Everything You Need to Know About the New Tax Lawã¢â‚¬â€before the End of the Year
12 Min Read | February 23, 2022
The coronavirus threw several monkey wrenches into 2021 tax season—including giving all of united states of america procrastinators an extra month to file! But 2022 tax flavour will be back to concern as usual . . . well, sort of.
Some new things this year include an increase in charitable giving deductions (if yous don't itemize) and the expanded Child Tax Credit (parents, you lot noticed some actress cash in your depository financial institution business relationship, right?).
Nosotros'll dig into both of those changes, plus a few more, a little after. But outset, allow's kicking things off with the chief details you need to know for 2022 taxation season:
- The large revenue enhancement deadline for all federal tax returns and payments isApril 18, 2022.
- Thestandard deductionfor 2021 increased to$12,550 for single filers and$25,100 for married couples filing jointly.
- Income tax brackets increased in 2021 to business relationship for inflation.
As for the 2023 tax flavor, here's what you'll want to know when the time comes:
- The standard deduction for 2022 (which will be useful when you file in 2023) will increase to $12,950 for single filers and $25,900 for married couples filing jointly.
- The income tax brackets will likewise increment in 2022.
Only that's just scratching the surface! Let'south break down the details so you can file your taxes with confidence this twelvemonth.
Income Brackets and Rates for 2022 and 2023 Tax Season
Here'south a refresher on how income brackets and taxation rates work: Yourtax rate (the percentage of your income that you lot pay in taxes) is based on whattaxation bracket(income range) you're in.
Taxes shouldn't be this complicated. Let us help.
For case, if y'all're single and your income is $75,000, so you're in the 22% tax bracket. But that doesn't mean your tax rate is a apartment 22%. Instead, function of your income is taxed at 10%, another function at 12%, and the terminal part at 22%. (We break it downward in the nautical chart below.)
For the 2021 revenue enhancement year, the taxationrates are the same—only at that place are someslightchanges to the brackets. Basically, the brackets accept been adjusted by a few hundred dollars from 2020 to account for inflation.1 2022 taxation brackets also look a little different.2
2021 Marginal Income Tax Rates and Brackets
| 2021 Marginal Tax Rates | Single Tax Bracket | Married Filing Jointly Tax Bracket | Head of Household Tax Bracket | Married Filing Separately Taxation Bracket |
| 10% | $0–9,950 | $0–19,900 | $0–14,200 | $0–ix,950 |
| 12% | $ix,951–xl,525 | $19,901–81,050 | $14,201–54,200 | $9,951–40,525 |
| 22% | $40,526–86,375 | $81,051–172,750 | $54,201–86,350 | $twoscore,526–86,375 |
| 24% | $86,376–164,925 | $172,751–329,850 | $86,351–164,900 | $86,376–164,925 |
| 32% | $164,926–209,425 | $329,851–418,850 | $164,901–209,400 | $164,926–209,425 |
| 35% | $209,426–523,600 | $418,851–628,300 | $209,401–523,600 | $209,426–314,150 |
| 37% | Over $523,600 | Over $628,300 | Over $523,600 | Over $314,150 |
2022 Marginal Income Tax Rates and Brackets
| 2022 Marginal Tax Rates | Single/Unmarried Taxation Bracket | Married Filing Jointly Tax Bracket | Caput of Household Taxation Bracket | Married Filing Separately Revenue enhancement Bracket |
| x% | $0–x,275 | $0–twenty,550 | $0–xiv,650 | $0–10,275 |
| 12% | $10,276–41,775 | $20,551–83,550 | $xiv,651–55,990 | $10,276–41,775 |
| 22% | $41,776–89,075 | $83,551–178,150 | $55,991–89,050 | $41,776–89,075 |
| 24% | $89,076–170,050 | $178,151–340,100 | $89,051–170,050 | $89,076–170,050 |
| 32% | $170,051–215,950 | $340,101–431,900 | $170,051–215,950 | $170,051–215,950 |
| 35% | $215,951–539,900 | $431,901–647,850 | $215,951–539,900 | $215,951–323,925 |
| 37% | Over $539,901 | Over $647,850 | Over $539,900 | Over $323,926 |
College Standard Deductions in 2021 and 2022
When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions—calculating your deductions one past one. Itemizing is more of a hassle, but it'south worth it if your itemized deductions exceed the amount of the standard deduction.
For revenue enhancement years 2021 and 2022, the standard deduction went up slightly to adjust for aggrandizement.3,4
Standard Deduction
| Filing Status | 2020 | 2021 | 2022 |
| Single | $12,400 | $12,550 | $12,950 |
| Married Filing Jointly | $24,800 | $25,100 | $25,900 |
| Married Filing Separately | $12,400 | $12,550 | $12,950 |
| Head of Household | $18,650 | $18,800 | $xix,400 |
Non sure whether or non y'all want to use a tax pro this twelvemonth or file yourself? If yous are comfortable filing on your own, go right ahead! But if things get complicated, you may fashion to reach out to a taxation pro. Go on in heed that every situation is different regarding taking the standard deduction or itemizing.
Taxation Deductions and Credits to Consider for Tax Season 2022
The closest things to magic words when it comes to taxes aredeductions andcredits. Both help you go along more money in your pocket instead of Uncle Sam'due south, just in slightly dissimilar ways.
Taxation deductionshelp lower the corporeality of your income that tin actually be taxed. Some deductions are simply bachelor if you lot catalog your deductions, while others are still available even if you decide to have the standard deduction.
Taxationcredits, on the other paw,are dollar amounts actually subtracted from your tax bill, and in that location are two types:refundable andnonrefundable. If a credit is greater than the amount you lot owe and it's a refundable credit, the difference is paid to you as a refund. Score! If it'south a nonrefundable credit, your tax bill will exist reduced to cypher, only y'all won't get a refund. Still a win!
Here are some deductions and credits you might be able to claim on your 2021 tax return:
ane. Charitable Deductions
The Taxpayer Certainty and Disaster Taxation Relief Act of 2020 extended two charitable giving changes enacted by the Coronavirus Assistance, Relief, and Economic Security (CARES) Deed. The law allows yous to deduct up to100%of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken, in qualified charitable donations if you programme to itemize your deductions.five
What if you're taking the standard deduction? Well, non-itemizers may merits an above-the-line deduction (pregnant information technology is not on Schedule A) of upward to $300 ($600 for married filing jointly) for charitable contributions made in cash.6
2. Medical Deductions
If you found yourself with hefty medical bills last yr, yous might exist able to detect at least some tax relief.
You can deduct any medical expenses in a higher place7.five% of your adapted gross income (AGI), which is your total income minus other deductions y'all take already taken.vii For case, if your AGI was $100,000, y'all can deduct out-of-pocket medical expensesbeyond $vii,500 in 2021. Only y'all have to itemize your deductions in order to write off those expenses on your revenue enhancement return.
3. Business Deductions
If y'all're self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use a part of your dwelling to carry business.8
But if you're one of the millions of workers who were sent home to work remotely, you lot won't be able to merits the home function deduction since it's reserved for self-employed peoplesimply.Sorry!
four. Earned Income Tax Credit
The EITC is a refundable credit designed to aid out low- and center-income households. The maximum adapted gross income for a single filer with no children is $21,430, while the cap for a married couple with iii or more children is $57,414.9 Depending on your income, your filing condition and number of children, the credit could relieve yous anywhere from a few hundred to a few thou dollars on your taxes. But here'southward a crazy stat: About 1 out of five eligible taxpayers either don't merits the do good on their taxes or don't file a tax return at all.eight Don't permit that be you!
5. Child Tax Credit
Got kids? You probably noticed a dainty trivial surprise from the IRS in July: free money! The American Rescue Plan, which was passed in March 2021, bumped the Child Tax Credit from $2,000 to $3,600 for each child under age 6 and to $three,000 for each kid vi–17. Rather than waiting until tax fourth dimension for families to claim this credit, the IRS began sending out a portion of the credit through advance monthly payments ($300 per month for each child nether vi and $250 for each child 6 to 17).eleven The Child Taxation Credit is gradually phased out for people with incomes over $150,000 if married filing jointly or $112,500 if filing as head of household.12
Checks in the postal service are nice, only remember that taking advance Child Tax Credit payments now will reduce the corporeality you lot go at tax time. Payments are based on your 2020 taxes, so if your income went up plenty in 2021 to showtime closing in on the stage-out limit for the credit, you lot might consider opting out of advance payments.
There are plenty of other deductions and credits that might exist up for grabs depending on your state of affairs! If you don't want to miss out on any taxation savings, y'all'll want to work with a taxation advisor who tin can make sure y'all're non leaving anything on the table.
six. Education Credits
Bettering yourself or your children through didactics is a good affair, and it's even ameliorate when you get a tax break.
The American Opportunity Tax Credit (AOTC) is a partially refundable credit for educational expenses for a student for the first four years of college. You can claim upwardly to $2,500 per pupil, and if the credit brings your tax liability to zippo, xl% (upwardly to $1,000) will be refunded to you.13
The Lifetime Learning Credit (LLC) is not refundable and covers up to $2,000 in qualified educational expenses per render. While you can merely accept advantage of the AOTC for undergrad expenses, y'all can reap the benefits of the LLC for expenses related to all kinds of educational opportunities—from degree programs to technical classes to improving job skills.fourteen
Only beware: You tin can merits both the AOTC and the LLC on your tax return just not for the same student or the same expenses.
The Coronavirus and Your Taxes
Oh, so you lot idea y'all would be done with the coronavirus in 2022? Unfortunately, the coronavirus has created a ripple consequence that volition be felt when you sit down to file your taxes for last year. Here are some things to proceed in listen:
Stimulus Checks
As function of the American Rescue Plan Act of 2021, the IRS sent a third round of stimulus checks to millions of Americans—upward to $1,400 for individuals and an boosted $one,400 for dependents.15
The good news is your stimulus checkvolitionnotcount equally taxable income. Instead, information technology'southward existence treated like a refundable tax credit for 2021. Translation: Your stimulus check will not affect your tax situation or cause yous to have a higher or lower refund.
Paycheck Protection Program (PPP) Loans
The 2020 Coronavirus Aid, Relief, and Economic Security Deed tried to aid struggling small business owners stay afloat by offer them Paycheck Protection Program (PPP) loans. Equally long as these loans were used on certain business concern expenses—payroll, rent or interest on mortgage payments, and utilities, to proper name a few—these loans were designed to be "forgiven."sixteen
In December 2020, the IRS announced that whatsoever eligible expenses you paid with money from those PPP loanscanbe deducted from your taxable income.17 So that'due south a niggling bit of good news! PPP ended in May 2021, but call up, yous'll accept to go your loan forgiveness awarding canonical by the Small-scale Business Administration earlier you're off the hook for the amount you borrowed.
Unemployment Benefits
Afterward the pandemic stalled a large part of the economy, many Americans plant themselves out of work (at least temporarily) and turned to unemployment insurance for help. Though the first $ten,200 of unemployment benefits were fabricated tax-free in 2020, that is not the case in 2021.18 And then if you were unemployed in 2021 and did not have taxes withheld from your benefits, program now to pay taxes on those benefits.
Retirement Plans: 401(k)s, IRAs and More
There wereseveral changes to retirement plans in 2021—and some of those changes could impact your tax bill this year. Permit's tackle each of those changes:
- If y'all ain a traditional IRA, youhave to take money out of your account once you reach a certain age. Those withdrawals are calledrequired minimum distributions (RMDs). The adept news is the SECURE Deed changed the historic period for RMDs from 70 one/2 to 72.19 This actress time could pb to significant tax savings for retirees with those accounts since the money that's taken out of a traditional IRA counts as taxable income.
- The SECURE Act besides allows owners oftraditional IRAs to keep putting money in their accountspast historic period seventy ane/two as of 2020.20 Since the money you put into a traditional IRA is tax deductible, you lot could lower how much of your income is taxed this year. Only remember: You will accept to pay taxes on that coin whenever you take information technology out. Full contributions to all of your traditional or Roth IRAs can't exceed $vi,000 ($seven,000 if y'all're l or older) per year.
If you lot need help navigating RMDs and IRAs, it's probably a good idea to attain out to an investment professional person who can walk you through the process.
Go Your Taxes Done Right in 2022
If your taxes are pretty straightforward and you lot want an easy-to-use tax software that can give you lot some peace of heed, check out Ramsey SmartTax! No subconscious fees, no advertisements, no games. That'south how it should be!
Only what if you have a more complicated tax situation or had a wild year in 2021? In that case, working with a tax pro is a smart move. And if you're looking for a trustworthy revenue enhancement adept in your area, our revenue enhancement RamseyTrusted Endorsed Local Providers (ELPs) accept years of experience and tin can help you file your taxes with conviction. Find a tax pro today!
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Source: https://www.ramseysolutions.com/taxes/tax-season-what-you-need-to-know