Double Check These 2022 Tax Law Changes before Tax Planning

Author : Camputaro & Associates
Apr 01, 2022

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The tax deadline for your 2021 return is nearly here, but it’s never too soon to start thinking about next year’s taxes—and that includes bushing up on tax law changes for this year. While tax law changes occur every year, and there are likely too many to bother learning them all, you should make sure to review the ones that are most likely to impact your return. We’ve outlined the major changes that are most likely to impact our clients below. Be sure to review them so you can plan for your 2022 taxes accordingly.

Changes to Tax Brackets

Tax brackets affect everyone, so let’s start with this change, which tends to occur every year based on inflation rates. The new tax brackets are outlined in the chart below. You should keep these brackets in mind when making major financial decisions and doing any tax planning for 2022.

Tax Rate

For Single Filers

For Married Individuals Filing Joint Returns

For Heads of Households

10%

$0 to $10,275

$0 to $20,550

$0 to $14,650

12%

$10,275 to $41,775

$20,550 to $83,550

$14,650 to $55,900

22%

$41,775 to $89,075

$83,550 to $178,150

$55,900 to $89,050

24%

$89,075 to $170,050

$178,150 to $340,100

$89,050 to $170,050

32%

$170,050 to $215,950

$340,100 to $431,900

$170,050 to $215,950

35%

$215,950 to $539,900

$431,900 to $647,850

$215,950 to $539,900

37%

$539,900 or more

$647,850 or more

$539,900 or more

Source: Internal Revenue Service

 

Knowing your tax bracket and where the cutoff is set can make a big difference on your return. For example, if you file jointly and make $84,000 a year, you will just barely surpass the second tax bracket and experience a 10% jump in your taxation rate. That’s a pretty significant increase. Being aware of where the line between tax brackets is set would allow you to choose to increase your charitable donations for the year by a few hundred dollars, bringing you back down to a 12% tax rate and potentially saving you thousands.

Increased Standard Deduction

When the Tax Cuts and Jobs Act increased the standard deduction significantly in 2017, it made the standard deduction the more beneficial option for most taxpayers. Since it’s highly likely that you now use the standard deduction on your return instead of itemizing, it’s important to be aware of just how much that standard deduction changes each year. Again, this is something that occurs every year based on inflation. The standard deductions for 2022 are as follows:

  • Single filers: $12,950
  • Heads of household: $19,400
  • Joint filers: $25,900

Staying informed of the changes to these numbers can help you make the right decision each year regarding whether you should take the standard deduction or itemize your deductions for the maximum benefit.

Changes to Retirement Account Deductions

This year has also introduced several changes to retirement account contributions and how they will be deducted on your tax return. Since most people make some form of contribution to a retirement account each year, it’s essential that you’re aware of how each type of account is impacted by these changes, as it could affect not only your tax planning, but your retirement planning as well. Here’s what you need to know:

  • Increased income threshold for Roth IRA contributions – Roth IRAs allow contributors to reap a nice post-tax savings benefit while saving for retirement. However, there is an income threshold that can reduce or eliminate that benefit for high-income earners. That threshold is increasing in 2022 to account for inflation. For single filers earning under $129,000, you can make the maximum annual contribution and receive the maximum benefit; above that threshold, the contribution limit phases out until you can no longer contribute to a Roth IRA at $144,000 of adjusted gross income. The thresholds for joint filers are set at $204,000 and $214,000, respectively.
  • Changes to traditional IRA deductions – Traditional IRAs give contributors an immediate tax benefit by allowing you to deduct any amount you contribute on your tax return. These IRAs are receiving a similar change to Roth IRAs this year for those covered by an employer-sponsored plan, with thresholds for tax deductions increasing. For single filers with an income below $68,000, you’ll be able to fully deduct your traditional IRA contributions; above this level, the deduction will be reduced until you reach $78,000 of annual income, at which point you cannot deduct traditional IRA contributions. For joint filers, the income thresholds are set at $109,000 and $129,000 for 2022.
  • Increased limits to employer-sponsored retirement plans – Last but not least, employer-sponsored retirement plans (including 401(k)s, 403(b)s, and more) will have an increased contribution limit for 2022. Elective deferrals are now capped at $20,500, and the maximum contribution you and your employer can make is set at $61,500. For those 50 and older, a catchup contribution of $6,500 is still permitted.

If you have questions about these tax law changes or how they might impact your tax planning for 2022, contact Camputaro & Associates today.

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Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174
(386) 255-2511