I think it is safe to say that 2022 has been one of the more challenging financial years for taxpayers and investors. The Federal Reserve has raised interest rates six times during 2022 to help combat inflation and stabilize markets. Savers are being rewarded with jumps in rates, while spenders are still paying higher prices on purchases and larger interest rates on loans. There are several tax provisions that either expired at the end of 2021 or will expire at the end of 2022, with little tax legislation on the horizon.
For the 2022 filing season, there are a few updates from the Internal Revenue Service (IRS) I’ve outlined below. Prepare for this year’s tax season by quickly reviewing the new areas below for this year’s filing season.
Certain tax credits will return to 2019 levels. This means that affected taxpayers may receive a significantly smaller refund compared with the previous tax year. Changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit.
- If eligible, those who got $3,600 per dependent in 2021 for the CTC will get $2,000 for the 2022 tax year.
- For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 for the 2022 tax year.
- The Child and Dependent Care Credit return to a maximum of $2,100 in 2022 instead of the $8,000 maximum in 2021.
Energy credits. The 2022 Inflation Reduction Act (IRA) contains several energy credits. Solar panels, heat pumps, insulation, electric stoves and cooktops are some of the eligible energy credit purchase items.
Cryptocurrency. The Infrastructure Investment and Jobs Act, a bipartisan bill passed in late 2021, made changes to reporting requirements for digital assets, including cryptocurrencies. Congress and the IRS have both become aggressively involved in monitoring the activities and the failure to correctly report crypto transactions. One penalty for failure to report crypto activities can be 50% of the highest balance in the account each year.
2022 mileage rates. The IRS has changed the standard mileage rates for this tax filing year. From January 1st to June 30 the standard mileage rate is $0.585 and changes to $0.625 for July 1 through December 31. Medical and moving mileage changes from $0.18 to $0.22, respectively. Charitable mileage remains unchanged at $0.14 for 2022.
No above-the-line charitable deductions. During COVID-19, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations.
Premium Tax Credit. For the tax year 2022, taxpayers may still qualify for temporarily expanded eligibility for the premium tax credit.
Eligibility rules have shifted to claim a tax credit for clean vehicles. The Inflation Reduction Act of 2022 changed the qualifications for a Clean Vehicle Credit.
The last quarterly payment for 2022 is due on January 17th, 2023. Taxpayers need to consider estimated or additional tax payments due to non-wage income from unemployment, self-employment,
annuity income, or even digital assets. The Tax Withholding Estimator on IRS.gov can help you determine if there is a need to consider an additional tax payment to avoid an unexpected tax bill when you file.
Get organized. Aim to develop a recordkeeping system − electronic or paper − that keeps your important information in one place. This includes year-end income documents like Forms W-2 from employers, Forms 1099 from banks or other payers, Form 1099-K from third-party payment networks, Form 1099-NEC for nonemployee compensation, Form 1099-MISC for miscellaneous income as well as records documenting all digital asset transactions, think cryptocurrencies. Ensuring your tax records are organized and complete before filing will help you avoid errors and unnecessary delays.
My best advice is to stay informed, organized, and in regular communication with our team this upcoming tax season.
Investment and financial planning services are offered by David Scafa through his affiliation with Avantax.
Tax and accounting services are provided by David J. Scafa, CPA, PFS.