Happy New Year!!!
As you prepare for filing the year 2022 tax returns, please take note of the following important tax information:
2022 tax filing season begins January 23
The IRS announced that the nation’s tax season will start on Monday, January 23, 2023, when the tax agency will begin accepting and processing 2022 tax year returns, and the 2022 tax filing deadline is Tuesday, April 18, 2023. Please submit your documents before March 31, 2023, otherwise, we may file for extension for additional service fee.
Final 2022 estimated tax payments due by January 17, 2023
The IRS urges taxpayers to pay any remaining 2022 estimated taxes by January 17, 2023. Taxpayers who may need to make a payment to avoid a surprise tax bill include:
Those who itemized in the past but are now taking the standard deduction
Two wage-earner households
Employees with non-wage sources of income
Those with complex tax situations
Families who received advance payments of the Child Tax Credit during 2022 but don’t expect to qualify for the credit when they file their 2022 return
Tax questions on virtual currency transactions
The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability. Please reach out to us if you have questions on Virtual Currency Transactions.
Do you frequently trade virtual currency?
Be prepared for a headache if your trading platform will not issue 1099–B tax forms indicating your cost basis in coins/tokens that were sold or converted during 2021. If they won’t provide 1099-B forms then ask if they offer tools to help calculate your 2021 gains/losses. You will need this to get your taxes done.
Get ready for 2022 taxes
Individuals, especially those who don’t usually file a tax return, are urged to file their 2022 tax return electronically beginning Jan. 23, 2023. Using tax preparation software or a trusted tax professional will help guide people through the process and avoid making errors. Filing an incomplete or inaccurate return may mean a processing delay that slows the resulting tax refund.
In 2022, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion. The tax rate structure, which ranges from 10 to 37 percent, remains similar to 2021; however, the tax-bracket thresholds increase for each filing status. Standard deductions also rise, and as a reminder, personal exemptions have been eliminated through the tax year 2025.
In 2022, the standard deduction increases to $12,950 for individuals (up from $12,550 in 2021) and to $25,900 for married couples (up from $25,100 in 2021).
Alternative Minimum Tax (AMT)
In 2022, AMT exemption amounts increase to $75,900 for individuals (up from $73,600 in 2021) and $118,100 for married couples filing jointly (up from $114,600 in 2021). Also, the phaseout threshold increases to $539,900 ($1,079,800 for married filing jointly). Both the exemption and threshold amounts are indexed annually for inflation.
For taxable years beginning in 2022, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax” is $1,150. The same $1,150 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax.” For example, one of the requirements for the parental election is that a child’s gross income for 2022 must be more than $1,150 but less than $11,500.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay the account owner’s current or future medical expenses, their spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.
A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.
For the calendar year 2022, a qualifying HDHP must have a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $7,050 for self-only coverage and $14,100 for family coverage.
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): The Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).
Self-only coverage. For taxable years beginning in 2022, the term “high deductible health plan” for self-only coverage means a health plan that has an annual deductible that is not less than $2,450 and not more than $3,700, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,950.
Family coverage. For taxable years beginning in 2022, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $4,950 and not more than $7,400, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $9,050.
AGI Limit for Deductible Medical Expenses
In 2022, the deduction threshold for deductible medical expenses is 7.5 percent of adjusted gross income (AGI), made permanent by the Consolidated Appropriations Act, 2021.
Eligible Long-Term Care Premiums
Premium for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2022, the limitation is $450. Persons more than 40 but not more than 50 can deduct $880. Those more than 50 but not more than 60 can deduct $1,690, while individuals more than 60 but not more than 70 can deduct $4,510. The maximum deduction is $5,640 and applies to anyone more than 70 years of age.
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly) remains in effect for 2022, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the tax.
Foreign Earned Income Exclusion
For 2022, the foreign earned income exclusion amount is $112,000 up from $108,700 in 2021.
Long-Term Capital Gains and Dividends
In 2022, tax rates on capital gains and dividends remain the same as 2021 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have increased: the maximum zero percent rate amounts are $41,675 for individuals and $83,350 for married filing jointly. For an individual taxpayer whose income is at or above $459,750 ($517,200 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent. All other taxpayers fall into the 15 percent rate amount (i.e., above $41,675 and below $459,750 for single filers).
Estate and Gift Taxes
For an estate of any decedent during the calendar year 2022, the basic exclusion amount is $12.06 million, indexed for inflation (up from $11.70 million in 2021). The maximum tax rate remains at 40 percent. The annual exclusion for gifts increases to $16,000.
Child Tax Credit
Taxpayers who received $3,600 per dependent in year 2021, will get $2,000, if eligible. The child tax credit increased in 2021 as part of The American Rescue Plan Act.
Earned Income Tax Credit
Taxpayers with no children who received roughly $1,500, will get $500, if eligible.
Child Dependent Care Credit
The Child and Dependent Care Tax Credit also remained under tax reform. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) to work or look for work, you may qualify for a credit up to $1,050 or 35% of $3,000 of eligible expenses in 2022. For two or more qualifying dependents, you can claim up to 35% of $6,000 ($2,100) of eligible expenses. For higher-income earners, the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income. The tax credit is nonrefundable.
Taxpayers who take a standard deduction were eligible to take up to $600 in additional charitable deductions during the pandemic. That rule is gone for the 2022 tax deduction.
In 2022, a non-refundable (only those individuals with tax liability will benefit) credit up to $14,890 is available for qualified adoption expenses for each eligible child.
Education – American Opportunity Tax Credit and Lifetime Learning Credit
The maximum credit is $2,500 per student for American Opportunity Tax Credit. The Lifetime Learning Credit remains at $2,000 per return. To claim the full credit for either, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly)
Education – Interest on Educational Loans
In 2022, the maximum deduction for interest paid on student loan is $2,500. The deduction begins to be phased out for higher-income taxpayers with modified adjusted gross income of more than $70,000 ($140,000 for joint filers) and is completely eliminated for tax payers with a modified adjusted gross income of $85,000 ($170,000 joint filers).
Standard Mileage Rates
In 2022, the rate for business miles driven is 58.5 cents per mile, up 2.5 cents from the rate for 2021.
Section 179 Expensing
In 2022, the Section 179 expense deduction increases to a maximum deduction of $1,080,000 of the first $2,700,000 of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018. The deduction was enhanced under the TCJA to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Also, of note is that costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $27,000.
Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.
Qualified Business Income Deduction
Eligible taxpayers are able to deduct up to 20 percent of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount. In 2022, these threshold amounts are $170,050 for single and head of household filers and $340,100 for married taxpayers filing joint returns.
Research & Development Tax Credit
Starting in 2018, businesses with less than $50 million in gross receipts can use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.
Work Opportunity Tax Credit (WOTC)
Extended through 2025 (The Consolidated Appropriations Act, 2021), the Work Opportunity Tax Credit is available for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.
Employee Health Insurance Expenses
For taxable years beginning in 2022, the dollar amount of average wages is $28,700 ($27,800 in 2021). This amount is used for limiting the small employer’s health insurance credit and for determining who is an eligible small employer for purposes of the credit.
Business Meals and Entertainment Expenses
Taxpayers who incur food and beverage expenses associated with operating a trade or business are able to deduct 100 percent (50 percent for tax years 2018-2020) of these expenses for tax years 2021 and 2022 (The Consolidated Appropriations Act, 2021) as long as the meal is provided by a restaurant.
Employer-provided Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees in 2022, the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $280. The monthly limitation for qualified parking is $280.
Taxpayers can use their Online Account to securely see important information when preparing to file their tax return or following up on balances or notices. Taxpayers can view the amount they owe, make and track payments and view payment plan details. Taxpayers can now also manage their communication preferences to go paperless for certain notices from the IRS, or to receive email notifications when the IRS sends them a new digital notice. They can also access information about Economic Impact Payments and advance Child Tax Credit payments needed to file a complete and accurate return. Act now to create an account.
Where’s My Refund?
Taxpayers can check the status of their refund using the Where’s My Refund? tool. The status is available within 24 hours after the IRS accepts their e-filed tax return or up to four weeks after they mailed a paper return. The Where’s My Refund? tool updates once every 24 hours, usually overnight, so taxpayers only need to check once a day.
It’s strongly advised to use direct deposit for tax refunds
Direct deposit gives taxpayers access to their refund faster than a paper check. Individuals can use a bank account, prepaid debit card or mobile app to use direct deposit and will need to provide routing and account numbers. Learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool. Veterans should see the Veterans Benefits Banking Program for access to financial services at participating banks.
While this checklist outlines important tax changes for 2022, additional changes in tax law are likely to arise during the year ahead. Don’t hesitate to call if you have any questions or want to get a head start on tax planning for the year ahead.
Don’t worry about memorizing these changes; the Bridge CPAs has you covered and is ready to file your 2022 tax returns.
The last day to file your 2022 tax returns is Tuesday, April 18, 2023. But don’t wait until the last minute – please call to schedule your appointment at (703) 942-9476 or email. Please submit your documents before March 31, 2023, otherwise, we may file for extension for additional service fee.
Thank you for choosing the Bridge CPAs, LLC to be your trusted tax advisor. We look forward to working with you soon!!!
The Bridge CPAs, LLC
To view our prior New Year Messages, visit our archive.