Preparing for 2022 Taxes: A Look at What Has Changed

 

 

 

 

 

 

 

 

 

 

 

 

2022 was one for the history books, or maybe one to forget. But before we can fully close the chapter on this tumultuous year, there is one more element of 2022 that must still be addressed, taxes. Rarely anyone’s favorite topic, tax season is generally a scramble to pull together the bits and pieces of the past year, along with a finger-crossing, breath-holding moment as the numbers calculate to reveal a final number that determines the dollars you owe or are owed. Couple that with the many complications of 2022, and it feels like this year’s taxes should be as difficult to unravel as the past year. However, with knowledge in your pocket, you can chart an easy course through tax season, and then truly leave 2022 in your wake. There are a few things you should know about 2022 taxes, so you can feel well-equipped with the right information to feel confident when filing this year.

 

Income Bracket Adjustments

One piece of news for 2022 is that the tax brackets have been adjusted from 2021 to account for inflation. As a quick refresher, your Tax Rate reflects the percent of income you pay in taxes, and this is based upon which Tax Bracket, or income range, you are in. While the actual Tax Rates are the same as 2021, the Tax Brackets have increased by a few hundred dollars. The new breakdown for individual single taxpayers or married couples filing jointly is as follows:

  • 37%, for incomes over $539,900 ($647,850 for married couples)
  • 35%, for incomes over $215,950 ($431,900 for married couples filing jointly)
  • 32% for incomes over $170,050 ($340,100 for married couples filing jointly)
  • 24% for incomes over $89,075 ($178,150 for married couples filing jointly)
  • 22% for incomes over $41,775 ($83,550 for married couples filing jointly)
  • 12% for incomes over $10,275 ($20,550 for married couples filing jointly)
  • The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly)
     

Standard Deduction Increase in 2022

When filing your taxes, you have the option to itemize your deductions, or to take a standard deduction. While there is no limit on itemized deductions, thanks to the Tax Cuts and Jobs Act, itemizing can be a time-consuming process, searching for receipts and financial statements. So, many people opt for the standard deduction to simplify their efforts, especially if itemizing is not likely to make a significant difference to the bottom line. For the tax year 2022, the standard deduction saw a slight increase to adjust for inflation, which is reflected here:

  • For married couples filing jointly, the standard deduction rises to $25,900 (a $1,100 increase)
  • For single taxpayers and married individuals filing separately, the standard deduction increases to $12,950 (a $550 rise)
  • For heads of households, the standard deduction raises to $19,400 (a $750 increase)

 

Child Tax Credit Reverts to TCJA rule in 2022

For 2022, the Child Tax Credit has reverted back to the Rules under the Tax Cut and Jobs Act.  This is because the enhancements under the American Rescue Plan act have ended.  What this means is that the credit is capped at $2000 for each qualifying child. 

You can claim the Child Tax Credit for each qualifying child who has a Social Security number that is valid for employment in the United States.

To be a qualifying child for the 2022 tax year, your dependent generally must:

  • Be under age 17 at the end of the year
  • Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece or nephew)
  • Provide no more than half of their own financial support during the year
  • Have lived with you for more than half the year
  • Be properly claimed as your dependent on your tax return
  • Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid
  • Have been a U.S. citizen, U.S. national or U.S. resident alien

You qualify for the full amount of the 2022 Child Tax Credit for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit.

 

There are many, many things to keep in mind when considering taxes. Above all, the very most important thing to remember is that Tax Day is Tuesday, April 18, 2023. You must file your taxes or an extension by this day, or you will be subject to penalties, which is money that you are basically just handing to the government. Beginning in 2021, the financial penalty adjusts for inflation with an increase, so it is smart to get in the habit of filing on time now.  

The everchanging nature and nuances of tax laws, can be difficult to navigate. While some initiatives are straightforward, others are harder to understand how they apply to your unique situation. If you have any hesitations or reservations, you may want to hire a tax professional. They can offer expert guidance to make sure your assets are well-protected and working for you- which is crucial the closer you get to retirement.

Located in Truckee, CA, Pacific Crest Wealth Planning believes retirement & financial planning should be a highly personalized process. Effective planning may enable you to enjoy the freedom of your retirement years. Without it, it may take everything you have just to get by.  As a fiduciary, we are obligated to put our client’s interest before our own.  Please feel free to contact one of our CERTIFIED FINANCIAL PLANNER® practitioners at (530) 563-5250 or by email.

This article is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation.  Please consult your financial advisor prior to making financial decisions.