Do you have taxes on your mind? With various tax forms for your 2021 returns rolling in, we’re guessing you do. Those returns might have you wondering what you can expect for tax year 2022. Read on for a brief overview of key tax changes to plan for this year.
Changes to the Top Income Tax Bracket
If you’re in the top tax bracket of 37%, you have something to thank inflation and rising consumer prices for. As of this writing, the 37% tax rate will affect less of your income.
If you’re an individual taxpayer, you won’t enter the bracket until your income surpasses $539,900, up from $523,600 for 2021. For married-filing-jointly couples, the 2022 rate is $647,850, up from $628,300 in 2021.
Take note: The numbers are automatically adjusted based on inflation, so they could change. Plus, potential legislation affecting high-income taxpayers is still working its way through Congress. Stay tuned.
Increase in the Standard Deduction
One of the key tax changes for 2022 is an increase in the standard deduction—again, based on inflation.
If you’re a single taxpayer, the standard deduction has increased $400 to $12,950. If you’re a joint filer, the standard deduction has climbed by $800 to $25,900.
Other Changes to Know
We lack the space to highlight all the changes to plan for in 2022. The Internal Revenue Service has a lengthy list that you can access here. The changes likely to affect the most taxpayers include:
401(k) contributions: The amount you can contribute in 2022 has increased $1000 to $20,500. The combined employer-employee contribution limit is $61,000. If you’re 50 or older, your catchup contribution remains $6,500, for a total limit of $67,500.
Solo 401(k) contributions: Total employer-employee contributions increased $3,000 to $61,000 for 2022. If you’re 50 or older, your catchup contribution is still $6,500.
IRA contributions: Sorry, but no changes here. Your IRA contribution limit remains $6,000, and the catchup contribution is still $1,000 if you’re 50 or older.
Flexible spending accounts: You can contribute $100 more to your FSA in 2022, for a total of $2,850.
Health savings accounts: If you have self-only coverage, you can contribute $50 more to your HSA for a total of $3,650. If you have family coverage, the increase is $100 for a total of $7,300. The catchup contribution is $1,000 if you are 55 or older.
Capital gains: Income thresholds for long-term capital gains are increasing for the 2022 tax year. If you’re single, you’ll be charged at 0% for $0 to $41,675; 15% for $41,676 to $459,750; and 20% for $459,751-plus. For married couples filing jointly, the numbers are 0%, $0 to $83,350; 15%, $83,351 to $517,200; and 20%, $517,201-plus.
Third-party payment apps: If you accept payments from apps like PayPal and Venmo or sell wares on sites like Etsy, you face changes intended to make tax evasion more difficult. The payment app providers must now issue you IRS Form 1099-K if your income exceeds $600 per year. Previously, you would receive the 1099-K if you had more than 200 transactions that totaled $20,000 or more. (This rule does not affect personal transactions.)
Talk to Your Advisors
Many people wait until the end of the year to start tax planning. But this list shows that an early start is the best strategy to take advantage of any changes. You could even make yearlong tax planning one of your New Year’s resolutions.
While your CPA is preparing your 2021 tax returns, talk to them and your financial advisor about the strategies you can implement this year to reduce your tax burden once your tax returns are due in 2023.
Our Plantation, Florida wealth management firm provides proactive tax planning as part of our comprehensive financial planning services. Schedule a complimentary consultation with one of our fee-only financial planners to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.