Over the past couple of years, several tax acts were enacted to assist in the taxpayer recovery from the COVID-19 pandemic. Most of the tax legislation from the American Rescue Plan (ARP) Act, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Consolidated Appropriations Act, 2021 (CAA 2021) have sunset provisions that ended in 2021. Below highlights some of the changes/reversions for 2022 and 2023.
Charitable contributions are no longer deductible by non-itemizers – This above-the-line deduction was not extended into 2022 or 2023.
Income limitation on charitable contributions – Cash contributions deductions are back to being limited to 60% of a taxpayer’s adjusted gross income, and non-cash contributions are limited to 30% of adjusted gross income.
Child Tax Credit – The child tax credit reverts back to $2,000 for qualified child dependents under the age of 17. The modified adjusted gross income threshold which determines if a taxpayer qualifies for the CTC is $400,000 in the case of a married filing joint return and $200,000 for all other filers.
Excessive Business Losses – Noncorporate taxpayers may be subject to excess business loss limitations. The threshold are $540,000 for joint filers and $270,000 for other filers.
NOL Carryovers – Only allows for carryforwards for any losses from 2021 or later.
Items remaining the same as in the prior tax year and items enacted under the 2022 Inflation Reduction Act are listed below.
Individual tax rates — The 2022 individual income tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Standard deduction — In 2022, the standard deduction will be $25,900 for joint filers, $19,400 for heads of households, and $12,950 for singles.
$10,000 limit on state and local tax deduction — The total state and local tax deduction is still limited to $10,000 for 2022.
Limits on mortgage interest deduction — Taxpayers may only deduct interest on the first $750,000 of mortgage acquisition debt incurred after December 15, 2017. Mortgage acquisition debt is any debt secured by a taxpayer’s principal residence which is used to acquire, construct, or substantially improve the residence.
Medical expense deduction — All individuals may deduct medical expenses if the expenses exceed of 7.5% of adjusted gross income.
No deduction for investment expenses or unreimbursed employee expenses — There are still no deductions for employee expense, investment expense, or any other 2% miscellaneous itemized deduction in 2022.
Adoption Credit — For adoptions finalized in 2022, there is an adoption credit up to $14,890 per child for those with modified adjusted gross income of less than $223,410. The phase out limit is $263,410.
IRA contributions — When you have earned income, you can contribute up $6,000 in 2022 ($6,500 in 2023). You have until April 15th, 2023 to make your 2022 contribution. If you are 50 or older, you can contribute another $1,000 for a total of $7,000. As a reminder from the Secure Act, there is no age limit for making regular contributions to an IRA.
401K Plan contributions — The limit for 2022 is $20,500 ($22,500 for 2023). The catch-up contribution (50 and older) is $6,500 ($7,500 for 2023), bringing total contributions to $27,000 for 2022 ($30,000 for 2023).
HSA Contributions — Health Saving Accounts enable you to set aside pretax dollars to cover qualified medical expenses, as long as you have a qualified high-deductible health plan in place. For the 2022, the maximum HSA contribution limits are $3,650 for an individual and $7,300 for family coverage, including over 55 the catch-up contribution of $1,000. For 2023, the maximum HSA contribution limits are $3,850 for an individual and $7,750 for family coverage, with no change to the over 55 catch-up.
Annual Exclusion for Gifts — The annual exclusion is $16,000 for 2022 and $17,000 for 2023.
Estate and Gift Exemption — The annual estate and gift exemption is $12,060,000 for 2022 and increases to $12,920,000 for 2023.
Nonbusiness Energy Property Credit – You now may take the credit for qualified energy-efficient property (placed in service before January 1, 2033) for 30% of the amount of improvements installed this year. No longer is there a lifetime credit limitation. The annual limitation is $1,200. For residential property expenditures, windows, and skylights, the annual limit is $600, and for any exterior door the limit is $250/door ($500 max).
Clean Vehicle Credit – No longer is there a limitation on the number of vehicles eligible for the credit. Final assembly must take place in North America. No credit is allowed for cars with an MSRP over $55,000 and $80,000 for pickups, vans, or SUVs. Modified adjusted gross income limits for a joint return is $300,000 and $150,000 for all other filers for the credit.
Crypto Currency – Tax returns will now require you to answer – “At any time during 2022 did you receive, sell, send exchange, or otherwise acquire any financial interest in any virtual currency?” Any sales must be reported on your return. We recommend keeping records of all transactions, including when purchased, how much you paid for it, and the date of sale and how much sold for.