It’s the time of the year where everyone is thinking about their taxes – you know the old saying, there’s two things in life you cannot avoid: death and taxes! This short read will touch on some of the key changes to be aware of for 2022.
First off, federal income tax returns are usually due by April 15 – but this year - because of a holiday in the District of Columbia, tax due day is Monday April 18th.
While tax rates did not change for 2022, the income ranges did increase. The tax tables below can help you project your income and make decisions on tax withholding adjustments. For example, if you are in a high tax bracket and receive cash bonuses or vest in restricted stock units, you can start planning now for additional withholding tax or to file estimated taxes.
2022 Federal Income Tax Rates
The capital gains rates have also remained the same, while the income ranges have increased:
The standard deduction for married couples filing joint for tax year 2022 rises to $25,900 up $800 from 2021. For single filers and married individuals filing separately, the standard deduction rises to $12,950 for 2022, up $400, and for heads of households, the standard deduction will be $19,400 for tax year 2022, up $600. Note: There is no personal exemption as that was eliminated by the Tax Cuts and Jobs Act.
Also, for 2022 (as in 2021, 2020, 2019 and 2018) there is no limitation on itemized deductions, as that was also eliminated by the Tax Cuts and Jobs Act.
Retirement Plan Limits
Defined Contribution Plans:
The maximum salary deferral contribution limit to 401k, 403b, and 457 plans have increased to $20,500 for 2022. If you are age 50 or older, you can make an additional catch up contribution of $6500 for a total of $27,000. 403b plans may allow an additional catch up (for 15+ years of service). These employer plans offer a great way to lower your taxable income and reduce your taxes.
Traditional and Roth IRA Contributions for 2022:
Total contribution limit: $6000 (no change from 2021).
Catch up (if age 50+): $1000 (no change from 2021).
So if you are age 50 or older, you may be able to contribute up to $7000 to an IRA - as long as you have earned income (this means a job) of at least that amount.
Phaseouts - the phaseout ranges increased for 2022:
Roth IRA eligibility for 2022:
Single MAGI phaseout: $129,000 - $144,000.
Married filing joint MAGI phaseout: $204,000 - $214,000.
Above these threshold ranges, you cannot contribute to a Roth IRA (but you might investigate conversions to a Roth IRA as a “backdoor” strategy).
Modified Adjusted Gross Income (MAGI).
Traditional IRA Deductibility for 2022 (If covered by a work plan):
Single MAGI Phaseout: $68,000 - $78,000.
MFJ MAGI Phaseout: $109,000 - $129,000.
MFJ (if only spouse is covered): $204,000 - $214,000.
Above these thresholds, you may not be able to deduct your contribution.
Health Savings Account (HSA)
Employees with a high-deductible health insurance plan can use an HSA to reduce taxes. For 2022, you can contribute $3,650 for individuals (up from $3600 in 2021), and $7300 for families (up from $7,200 in 2021). You can also add an additional $1,000 if you’re 55 or older. These accounts are excellent tax savings accounts: The money goes in tax free, grows tax free and comes out tax free when used for medical expenses. Triple tax savings.
Estate and Gift Tax Exclusion
The estate tax lifetime exemption for people who die in 2022 is $12,060,000, up from $11,700,000 in 2021.
The annual exclusion for gifts increases to $16,000 for calendar year 2022, up from $15,000 for calendar year 2021.
It's still early in the year where you can plan ahead to lower your taxes. There are a variety of ways to do this. Email me to find out how.
John Piershale, CFP®, AEP®
John Piershale Wealth Management, LLC is an Investment Adviser registered with the State of IL and in other jurisdictions where exempt from registration. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned.
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