Tax season officially started on January 24th, and while you still have some time to file your return, it’s not helpful to leave it until the last minute. Several COVID-19 related tax provisions were either started or extended in 2021, so you might be somewhat unfamiliar with this tax return. There’s no need to panic, though. With plenty of time until the April 18th deadline, here are four things we suggest you consider as you get ready for this 2022 tax season.
What to Keep in Mind for the 2022 Tax Season
The Tax Brackets Have Changed
The tax brackets increased this year to account for inflation. The top tax rate is still 37%, but the amount of income it takes to reach this bracket has increased to $523,600 for single taxpayers and $628,300 for married couples filing jointly. This is good news and could mean that you may owe less than you have in previous years.
The standard deduction has increased as well, and it is now $12,550 for single taxpayers and $25,100 for married filing jointly. Keep this increase in mind as you consider whether to take the standard deduction or itemize your deductions instead.
Review Your Itemized Deductions
If you don’t plan to take the standard deduction, make sure you are getting the most out of your itemized deductions, including:
- Medical Expenses – These expenses are generally deductible only if they exceed 7.5% of your Adjusted Gross Income (AGI).
- Charitable Deductions – The deductible limit was temporarily increased to 100% of your AGI for qualified cash donations. You can also take up to a $300 deduction (or $600 for married filing jointly) if you donate but still choose to take the standard deduction.
- Taxes – State and local income tax, property tax, and sales tax is deductible up to an aggregate limit of $10,000.
- Mortgage Interest – Mortgage interest paid on a primary residence is deductible up to $750,000 of debt.
Remember that itemizing only makes sense if you have enough deductions to exceed your standard deduction.
There were many COVID-related tax provisions that occurred in 2021, including:
- Advance Child Tax Credit Payments – In response to the pandemic, the IRS began sending advance payments of the Child Tax Credit to help families in need. If you received payments in 2021, be sure to reconcile these amounts against the total credit you are eligible to receive. This may have an impact on what you owe. The IRS will send you a copy of Letter 6419 which will provide information crucial to this reconciliation. Learn more at “Child Tax Credit Update Portal Site.”
- Recovery Rebate Credit – If you didn’t get the full economic stimulus payment you were entitled to, this credit is for you! If you did receive all your stimulus checks, don’t worry. They will not be counted toward your taxable income.
- Paycheck Protection Program (PPP) – This program ended in May 2021, but if you took out a PPP loan, you will need to make sure your loan forgiveness application is approved by the Small Business Administration. If this step is not completed, you may be on the hook for repayment.
Required Minimum Distributions Are Back in 2022
The SECURE Act of 2019 temporarily paused required minimum distributions (RMD) from traditional IRAs and other qualified retirement plans. This provision officially ended in 2021 and if you are 72 or older, you will have to once again withdraw and pay tax on a minimum amount of money from your retirement accounts to stay compliant with the tax law. You have until December 31st of each tax year to make these distributions. If not made by the deadline, you could face a stiff 50% penalty on the amount you should have withdrawn.
Tax Season 2022 is Approaching. Are You Ready?
Don’t let this tax season catch you off guard. With all the COVID-related changes and updates to the tax code, planning ahead is the best thing you can do to set yourself up for success. If you have questions or concerns about your tax return, reach out to us at (239) 598-4747 or email email@example.com to help review your tax plans. Time is of the essence, so please do not hesitate to reach out as soon as possible.