November and December are months usually spent celebrating holidays and getting together with family and friends. Tax season is still a few months away but early attention to your 2022 tax situation can make a difference between simply reporting on a tax return and actual tax planning and saving money. Knowing whatís new and what laws have changed or expired since last year is also key to avoiding unpleasant surprises at tax time.Most of the tax breaks of 2021 expired at the end of that year and have not been extended as of early November. Annual inflation adjustments and changes and the newest legislation, the Inflation Reduction Act signed into law in August 2022, will impact taxpayersí returns as well.The following are the changes that could affect most individual taxpayers.The major changes made in 2021 to the Child Tax Credit were temporary. The credits revert to their pre-2021 form; and the credit amount drops down to $2,000 per child and is limited to children younger than age 17. The credit will generally be non-refundable, with some income-based exceptions. If the credit is nonrefundable, it offsets the taxpayer liability and if it exceeds what they owe, they either lose the remainder or it carries forward to next year. It varies from credit to credit.The Child Care Tax Credit will no longer be refundable either, and the maximum percentage of the credit drops to 35% of expenses of up to $3,000 for one child and $6,000 for more than one. That makes for a maximum credit of $1,050 for one child and $2,100 for two or more. In addition, the full credit will be allowed only for families making less than $15,000; after that, the credit starts phasing out.In 2022, the Earned Income Tax Credit is no longer available for people under the age of 25 or over the age of 65. The maximum for childless taxpayers drops to $560. The income phase-out amounts (limits on a particular tax item) are inflation adjusted and start at $26,260 for couples with children. They completely phase out at $49,622 for couples filing jointly with one child, $55,529 with two children, $59,187 if they have three or more.The Premium Tax Credit available to taxpayers who purchase their health insurance through the Obamacare exchange remains mostly unchanged. In 2021, there was a rule that if you were eligible for unemployment or collected any unemployment, your income would automatically not exceed the four times the poverty limit threshold. So if you made $250,000 in 2021, but also collected $1 of unemployment during 2021 (anyone in your household), you were considered to have made the maximum threshold amount and not a penny more. That rule is not available in 2022.The standard deduction amounts were increased for 2022 to $12,950 for singles, $25,900 for married filing joint, plus $1,400 for each spouse age 65 or older and $19,400 for head of household filers.Third party payment settlement networks like PayPal and Venmo are now required to send a Form 1099-K to taxpayers who receive $600 or more a year for goods and services. That limit has been reduced from the previous limit of $20,000. This requirement only applies to money received for goods and services and not payments from friends and family for personal reasons.Charitable contributions are yet again only deductible on Schedule A of Form 1040. The additional charitable deduction for people who did not itemize, which was previously allowed to be deducted on Form 1040 is no longer available in 2022. But taxpayers should keep in mind, even though they might not be able to take advantage of the deduction on their federal return, they might benefit from an additional deduction on their state return. Colorado offers an additional charitable contribution deduction for total contributions exceeding $500.IRA contributions remain the same at $6,000 and an additional $1,000 catch up (additional allowance) for people age 50 and over. They are fully or partially deductible for single filers making less than $68,000 to $78,000 and couples making less than $109,000 to $129,000. Roth IRA contributions are never deductible, but taxpayers need to keep in mind that income ceilings apply, or they might be subject to 6% excise tax penalties on excess contributions. Those ceilings are $129,000 to $144,000 for singles and $204,000 to $214,000 for couples. If the taxpayers accidentally over-contribute to their Roth IRA, they need to withdraw their contribution by the tax return extended due date. Lower income taxpayers can get ìretirement saverís creditî in addition to their IRA contribution. To claim the credit, their adjusted gross income cannot exceed $34,000 for single and $68,000 for married couples.The Residential Clean Energy Credit allows taxpayers to offset their tax liability by 30% (increased from 26%) of the cost to install qualifying electric, water heating, or temperature control systems that use solar, wind, geothermal, biomass or fuel cell power. If the taxpayers installed a qualifying solar system or purchased a qualifying wood burning stove, they might be able to offset their 2022 tax liability by this credit. The credit is not refundable, but in most cases where it exceeds the current year liability, the taxpayers can carry it over to future years to reduce their taxes.There are further credits available for purchasing an electric vehicle as well as equipment used to recharge an electric vehicle in oneís own home. The Clean Vehicle Credit has been revised by the Inflation Reduction Act to require that vehicles purchased after Aug. 16 must be assembled in North America to qualify for it. Taxpayers can check at the following website vpic.nhtsa.dot.gov/decoder/ to see if the vehicle they intend to purchase qualifies for the new credit.The above tax update is subject to possible year-end legislative changes. It is always a good idea for taxpayers to contact their tax advisors before the yearís end.
