Filing season is upon us and taxes are definitely on the brain. As we work through filing our 2021 personal and calendar year end business returns, it is not too early to start planning for next year’s filings. One of the most important things you can do to help prepare yourself for next filing season during the current year is to keep in close contact with your tax professional. We are happy to help throughout the year with any changes that may occur and any planning that might be beneficial. The following is a broad list of some things to consider, with some helpful information, as you go through the coming year:

• Is your marital status going to change during 2022?
  • Marital status is determined on the last day of the year. This means even if you get married on December 31st you are deemed as being married for whole year.
  • If you are working through a divorce during 2022 you will be treated as still married until a final decree of divorce is issued.
  • Are you considering or planning on getting married, but have concerns about possible tax implications? The Tax Cuts and Jobs Act (TCJA) reduced the impact of the so called ‘marriage penalty’ for the years 2018 through 2025. This ‘marriage penalty’ previously led to some situations where two people could pay more in taxes as a married couple than if they remained unmarried. For the aforementioned period the Married Filing Joint (MFJ) tax brackets are exactly double the Single tax brackets, with the exception of the top tax bracket. This means that for this period the ‘marriage penalty’ only truly continues to apply to couples with a combined taxable income exceeding $628,300.
• Are you moving to a new home during 2022?
  • For the period of 2018 through 2025 if you finance a new mortgage the interest deduction for the acquisition of that indebtedness is only applicable for debts of $750,000 or less.
• Are you considering refinancing your home during 2022?
  • You can continue to deduct the interest on the newly refinanced loan to the extent of the balance of the original loan before the refinance occurred.
• Do you have to make estimated tax payments or think you may be in a situation where you will owe taxes with the 2022 filing?
  • You can reduce or eliminate possible underpayment penalties by making an additional estimated tax payment at any time during year. Alternatively, you can request for your employer to withhold additional taxes from your wages for the remainder of the year. This method has the additional benefit as being treated as being paid equally throughout the year for purposes of determining any potential underpayment penalties.
• Are you considering turning property into a rental during 2022?
  • If you convert your residence to a rental, it could be beneficial to obtain an appraisal on the property. The basis of the property for purposes of depreciation and any eventual loss computations is the lower of the cost basis or the value of the property on the date it was initially converted to a rental property. Based on this, getting an appraisal would be beneficial if the value is less than the original cost.
• Will you have a trade or business during 2022?
  • The dollar limit on taking 179 depreciation (instead of taking regular or bonus depreciation) on machinery, equipment, and other eligible property is increasing from $1,050,000 to $1,080,000.
  • It is important to keep track of any meals and entertainment paid for by the trade or business. Entertainment expenses are not deductible for tax purposes; however, meals at restaurants for business purposes (which were previously 50% deductible for tax purposes) are now 100% deductible.
  • For non-passive trade or businesses it is important that as you go through the year you make sure to keep accurate and contemporaneous records of any time you spend working for the trade or business, as well as the nature of that work.
• Are you planning on making any new investments during 2022?
  • Consider whether these investments will be passive and the potential impact of passive loss rules when making new investments. If passive losses are generated it is possible they get hung up, unless there is adequate passive income to offset them.
• Will you be making any charitable donations throughout 2022?
  • If you make any charitable donations it is best to maintain either a bank record, written receipt/letter, or other acknowledgement from the charitable organization. This should include the name of the organization, the date of the contribution, and the amount of the contribution. In fact, if you make a cash gift that exceeds $250 you must get a written acknowledgement from the organization. When making the determination if you have exceeded $250, do not aggregate separate contributions to any one organization.
• Will you be over the age 70.5 during 2022 and continuing to work?
  • The SECURE Act allows you to continue making IRA contributions to traditional IRA accounts while you continue to work.
• Will you be required to take a Required Minimum Distribution (RMD) from your retirement account during 2022?
  • The SECURE Act delayed the time frame for these to begin from the year during which you turn 70.5 to the year during which you turn 72.
  • If you are required to take a RMD you can likely make a qualified charitable distribution (QCD) from your IRA directly to an eligible charity. This can be beneficial as the distribution works towards your RMD amount, but does not increase your taxable income, though it cannot then also be used as a charitable contribution deduction.
• Are you considering making gifts to children or grandchildren during 2022?
  • If the individual is working you can make a contribution to their IRA or Roth IRA on their behalf. This amount can be up to the lesser of the persons earned income for the year or the IRA limit – typically $6,000. Doing this would allow you to take advantage of the annual gift tax exclusion (rising to $16,000 per donee for 2022), and potentially boost the impact of your gift.
• The following tax provisions are set to change for 2022:
  • The child tax credit is reverting back to the pre-2021 rules, meaning there will be no further monthly payments for this and the maximum credit drops to $2,000 per child under the age of 17.
  • People who are not itemizing on their returns will no longer be able to write off up to $300 in cash donations made to charities
  • Children under the age of 19, or under the age of 24 if a full-time student, with unearned income will see a change to the taxation of said unearned income. The first $1,150 will be tax-free, the next $1,150 will be taxed at the child’s tax rate, and any additional unearned income over that combined $2,300 will be taxed at the parent’s tax rate.
  • The employee retention credit previously available for businesses that were financially hurt by the pandemic but continued paying wages to employees has expired and is not available for 2022.
  • Amounts paid or incurred by companies for research and development costs will now have to be amortized over five years. Amounts paid or incurred for research conducted outside of the U.S. will be amortized over 15 years.

This is a broad list of some of the items to consider as we go through the 2022 year. It will be important to keep an eye on Congress to see if any of the above change further. As always, if you have any major changes from what you had in 2021 let your tax professional know throughout the year as we can help with any planning that you may benefit from.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.