2022 Tax Changes

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2022 tax changes

Check your e-mail for digital tax forms

In 2022, you need to be aware that many banks, stockbrokers, and even employers will be making their tax forms available online. Due to rising costs for mailing forms, keep a close eye on your e-mail starting about mid-January. Take a look at your 2021 tax return, and see what W-2’s and 1099’s were required for your tax return.

Some 2021 key credits have expired

One of the key credits that was available to young families in 2021, was the Child Tax Credit. In 2021, the credit was $3,600 per child, and advance credit payments were available. This one expired on December 31, 2021, and reverted back to the 2020 level of $2,000. It has not been extended and we couldn’t pick up any feedback if it’s being discussed.

Another credit that didn’t expire, but was reduced, is the Dependent Care Credit. It was reduced from $8,000 in expenses for one child down to $3,000, and from $16,000 in expenses for two or more children down to $6,000.

 This change is not a tax credit but a deduction for Mortgage Insurance Premiums. It expired several years ago but Congress extended it though the end of 2021. This deduction was made on your Schedule A under the section for mortgage interest. Whether it gets extended is anyone’s guess.

Deduction for Teacher’s expenses

There’s some good news for eligible teachers. The amount of out-of-pocket expenses paid for and used in their classrooms has been increased to $300. If both spouses are teachers, the amount that can be deducted is $600 on a joint return, but not more that $300 for each. Some of the expenses that are eligible are books, supplies, and Covid-19 protective items.

The definition for a qualified educator was also defined. It is anyone who is employed as a teacher, principal, counselor, instructor, or an aide, working with students from kindergarten through the 12th grade. They must also be employed for a minimum of 900 hours during a school year in that position.

You folks who homeschool your children are not eligible for this deduction.

Amounts you can deduct for mileage

Because of the high cost of gasoline during 2022, the IRS increased the limits effective July 1. What that means is you will have to keep records of your mileage and make a calculation for each 6 month period. The business rate for January thru June is 58.5 cents per mile. The allowance for medical mileage and moving for military is 18 cents per mile.

 For the period of July 1 through the end of the year, the business rate is 62.5 cents per mile. The rate for medical travel and military moves is 22 cents per mile. Be advised that rate for charitable purposes remains the same at 14 cents per mile.

Alternative minimum tax

There should be fewer taxpayers getting hit by this tax. Exemptions were increased from $114,600 to $118,100 for married couples. Heads of household and single tax filers were increased from $73,600 to $75,900. The 28% AMT tax rate increased from $199,900 to $206,100 of AMT taxable income.

Self-employed individuals

The most important change for the self-employed and owners of S Corporations, LLCs, and any other pass-through entities, is the qualified business income deduction, or QBI as it’s commonly known. The limitations were increased for 2022 from $329,800 to $340,100 for married filing joint people and from $164,900 to $170,050 for all others.

Taxes due by the current Illinois lottery winner

I know everyone is anxious to see what this poor person who won the lottery for $1.337 billion gets to keep. I won’t bore you with the 30 year option payout because most winners don’t go that route. The lump sum cash payment will be $780.5 million. From that, the federal taxes are $288.8 million and Illinois tax will be $38.63 million, for a total of $327.43 million. That leaves him with a paltry sum of $453.07 million to spend. If the winner had been a Maryland resident, you can add another $27 million in state taxes because the tax rate in Illinois is 4.95% and Maryland about 8.5%,

Then, even before all of the dust settles, the winner will be deluged with e-mails, letters, phone calls, and even knocks on the door from “relatives” he didn’t know he had, looking for “loans” and handouts. Then, even worse, unless he somehow is able to keep his name anonymous, there is the fear of family members being kidnapped for a high ransom. I don’t mean to be a gloom and doom person, but those are the facts for lottery winners. Do you think it’s worth it??

Published August 8, 2022

 

 

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