Significant Tax Changes for 2022 …What We Know So Far
August 11, 2022
Note: This blog was written on August 9, 2022 and the information is current as of this day.
Each year there are changes to the tax code, and during the last two tax years, Congress voted to create new tax credits and extend several tax credits to help Americans with the economic impact of COVID. Many of those tax credits have expired for the 2022 tax filing. Understanding what has changed in the tax code is essential to working with your CPA to ensure you receive the appropriate deductions.
Child and Depend Care Tax Credit
For the 2022 tax year, child and dependent care credits are non-refundable. The maximum tax credit drops to 35%. This year the maximum credit allowed is up to $3,000 per child and $6,000 for more than one child. This is a significant change from 2021, where the cap was $8,000 in expenses for one child and $16,000 for two or more children.
Recovery Rebate Credit
In 2021 the government issued a third stimulus check to eligible Americans. If you did not receive the full dollar amount in your third check, you had the opportunity to claim the recovery rebate credit when filing your tax return to make up the difference. In 2022 there were no government-issued stimulus checks; therefore, no Recovery Rebate Credit.
Long Term Capital Gains Tax
The income threshold on long-term- capital gains are adjusted yearly for inflation. The chart below has the updated numbers for 2022.
2022 Updated Long-Term Capital Gains Tax Income Levels
|
Capital Gains Tax Rate |
Taxable Income |
Taxable Income |
Taxable Income |
Taxable Income |
|
0% |
Up to $41,675 |
Up to $41,675 |
Up to $55,800 |
Up to $83,350 |
|
15% |
$41,675 to $459,750 |
$41,675 to $258,600 |
$55,800 to $488,500 |
$83,350 to $517,200 |
|
20% |
Over $459,750 |
Over $258,600 |
Over $488,500 |
Over $517,200 |
Charitable Donations
When filing your taxes, taxpayers can choose to claim either standard or itemized deductions. In 2021 taxpayers had the opportunity for an "above the line" deduction for charitable cash contributions. Taxpayers could claim up to $300 as an individual and $600 for a joint return when filing a standard deduction. The deduction expired at the end of 2021, and you will not be able to claim this deduction on your taxes if you file a standard deduction.
Tax "Extenders"
Each year, a group of tax breaks is scheduled to expire and require Congressional approval for an extension. These tax breaks are commonly referred to as the "tax extenders."
Congress has not passed legislation to renew the following deductions that expired at the end of 2021.
- Mortgage insurance premiums deduction;
- Health coverage tax credit for medical insurance premiums paid by certain Trade Adjustment Assistance recipients and people whose pension plans were taken over by the Pension Benefit Guaranty Corporation;
- Nonbusiness energy property credit for specific energy-saving improvements to your home (e.g., new energy-efficient windows and skylights, exterior doors, roofs, insulation, heating, and air conditioning systems, water heaters, etc.);
- Fuel cell motor vehicle credit;
- Alternative fuel vehicle refueling property credit; and
- Two-wheeled plug-in electric vehicle credit.
At this point, we have to wait until after Congress returns from its summer recess to see if they will renew these 'tax extender deductions.
Self-Employed Deductions
The dollar threshold on the 20% deduction for pass-through income increased for 2022. Self-employed people (along with owners of LLCs, S corporations, and other pass-through entities) can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes above $340,100 for joint filers and $170,050 for others ($329,800 and $164,900, respectively, for 2021).
Tax credits allowed for self-employed people who couldn't work for reasons that enabled a pandemic-related sick or family leave if they were an employee expired in 2021.
Estate and Gift Taxes
There were significant adjustments in this category. The lifetime estate and gift tax exemption for 2022 increases to $12.06 million and $24.12 million for couples if portability is elected. The deadline for electing portability has been updated from two to five years for smaller estates that are not required to file Form 706.
Additionally, the special estate tax valuation of real estate increased in 2022 up to $1.23 million for the estate of a person dying this year.
Yearly tax changes are an important reminder of why you need to work with your CPA throughout the year. Our team of professionals will keep you informed of changes impacting your tax filing and work with you to ensure you take proactive measures regarding your deductions.