Tax time is just around the corner! There are a few end of year things you can do to maximize your 2022 tax return. It’s also important to understand some of the changes in tax law between 2021 & 2022 so you don’t get caught unaware.
In most cases, the more tax planning you engage in, the more money you may be able to save. And, if you discover something now that will minimize your 2022 tax liability, you still have time to act before the end of this year. Wise taxpayers need to be informed of the many changes to the tax law for the 2022 tax year to make proper planning decisions.
Tips to maximize your 2022 tax return
- Maximize Retirement Savings
There are many significant changes to retirement plan and IRA contributions for 2022. For instance the maximum 401(k), 403(b), and 457 contributions have increased from $19,500 in 2021 to $20,500 in 2022. IRA contribution limits increased from $6,000 in 2021 to $6,500 for 2022. Those born before 1973 will once again be eligible to make a “catch-up” contribution of $1,000 for 2022 as in 2021. IRA contributions are limited by taxable compensation limits.
- Stock Portfolio Review
No one likes to lose money, but the stock market can be unpredictable at times causing some stocks to lose value and not bounce back. You can make the most of this situation by selling those stocks at a loss to offset other income liabilities.
- Give to Charity
Did you get an extra large bonus this year? Do you expect to realize significant gains from a long term investment? It’s a good idea to look at your overall income estimate for 2022. More income means a bigger tax bill. The good news is that there is still time to offset taxable income with charitable giving. Determining the right amount of charity can be complicated, and everyone’s situation is unique, so it’s important to hire a professional CPA like Stephen Lissner & Company to assist you with your tax planning.
Important tax law changes between 2021 & 2022
2021 Tax Cuts Will Expire
For tax year 2021, significant tax cuts were passed. However, the majority of such tax cuts expired at the end of 2021. These changes affect the earned income credit, child and dependent care credit, and other well-known tax credits for the 2022 tax year when compared to the 2021 tax year. Take a look at the most significant changes listed below, but be sure to hire a tax professional when preparing and filing your taxes so you can rest assured you have filed your taxes correctly and aren’t missing out on any eligible deductions.
The Inflation Reduction Act
Your 2022 tax return may be affected by the Inflation Reduction Act. New laws or yearly inflation adjustments will cause other 2022 revisions.
Child Tax Credit
For 2021, the child tax credit underwent significant adjustments, however, they were only in place for one year. For the 2022 tax year, the child tax credit reverts to its pre-2021 form. In 2021 the credit amount was $3,000 for children aged 6 to 17 and $3,600 for those under 5. The child tax credit for 2022 is now $2,000 per child.
This year, children who are 17 years old do not qualify for the credit, as the previous age limit of 16 years old returns. The 2022 credit is only partially refundable for some lower-income taxpayers (up to $1,500 per eligible child), and they must have earned income of at least $2,500 to benefit from the credit’s limited refundability.
You may have noticed during 2022, monthly credit advance payments stopped.
Child and Dependent Care Tax Credit
The child and dependent care credit had also undergone significant improvements for 2021. However, those modifications were only in effect for 2021. Comparatively, the 2021 credit was worth up to $8,000 in eligible expenses for one qualifying child/dependent, or $16,000 for two or more, or 20% to 50% of those amounts. As income increased by over $125,000, the percentage fell. Also entirely refundable in 2021 was the credit. The child and dependent care credit are not transferable until 2022.
Additionally, the highest credit proportion decreases from 50% to 35%. The credit is also available for fewer care costs. For 2022, the credit is only available for expenses totaling $3,000 for one child or dependent and $6,000 for multiples. If the 35% maximum credit percentage is used, the maximum credit for the 2022 tax year is $1,050 (35% of $3,000) for families with just one child or dependent and $2,100 (35% of $6,000) for families with more than one child or dependent.
Earned Income Tax Credit
The number of workers who could claim the earned income tax credit (EITC) on their 2021 tax return increased, including both younger and older individuals without qualifying children. Also, higher were the “childless EITC” amounts. But once again, those changes were only for 2021. For 2022, the minimum age for a worker without children to collect the EITC increases to 25 for tax returns in 2022. (it was 19 in 2021). There are special cases written into the tax law, so you should always confirm your current eligibility with a licensed CPA.
The maximum age restriction, typically set at 65 years old, was removed for the 2021 tax year, but has been reinstated for the 2022 tax year. Additionally, the maximum credit for workers without children is reduced from $1,502 in 2021, to $560 for the 2022 tax year.
Tax Brackets
While there was no change to the tax rates, the income tax brackets were expanded for 2022. The change is attributable to inflation throughout the 12-month period beginning September 2020 to August 2021, which is utilized to calculate the adjustments.
Tax Rates in 2022 for Single, Married Filing Jointly, and Head of Household
| Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Jointly) | Taxable Income (Head of Household) |
| 10% | Up to $10,275 | Up to $20,550 | Up to $14,650 |
| 12% | $10,276 to $41,775 | $20,551 to $83,550 | $14,651 to $55,900 |
| 22% | $41,776 to $89,075 | $83,551 to $178,150 | $55,901 to $89,050 |
| 24% | $89,076 to $170,050 | $178,151 to $340,100 | $89,051 to $170,050 |
| 32% | $170,051 to $215,950 | $340,101 to $431,900 | $170,051 to $215,950 |
| 35% | $215,951 to $539,900 | $431,901 to $647,850 | $215,951 to $539,900 |
| 37% | More than $539,900 | More than $647,850 | More than $539,900 |
(chart from: https://taxfoundation.org/2022-tax-brackets/)
Stimulus Program and Recovery Rebate Credit
Both the stimulus program and recovery rebate credit ceased in 2021.
Working and Living Abroad
In 2022, there will be a higher foreign-earned income exclusion for taxpayers who work abroad. It increased from $108,700 for 2021 to $112,000 for 2022. The exclusion is claimed by tax paying parties on Form 2555. For 2022, the $15,218 standard ceiling on the foreign home exclusion will rise to $15,680.
Contact A CPA ‘Near Me’ Today!
Contact us at Steven Lissner & Company to learn more about our services. We are committed to offering quality tax planning and preparation services to individuals and businesses in Mountain Lakes, and across New Jersey.
