It’s almost tax time again and yes, there are some tax law changes! Let’s take a look at a few changes that affect many:
The IRS recently released tax inflation adjustments for tax year 2022. These include an increase in standard deductions. Married couples who file jointly now get $25,900. That is an increase of $800 over the 2021 standard deduction. Single filers can claim a $12,950 standard deduction, an increase of $400 from 2021. Head-of-household filers increase to $19,400 and that is an increase of $600 from 2021.
If you are still saving for retirement, contributions limits on many types of retirement accounts increased. 401(k), 403(b) and most 457 plans saw an increase in in the contribution limit for employees who participate. It is $20,500 for 2022, up from $19,500 in 2021.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2022. The limit on annual contributions to an IRA remains unchanged at $6,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
There were several other adjustments, so check with your tax professional to see which apply to you.
Other noteworthy changes:
Charitable contribution deductions are once again available only if you itemize in 2022. In 2020 and 2021, there was a special “above-the-line” provision for up to $600 for joint filers and $300 for individual filers.
If you are a small business, you may have been taking advantage of the special deductions allowance of 100% for business meals purchased in a restaurant during 2020 and 2021. For tax year 2022, the business meals deduction returns to 50% of the cost of the business meal.
If you have children, you saw an increased Child Tax Credit of $3,000/$3,600 in 2021 (based on age of child). For 2022, the amount reverts to $2,000 per child dependent 16 and younger.
These are just a few updates to keep you thinking! Always check with your tax professional to see how these and other tax changes affect you.