With a new year comes new tax rules and laws to be aware of. Some of these are good and some of these are not-so-good. Let’s take a quick look at some of the more notable changes and what they could mean for your 2022 taxes.
The Good: Higher Standard Deduction
In 2022, the standard deduction for married couples filing jointly is $25,900 (an $800 increase from 2021). Individual filers (single or married) also enjoy a higher standard deduction of $12,950 (a $400 increase from 2021). Not to be left out, heads of households will have a standard deduction of $19,400 (a $600 increase from 2021)
The Good: Higher Retirement Savings Limits
For those under 50 years of age, the most you can now save in your employer-sponsored retirement plan (like a 401(k)) has risen to $20,500 (a $1,000 increase from 2021). And for those 50 years of age and older, the limit is now $27,000 (a $1,000 increase from 2021).
2022 should be even better for those with certain defined contribution plans. Specifically, the eligible contribution limits have been raised to $61,000 for those under 50 years of age and $67,500 for those 50 years of age and older. These are $3,000 increases from 2021.
The Good: Modified Tax Brackets
The marginal tax rates remained unchanged. But the income limits for each tax bracket are going up. They do this every year, but with prices going up for almost everything, this will be a welcome tax change.
The Okay: More Social Security Benefits
There’s a 5.9% cost of living increase for Social Security benefits. This extra money is a good thing especially with inflation being the way it is right now. But with more Social Security income, there’s the potential to pay more in taxes.
The Bad: Child Tax Credits
You might have gotten used to the extra few hundred dollars every month in boosted child tax credits. But these extra payments that started in the second half of 2021 end in 2022. This extra money from an increased child tax credit might come back if Congress manages to renew the applicable laws, although there could be different eligibility requirements. But given the political situation in Washington, D.C. it’s anyone’s guess as to what will happen.
The Bad: Charitable Contribution Deduction
In 2020 and 2021, taxpayers could claim a tax deduction for cash donations to eligible charitable organizations. This was a big deal because it was available to taxpayers even if they took the standard deduction and didn’t itemize their tax deductions. But the ability to take the charitable deduction and standard deduction at the same time is gone for the 2022 tax year.
In Summary
Just like 2021, 2022 also brings many tax changes. If you want to learn more about the ones discussed in this blog post or many others not covered, feel free to contact your tax professional.
The good news is Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!