4 Things You Should Know About Tax Season In 2022
by Ruth Ann John
Image Credit: Pixabay
Tax season isn’t fun for anyone. There are always a few pesky changes, little enough to fly under the radar, but big enough to either catch you an audit or earn you a call from your tax preparer.
For this reason, it's always best to plan ahead and figure out what to expect before you find yourself in a rush to file. In that spirit, we're going to go over a few things you should know for the 2022 tax season.
1. You Can Write Off COVID Costs
Those masks, bottles of hand sanitizer, and numerous COVID tests we all took added up over the course of the year. Luckily though, you can write some of those costs off if you meet the requirements, which are as follows:
The costs (including medical expenses) exceed 7.5% of your adjusted gross income.
Your insurance company has NOT reimbursed you for these costs already.
If you don’t meet these requirements, there’s still hope to see some of the expenses recovered as well. The IRS has a list of specific costs that can be paid for or reimbursed via tax-free spending accounts like HSAs. These costs include those associated with protective equipment and testing.
2. The Child Tax Credit Is Available
The Child Tax Credit made for some of the most noteworthy government assistance offered during the height of the pandemic, and it's still available to eligible families.
In order to claim at least $1,800 per child aged 5 and under –– or $1,500 per child aged 6 to 17 –– parents will need to send the IRS Letter 6419, Advance Child Tax Credit Reconciliation. These letters were sent out in December 2021 and January 2022 to families that had received advance monthly payments for the Child Tax Credit in 2021.
Do be aware that, as a Forbes tax update pointed out, the IRS does send erroneous letters on occasion. It is thus recommended that taxpayers log into their IRS Online Accounts to check for discrepancies between the information online and what's in a given letter. If such a discrepancy exists, it's best to follow the Online Account information. Either way however, those eligible for the Child Tax Credit should be able to seek funds this tax season.
3. Tax Brackets Have Changed
Inflation has not been kind to anyone this year, and while this continues to be a day-to-day burden, Uncle Sam is trying to make up for it (a little bit) via altered tax brackets for 2021-2022. As the AskMoney financial planning site noted in a recent article on 2022 tax changes, the updated brackets include slightly higher upper limits in order to offset some of the added costs inflicted by inflation.
As an example, one would have had to earn less than $9,950 to fall into the lowest tax bracket in 2021; now, that number is $10,275 for single individuals. These slight adjustments all the way up to the highest bracket have given some people a chance of paying less in taxes.
4. There's A New 401(k) Limit
If you have a 401(k) –– either traditional or Roth –– then you know there’s a limit to how much you and your employer can contribute in a year. In 2021, for people under the age of 50, the limit was $19,500. In 2022, however, it has been increased to $20,500. That's an extra $1,000 you can put toward your plan this year to benefit you in the future. Just remember to record it correctly when you file your taxes.
The tips above are specific to 2022, and may well help you save a bit of money this year. And beyond these tips, remember also to take advantage of any and all assistance that is made available to you. If you're simply someone who doesn't have an easy time with taxes (like most of us!), consult a tax preparer; if you're a member of an underserved community, don't forget to take advantage of the VITA program, which offers free prep services to qualified individuals. Whatever your situation, it's highly likely that there is help you can access to ensure the process goes smoothly.
Thanks for reading, and we hope this will help you to save a little bit of money here or there on your taxes. For more information on financial planning, business, or a range of other interesting subjects, come visit 50/50 Leadership again soon.