As we approach the tax filing deadline, we wanted to remind you of the importance of taxes and provide you with some information on how to be prepared for the upcoming changes in the tax laws.
The current tax laws are constantly changing, and it can be challenging to stay on top of all the updates and ensure that you take advantage of all available tax benefits. That’s why working with a tax professional who can help you navigate these complexities and develop a strategy is essential.
We are happy to coordinate with your tax professional to discuss how we can create your overall financial strategy. Keep in mind that this article is for informational purposes only and is not a replacement for real-life advice, so please speak with your tax professional before modifying your tax strategy.
Some of the fundamental changes that may affect you include the following:
- Income tax brackets shifted a bit
- There are still seven tax rates, but each rate's income ranges (tax brackets) have shifted slightly higher.
- The standard deduction increased slightly
- After an inflation adjustment, the 2022 standard deduction has increased to $12,950 for single filers and married couples filing separately and to $19,400 for single heads of household. For married couples filing jointly, the standard deduction has increased to $25,900.
- Itemized deductions remain mostly the same. The following rules for itemized deductions have mostly stayed the same for 2022, but they are still worth pointing out:
- State and local taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.
- Mortgage interest deduction: The mortgage interest deduction is limited to $750,000 indebtedness. However, people who had $1,000,000 of home mortgage debt before December 16, 2017, may still be able to deduct the interest on that loan.
- Medical expenses: Only qualified unreimbursed medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2022.
- Charitable donations: The deductions for charitable donations are less generous than in 2021. In 2022, the annual income tax deduction limits for gifts to public charities were 30% of AGI for contributions of non-cash assets—if held for more than one year—and 60% of AGI for cash contributions.
- The Child Tax Credit is lower after a one-year bump
- In 2021, the American Rescue Plan Act (ARPA) temporarily increased the Child Tax Credit. But in 2022, the credit returns to $2,000 per child under the age of 17 at the end of the year. The credit is also subject to a phase-out starting at $400,000 for joint filers and $200,000 for single filers. For other qualified dependents, claiming a $500 credit may be possible.
- The alternative minimum tax (AMT) exemption is higher
- For 2022, the AMT exemptions are $75,900 for single filers and $118,100 for married taxpayers filing jointly. The phase-out thresholds are $1,079,800 for married taxpayers filing a joint return and $539,900 for all other taxpayers. Once the income for the AMT hits the phase-out threshold, the AMT exemption begins to phase out at 25 cents for every dollar over the threshold.
- The estate tax exemption is even higher
- The estate and gift tax exemption, indexed to inflation, has risen to $12.06 million for 2022. But the now-higher exemption is set to expire at the end of 2025, meaning it could be cut in half if Congress does not act.
- The annual gift exclusion, which allows giving money to anyone has increased to $16,000 per recipient (up $1,000 from 2021).
Please don't hesitate to contact us if you have any questions or concerns about your tax situation. We may have resources in our offices that might be helpful.