The tax filing season for 2022 has begun. In addition, similar to the previous years, this year, there are a few new tax changes that need to be monitored, ranging from COVID-era phase-outs to inflation adjustments. As you get ready to submit your tax return for the year 2022, the following items are some things you should keep in mind.
Standard Deductions
Your income is considered tax-free up to the income of the standard deduction, which the IRS determines. You can take the standard deduction on Form 1040 Schedule A if you don't want to itemize your deductions. TCJA of 2017 substantially increased the standard deduction for 2018, although these increases will be phased out after 2025. The following is a list of the standard deduction amounts for the tax year 2022, broken down by filing status:
- Single: $12,950
- Married Filing Separately: $12,950
- Heads of Household: $19,400
- Married Filing Jointly: $25,900
- Surviving Spouses: $25,900
Itemized Deductions
Using the standard deduction is the simpler option for most taxpayers. However, suppose the total value of your itemized deductions is larger than the amount you can deduct using the standard deduction. In that case, it is in your best interest to itemize. For the year 2022, not much has changed, but here are some reminders:
State and local taxes:
There is a $10,000 ceiling placed on the total deduction that may be used for state and local income taxes, real estate taxes, and property taxes.
Mortgage interest deduction:
You can take a tax deduction for the interest paid on a mortgage up to $750,000.
Charitable donations:
The cap on monetary donations, now set at 100 percent of AGI, will change in 2022. Please note that this limitation is not applied automatically; you must make a conscious decision to apply it on your Form 1040.
Medical expenses:
You may be eligible for a tax deduction if your medical bills exceed 7.5% of your adjusted gross income.
Miscellaneous deductions:
You are no longer allowed to take itemized deductions for miscellaneous costs unless you claim a deduction linked to unreimbursed employee expenses.
Child Tax Credit
A tax benefit known as the Child Tax Credit is made available to taxpayers in the United States for each eligible dependent child. The credit amount is $2,000 per kid eligible for it, and the maximum amount that may be refunded from the credit in 2022 is $1,500.
The American Rescue Plan of 2021 raised the Child Tax Credit from $2,000 to more than $3,000 and distributed that increase via Advance Child Tax Credit installments. These payments do not constitute income and thus will not be shown as income on your 2021 tax return. The payments, however, are calculated based on the projections the IRS has made on your 2021 Child Tax Credit. If you were given more money than you were qualified for, you might be required to pay back the extra money when you file your tax return for the year 2021 during the tax filing season for the year 2022.
Alternative Minimum Tax
The alternative minimum tax is designed to guarantee that taxpayers with higher incomes pay at least the required income tax income. This is accomplished by imposing restrictions on certain tax deductions and credits.
Taxpayers with high incomes are required to compute their taxable income twice, first using the standard income tax system and again using the AMT, and then paying the amount determined to be the greater of the two amounts. The alternative minimum tax (AMT) may be paid at a 26% or 28% rate.
Charitable Contributions
Even if you claimed the standard deduction on your tax return for the year 2021, the CARES Act enables you to take an additional above-the-line deduction for cash donations to qualified charities of up to $300 or up to $600 if you were married and filing jointly. You can now deduct charitable contributions equal to one hundred percent of your adjusted gross income (AGI) if you itemize your donations. This is an improvement above the maximum of sixty percent of your AGI. Please be aware that donations to donor-advised funds and other supportive organizations do not meet the requirements.
401(k) Plan Contribution Limits
For the year 2022, the maximum amount that may be contributed to employer retirement plans such 401(k)s, 403(b)s, the majority of 457 plans, and the Thrift Savings Plan (TSP) offered by the federal government is set at $20,500. For 2022, the maximum allowable catch-up contribution for workers aged 50 or older is $6,500. The following types of plans are subject to the catch-up limit:
- 401(k)—excluding SIMPLE 401(k)s
- 403(b)
- SARSEP
- 457(b)
The maximum contribution that may be made to a SIMPLE retirement plan in 2022 is $14,000. In 2021 and 2022, participants aged 50 or older are eligible for a catch-up contribution of $3,000.
