of the amount over $190,750. |
| 32% | $364,201 to $462,500. | $74,208 plus 32% of the amount over $364,200. |
| 35% | $462,501 to $693,750. | $105,664 plus 35% of the amount over $462,500. |
| 37% | $693,751 or more. | $186,601.50 plus 37% of the amount over $693,750. |
While we can’t avoid taxes, it’s wise to empower yourself with more knowledge to prepare for the next tax season with confidence.
MilSpouse Money Mission® is a Department of Defense resource that offers FREE personal financial education specifically geared toward spouses. There is a Money Ready guide for various stages of financial life, a MilLife Milestones section to help you through the big moments in your military journey, a blog, spouse videos, quizzes, calculators and more!
