sYou will be able to file your federal tax return within a few weeks. Even if you hate tax season, now is a great time to plan for yourself so that the filing process goes as smoothly as possible.
A review of the major tax changes for this year that are likely to affect the size of your tax refund is a good place to start.
The standard discount for 2022 is higher
Along with the inflation rate, the standard discount usually goes up a bit each year. The standard deduction has been raised for the 2022 tax year, starting at $12,950 For one taxpayer $25,900 For married couples filing jointly (an increase of $800).
Income tax brackets were also higher in 2022
Income tax bands for 2022 have also been increased to reflect inflation. Your income bracket is based on your adjusted gross income, which is the amount of money you earn before taxes are deducted but before itemized deductions and tax credits are applied.
The child tax credit is back to normal
the CTC It is now only available to children under 17 and has been downgraded to the pre-pandemic level $2,000 for each child or dependent. For some low-income parents, the balance is now only partially redeemable from last year, and down payments are no longer available.
Fewer mentors will qualify for the Child Care and Dependent Tax Credit
This tax benefit has also been restored to its previous level for 2022. Now, parents of one child are only allowed to deduct up to $1,050 in eligible expenses, or 35% A maximum 3000 Dollars in expenses. A maximum of $2,100 can be claimed 35% Up to $6,000 In rehabilitation expenses by parents of multiple children.
It is difficult to qualify for the Earned Income Tax Credit if you do not have children
maximum EITC claim For those without children or dependents their 2022 tax return is $560, down from the previous year. 1502 dollars Maximum. Your age must be between 25 and 65 To qualify, a return to the previous age restrictions.
Maximum credits for people with children and income requirements for EITC, However, it has increased significantly as a result of inflation.
You can still pay state taxes if your student loans are forfeited
You may have been granted student loan forgiveness under Public service loan forgiveness program or other similar initiative, even when broad federal student loan forgiveness is still pending.
You will not be liable to pay federal taxes on any canceled balances in 2022 if you have any. This is due to clause in 2021 American Rescue Plan It delays federal taxation of forgiven post-secondary education loans until 2025.
You must report your crypto and NFT transactions
Although not entirely new, the tax authority He’s putting more effort into tracking bitcoin purchases and trades in 2022. Any time you exchange, sell, or buy something for cryptocurrency, that’s a taxable event. Cryptocurrency It is currently subject to short or long term capital gains taxes because it is taxed similarly to property.
This means that you can disclose any losses in the cryptocurrency to help offset any gains. As cryptocurrencies like Bitcoin and Ethereum suffered a sharp drop in their value in 2022, you may be able to lower your tax bill by reporting a capital loss if you sell or trade your cryptocurrency at a loss. Same goes for NFTs.
PayPal, Venmo, and other third-party apps will report your payments to the IRS
If you’ve been working for yourself or as a freelancer for a while, you probably already know that you must report your earnings to the IRS. Since third-party payment apps now report your payment activities to the IRS, the IRS will More access of your earnings this year.
Freelancers may benefit from this new regulation. Users will be granted 1099-K models through platforms such as PayPal, Venmo, Cash App, Zelleand others, which might make reporting your income a little simpler.
Increase retirement contribution limits
The individual contribution cap for a 401(k) was raised to $20,500 for 2022, an increase of $1,000 from 2021. An additional $6,500 can be contributed if you are over 50. The combined contribution limit for 2022, which also includes employer contributions, is $61,000 ($67,500 for individuals 50 and older). IRA contributions stayed at $6,000 for the entire year, with a $1,000 compensation contribution for people age 50 and over.
Temporary deductions for charitable donations have ended
This tax year, fewer taxpayers may be eligible to do so Tax deductible charitable donation Claims. Benefits for increased charitable financial contributions made in 2020 and 2021 are no longer available. Temporary suspension of 60% AGI The cap has now been reinstated in 2020 and 2021, which affects the maximum amount of charitable contributions you may deduct.
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