Leisl L. Cording, CFP®
Senior Vice President & Financial Advisor
As you gather your paperwork and prepare to file your 2022 tax return, be aware that there are some important changes to the tax code this year that you should consider. The good news is that the Internal Revenue Service (IRS) has increased the limits for some credits and deductions to help Americans weather the impact of a year dominated by inflation, interest rate hikes, and market turbulence. But other deductions and credits are reverting down to pre-pandemic levels.
Here’s an overview of those changes to help you prepare for what to expect as you file your taxes ahead of the April 18, 2023 deadline.
The standard deduction increased
Here’s the first piece of good news: the IRS raised the standard deduction this year in response to growing inflation. To determine whether this increase will affect your taxes, you first need to determine whether it would be beneficial for you to take the standard deduction or itemize deductions on your tax returns. If your itemized deduction total would be lower than the standard deduction (which you can take without itemizing), your best and easiest bet would be to take the standard deduction.
For married couples filing jointly, the standard deduction was bumped up $800 to $25,900. For single filers and married individuals filing separately, it is now $12,950 (up $400 from last year). Additionally, there is currently no limitation on itemized deductions, as limitations were eliminated by the Tax Cuts and Jobs Act. However, it’s important to keep in mind that this unlimited itemized deduction rule will expire in 2025 unless a new law is passed.
There are no longer above-the-line charitable deductions
In 2021, you could take a charitable donation deduction of up to $300 for single donors or up to $600 for married couples beyond the standard deduction. In 2022, if you take the standard deduction, that is no longer an option. If you itemize deductions, however (meaning your itemized deductions would be greater than the standard deduction), you can include charitable donations.
The Child Tax Credit reverted to 2019 levels
It is important to note that temporary changes made to the Child Tax Credit in 2021 as part of the American Rescue Plan were not extended through 2022. This means the credit is $2,000 per child (a $1,000–$1,600 drop from last year), and the maximum age children can qualify for it is 16 (17-year-olds qualified last year). The credit is refundable up to $1,400 but is no longer fully refundable as it used to be. The Earned Income Tax Credit and the Dependent Care Credit also reverted to 2019 amounts.
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Eligibility for the Premium Tax Credit remains expanded
One tax credit expansion from 2021 that remains in effect for 2022 is eligibility for the premium tax credit (PTC), which covers premiums for health insurance purchased through the Health Insurance Marketplace. The temporary change included in the American Rescue Plan Act of 2021 eliminated the rule that said if your household income is more than 400 percent above the poverty line, you could not qualify for a PTC. Without this restriction, many more people can potentially qualify.
There will be no additional stimulus payments
Although many Americans were thrilled to see additions to their tax refunds in 2020 and 2021, there will be no stimulus payments for 2022. So, be sure that you don’t count on that extra income when you create your budget for 2023. Furthermore, 2021 was also the last year to claim the Recovery Rebate Credit for a missed or lesser stimulus payment.
The threshold that triggers a Form 1099-K decreased
The IRS has always required reporting of all taxable income, but up until this year, Form 1099-K was required only if you had more than 200 goods and services transactions via a third-party payment network in a year and exceeded $20,000 in transactions. This year, the threshold is much lower at only $600, with no minimum number of transactions. This means more small businesses will receive this form from third-party payment networks than in the past. If it is required, you should receive it by January 31, 2023.
This is just a brief overview of some of the IRS changes for the 2022 tax year. You should talk with your tax professional about how these changes and other factors may affect your return this year. Beyond that, it’s a good idea to work with a financial advisor to create a long-term tax-saving and wealth-building strategy so you can maximize your income, investments and savings over the long haul.
That’s just part of what we do for our clients here at Weiss, Hale & Zahansky Strategic Wealth Advisors, through our Plan Well, Invest Well, Live Well strategic process. Please feel free to reach out for a free consultation and learn more at our website or call us at (860) 928-2341.
Presented by Senior Vice President, Financial Advisor Leisl L. Cording CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.