The Internal Revenue Service (IRS) has just announced inflation adjustments for the 2022 tax year. Firstly, they are putting more focus on taxation of cryptocurrency. There are also new tax tables now and cost of living adjustments for tax breaks. These numbers begin in the tax year beginning January 1, 2022, and what you’ll use for tax returns in 2023. If you don’t foresee major changes in your life, you can start to use the new numbers to estimate your 2022 federal tax liability.
Democrats are still trying to pass the $1.85 trillion Build Back Better Act, which would include substantial tax surcharges on those who are wealthy as well as an $80,000 cap for state and local tax deductions. This is still in the works but if it pulls through, it can influence the numbers announced. When tax time comes, you want to have yourself organized. You may need a small business accountant to help you out with the changes so you can save money in different ways.
2022 Standard Deduction Amounts
Increase to $12,950 for individuals and married couples filing separately.
$19,400 for heads of household.
$25,900 for married couples filing together and surviving spouses.
$1,400 standard deduction amount for the aged and the blind for 2022. Additional deduction increases to $1,750 to unmarried aged and the blind who pay taxes.
For someone who is claimed as a dependent by another taxpayer, the deduction amount for 2022 can’t be more than $1,150 or the sum of $400.
Personal Exemption Amount
This amount is still zero in 2022. Tax Cuts and Jobs Act suspended personal exemption until the year 2025. To balance out this suspension, there’s an enhanced Child Tax Credit that most taxpayers can get. This is close to double the standard deduction amount.
This is a child’s unearned income, which is taxed at the parent’s marginal tax rate. Applies to unearned income for kids under 19 and college students under 24. It is income from sources not including wages and salary. It could be dividends, interest, and inherited Individual Retirement Account distributions and taxable scholarships. Deduction can’t be more than $1,150 or the sum of $400 and the individual’s earned income.
Section 199A deduction (also called the pass-through deduction)
Sole proprietors and owners of pass-through businesses can get a deduction of up to 20% to lower their tax rate for qualified business income.
Federal Estate Tax Exemption
For decedents dying in 2022, there is an increase to:
- $12.06 million per person
- $24.12 million for a married couple
Gift Tax Exclusion
Federal gift tax is going to be $16,000 in 2022, jumping up from $15,000.
Popular Tax Credits and Deductions 2022
Earned Income Tax Credit – maximum earned income tax credit amount is $6,935 for those who qualify and have three or more qualifying children. Phaseouts apply.
Child Tax Credit – Subject to income phaseouts starting at $400,000 for joint filers, $200,000 for singles. Joint filers who have $440,000 of income don’t get a credit.
Adoption credit – Adopting a child with special needs is $14,890 for 2022. For taxpayers making over $223,410, they receive a modified adjusted gross income (MAGI). Those who make more than $263,410 won’t receive the credit at all.
Student Loan Interest Deduction
This is a $2,500 deduction for interest paid on any student loans but will phase out when MAGI hits $70,000 or $145,000 for joint returns. It becomes totally phased out when MAGI hits $85,0000 or $175,000 for joint returns.
Elementary and Secondary School Teachers Expenses – Qualifying teachers can claim up to $300 for expenses paid or incurred for books, supplies, computer equipment and any other equipment they might use in their classroom. This is an increase of $250 from 2021.
Commuter benefits – Monthly limit for 2022 contributions to qualified parking and transit accounts is $280. If you pay to park and ride, you can gain double the benefits.
Flexible Savings Accounts – Contributions to the flexible savings account are $2,850. If you have a plan that allows carryover, the limit is $570.
There are no PEASE limits on itemized deductions.
There was a $300 charitable deduction or $600 for joint filers that were available in 2021. It hasn’t been announced that this will be extended into 2022 yet.
To get the full information and tables that let you know all the deductions and limitations on tax rates, we suggest going to the Revenue Procedure. Getting started on your taxes early is a good idea. It can allow you to preplan and take action to pay fewer taxes. Look at what deductions you might be entitled to while you have plenty of time to track down the paper trail. You may want to seek out a tax accountant who can help you with deductions on things like family or business expenses.