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What to Expect from 2022 Tax Returns

2022-tax-returns

IRS Announces Inflation-adjusted Rates for 2022 Tax Returns

The IRS announced new rates for 2022 tax returns. These rates have increased due to inflation, which was higher in 2021. The new rates will become effective starting January 2022. So, you’ll need to take the changes into account for the first time in 2023—when filing your 2022 tax returns.

Below are some of the main changes you should expect in your 2022 tax returns.

Tax Brackets to Have Higher Limits

While tax rates remain the same, limits under each bracket have increased by at least 3%. Meaning, your income could increase by 3% and still leave you in the same tax bracket. These rates depend on whether one is single or married. For married couples, your rates depend on two things: whether you’re filing separately or jointly. 

Increase in Standard Deductions

Taxpayers usually must choose between standard deductions and itemized deductions. These are expenses that the IRS allows taxpayers to deduct from their taxable income. Since you can’t have both the standard and the itemized deductions, it makes sense to go with the highest.

For married couples filing jointly, standard deductions increased from $25,100 to $25,900. For single taxpayers and married couples filing separately, deductions increased from $12,550 to $12,950. Lastly, for those filing as heads of households, standard deductions rose from $18,800 to $19,400.

Earned Income Tax Credit (EITC)

EITC is a federal tax provision that allows tax refunds to taxpayers who qualify. If you have children and your income is low, you may be eligible for the child tax credit. In 2022 taxes, those with three or more qualifying children will get a tax credit of $6,935. And those with one qualifying child will get $3,733. Since the income phase-out limits have increased as well, your income could increase and still qualify for EITC.

Increase in 401K Contributions

The 401K contributions increased from $19,500 in 2021 tax returns to $20,500. So if your employer provides for social security, you’ll have to contribute more to this fund. But since the contribution is tax-deductible, this means your taxable income will decrease.

Annual Exclusion for Gifts

When you give someone a gift, you may be required to pay taxes if the gift’s value exceeds certain amounts. In tax year 2021, the limit was $15,000, but this amount will be $16,000 for 2022 tax returns. That means you can give a person a gift valued at up to $16,000 annually without paying taxes on it.

Foreign Earned Income Exclusion

If you live abroad and earn money from different countries, you can qualify for the foreign earned income exclusion. Tax laws allow for a deduction of a certain amount of your income earned abroad. In 2021, the limit was $108,700. But in the new tax season, the limit will be $112,000.

Standard Mileage Rates

These are tax-free reimbursements that employers give employees who use personal cars for business. It applies to cars, vans, panel trucks, and pickups. These rates fall into three categories: business, charitable purposes, and medical/military moving.

In 2022 tax filings, the applicable rates will be:

  • 58.5 cents per mile for business
  • 14 cents per mile for charitable uses
  • 18 cents per mile for military and medical moving expenses

Capital Gains Tax

These are taxes paid when you sell real estate, stocks, or other investments at a profit. These rates haven’t changed for the 2022 tax year. They remain at 0%, 15%, and 20% respectively. However, the taxable limits under each rate have increased from 2021 to 2022.

For single taxpayers, capital gains taxes (at 0%) have increased from $40,400 to $41,675. The same limit applies to married couples filing separate returns. For married couples filing jointly, the amount increased from $80,800 to 83,350. For heads of households, the amount rose from $54,100 to $55,800.

These are a few examples of tax rates applicable to 2022 tax returns. All the adjustments show an upward increase in both payments and deductions. So, you must keep up to date for you to file accurate returns and avoid cases of owed taxes. For a simple transaction, you can use a tax calculator. But for detailed calculations, you must be careful with each item in the tax law.

A business advisor can help you lower your taxes without violating any tax laws. If you’re under pressure to file returns for the year ending December 31, 2021, reach out to our CPA firm in Clearwater. We can help you file your returns. Our tax experts can also help you apply for an automatic extension to give you more time.

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