Tax Changes Effective for 2022 Returns

By Tom Ochsenschlager, JD, CPA

Several tax changes are effective in 2022. Some of the more significant changes are:

Child Tax Credits

• Child tax credit reverts back to $2,000 per child under the age of 17 and is only refundable up to $1,500 for low-income parents, and
• Child and dependent care credit for working parents reverts back to $1,050 (was $4,000 in 2021) if one child and $2,100 (was $8,000) if two or more children.

Charitable Contribution Limitations

• Taxpayers who do not itemize are no longer able to deduct up to $300 in cash donations to a charity,
• 60% of AGI limitation on charitable gifts of cash is back, effective in 2022, and
• C corporation’s charitable deductions are again limited to 10% taxable income.

 Health Savings Accounts

• Deduction increased to $3,650 for single and $7,300 for family coverage plus $1,000 for people born before 1968.

Expired Tax Benefits

• Itemized deduction for mortgage insurance premiums,
• Credit for energy efficient doors and windows,
• Tax incentives for qualified fuel-cell motor vehicles and two-wheel plug-ins, and
• Shorter depreciable lives for racehorses and business property located on Native American reservations.

Standard Deduction and Capital Gains Adjustments

• Standard deduction increases:
  • Joint return $25,900 plus $1,400 for each if 65 or older,
  • Single $12,950 plus $1,750 if 65 or older, and
  • Head of household $19,500 plus $1,750 if 65 or older.
• Capital gains thresholds increase:
  • 0% rate if taxable income is less than:
    • Single tax returns $41,675,
    • Head of household $55,800, and
    • Joint return $83,350.
  • 15% rate if taxable income is over the 0% limit but less than the relevant taxable income for the 20% rate,
  • 20% rate starts at taxable income in excess of:
    • Single $459,751,
    • Head of household $488,501, and
    • Joint return $517,201.
  • 3.8% surtax on net investment income is applicable if modified AGI is in excess of:
    • Single $200,000, and
    • Joint $250,000.

Retirement Matters

• Social Security annual wage base increases to $147,000,
• Dollar limits for contributions to retirement plans:
  • 401(k), 403(b) and 457 plans $20,500 plus $6,500 if born before 1973,
  • IRAs and Roth IRAs $6,000 plus $1,000 for “catch up” contributions for individuals 50 or older
• Phase out of IRA and Roth IRA benefits:
  • IRA deduction phases out for AGI between:
    • $109,000 - $129,000 couples, and
    • $68,000 - $78,000 singles.
  • Roth contributions phase out:
    • $204,000 - $214,000 couples, and
      • $129,000 - $144,000 singles.
    • Required minimum distributions of IRAs:
      • Based on new revised life expectancies that reduce the annual RMD.
    • Estate tax:
      • Exemption increased to $12,060,000 in 2022,
      • As much as $1,230,000 of farm or business real estate is eligible for a discount valuation based on its current use rather than fair market value, and
      • If more than 35% of estate value consists of closely held businesses, as much as $656,000 of the tax can be deferred with only 2% interest rate on the amount of the deferral.
    • Gift tax:
      • Annual exclusion increased to $16,000 per donee.

Business Matters

• Research and development expenses are no longer fully deductible – must be amortized over five years (15 years if accomplished outside the U.S.),
• 20% deduction for income from self employment and owners of pass-through entities:
  • Limitations applicable if taxable income exceeds $340,100 joint or $170,050 single,
• Expensing assets:
  • Increased to $1,080,000 but phased out if more than $2,700,000 acquired,
• Cash method availability increased:
  • C corporations and partnerships and LLCs that have C corporations as owners can use the cash method in 2022 if their average gross receipts are no more than $27 million, and
• Employees can deduct up to $280/month for reimbursements their employer provides for parking, mass transit passes and commuter vans.

Tax Changes for 2022 | Kiplinger

Comments

[MICHAEL BOLIN]

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