With the year quickly coming to an end, you need to start preparing for Tax Day. It is a wonderful time to think about your next year’s return. Proper tax planning demands an awareness of what has changed and what is new.
There are many tax updates and changes for the 2022 tax year. Keep on reading to learn about the potential deductions available for you, the limits that may impact your finances, and the likely tax bracket you will be in.
The Biggest Tax Changes to Know
It was another year that brought us tax updates and new tax laws. Learning about these updates and changes for the 2022 season is important. More American consumers face reduced tax breaks this time. Hence, it’s essential to be proactive and plan for the upcoming year. Financial experts claim that these are the major updates taxpayers need to know.
After you’ve filed your taxes, you will need to wait about a month for a tax refund. However, you may encounter tough financial situations when getting extra cash is essential. One of the most important matters to consider is whether or not can you borrow from an IRA. The answer is no, as according to the IRS rules and regulations only nonprofits can borrow from retirement accounts such as IRAs.
Some Tax Credits Have Been Reduced
The child and dependent care tax credit and child tax credit have been lowered for 2022, which is one of the reasons for a smaller tax refund. The American Rescue Plan of 2021 introduced a temporary boost for both tax credits.
As a result, the enhanced tax breaks weren’t extended to 2022. Financial coaches claim millions of Americans will see fewer funds in their wallets. The child tax credit offered up to $3,600 per child under age 6 in 2021, while the tax credit for a child ages 6 through 17 was up to $3,000.
The tax break for 2022 offers only up to $2,000 per child under age 17, as it was a year ago. The tax credit for this year is just partially refundable for certain low-income taxpayers (up to $1,500 per child). Besides, these taxpayers should have earned a profit of at least $2,500 to benefit from the credit’s limited refundability. There won’t be monthly advance payments of the credit in 2022.
The Shift of Income tax Brackets
There exist seven tax rates. The tax brackets or income ranges for every tax rate have changed slightly. The reason for this shift is the rising inflation rates across the country. Inflation is what brings the prices of services and goods up due to a slowdown in the economy. These income ranges and rates apply for 2022:
Tax rate of 10% – from 0$ to $10,275
Tax rate of 12% – from $10,276 to $41,775
Tax rate of 22% – from $41,776 to $89,075
Tax rate of 24% – from $89,076 to $170,050
Tax rate of 32% – from $170,051 to $215,950
Tax rate of 35% – from $215,951 to $539,900
Tax rate of 37% – from $539,901 or more
Itemized Deductions Almost Don’t Change
Using the higher standard deduction allows consumers to avoid the hassle of managing receipts and is more practical for taxpayers. People can take advantage of itemizing if they have a sufficient amount of tax-deductible costs. These itemized deductions don’t have any updates for 2022, but we decided to mention them as they are worth considering.
- State and local taxes. The tax deduction for property taxes, state and local income taxes, as well as real estate taxes is at $10,000.
- Medical costs. If you have medical costs that are over 7.5% of adjusted gross income, you may deduct them from your taxes in 2022.
- Mortgage interest. Consumers who had $1,000,000 of mortgage debt before December 16, 2017, have a chance to deduct the interest on this lending option. Besides, the deduction of mortgage interest is limited to $750,000.
- Charitable donations. Charitable donation deductions are lower compared to 2021. The annual income tax deduction limits for gifts to public charity organizations are 60% of adjusted gross income for cash contributions and 30% of AGI for non-cash contributions.
- Miscellaneous deductions. Keep in mind that miscellaneous itemized deductions aren’t allowed.
Recovery Rebate Credit
American consumers received a third stimulus check in March 2021. How much could you get? These checks offered up to $1,400 plus another $1,400 for every dependent in your family. If you aren’t sure you’ve obtained the right sum, you may check this data with the help of a third stimulus check online calculator.
Certain consumers received less money than they should have got or didn’t get any payment at all. These Americans could qualify for the recovery rebate credit, which is another form of tax relief. The bad news for 2022 is that there are no stimulus check payments and no recovery rebate credit.
The recent survey published by the Tax Foundation reveals that individual income taxes (local, state, and federal) were the primary source of tax revenue, at 41.1 percent of total tax revenue.
The second-largest share (24.8 percent) was made up of social insurance taxes (including payroll taxes for Medicare and Social Security). The third-largest share was consumption taxes (16.9 percent), followed by property taxes (11.9 percent). The smallest share was made up of corporate income taxes, at 5.1 percent.
Those who have obtained payments through third-party apps such as PayPal or Venmo in 2022 can receive Form 1099-K at the beginning of 2023. According to the IRS, this form reports profit from third-party networks and applies to business transactions, including selling goods, side jobs, or part-time work.
The federal Form 1099-K reporting threshold was available just for consumers with over 200 transactions above $20,000 before 2022. Nowadays, this threshold is only $600, and this form will be available even after one transaction.
The Bottom Line
In conclusion, Tax Day is approaching soon, so it’s time to plan how you are going to file your taxes and consider these updates for 2022. Changes and new tax laws are important to better understand your tax limits and prospective deductions.As an Amazon Associate, Icy Canada earns from qualifying purchases.