As many of the taxpayer-friendly provisions included in COVID-19 legislation have expired and Congress continues to pass new tax legislation, 2022 is a crucial tax year for tax planning. Below is a list of items to consider as you begin to prepare your 2022 tax return.
Consider Opportunities to Contribute to Tax-Advantaged Accounts
From health savings accounts to 529 Savings Plans and retirement accounts, there are many opportunities to save for future expenses. There are annual contribution limits for each of these options, as well as phase-out rules based on your modified adjusted gross income and filing status. Note: the tax considerations for contributing to a Section 529 Savings Plan vary state by state. In general, you have until December 31 to meet the annual contribution limits; however, if you’re contributing to an IRA, the deadline is April 18, 2023. You also may also look into whether it is beneficial for you to convert a traditional IRA into a Roth IRA.
Revisit Your Charitable Contributions & Gifting Goals
For 2020 and 2021, COVID-19 legislation temporarily allowed taxpayers who do not itemize to take advantage of a $300 above-the-line deduction for cash contributions to qualified charitable organizations ($600 for married filing jointly). However, this above-the-line deduction is not available for 2022. If you are charitably minded, you may consider ways to fit giving into your tax planning that will produce tax benefits. For example, you may consider timing contributions to bunch them into a tax year in which you plan to itemize or whether a donor-advised fund or a private foundation is the right fit for your giving goals.
Taxpayers holding certain appreciated property may want to consider making charitable gifts of property instead of cash. For example, appreciated securities held longer than a year are often a popular non-cash gift that generally result in enhanced overall tax benefits.
Pass-Through Business Owners
If you’re a business owner and your business is structured as a flow-through entity, e.g., partnership, LLC, or S corporation, here are a few things to keep in mind:
- Consider your exposure to the 3.8% Net Investment Income Tax (NIIT). The statutory threshold for the NIIT is $200,000 for single or head of household and $250,000 for married filing jointly.
- The Section 199A Qualified Business Income Deduction remains available through 2025 for sole proprietors and owners of pass-through entities. The deduction is available regardless of whether taxpayers itemize deductions on Schedule A or take the standard deduction. For 2022, the threshold taxable income amount before certain limitations may apply is $340,000 for married couples filing jointly, $170,050 for married individuals filing separately, and $170,050 for all others. The phase-in range amount is $440,100 for married couples filing jointly, $220,050 for married individuals filing separately, and $220,050 for all others.
- The Inflation Reduction Act of 2022 (IRA) extended the limitation on excess business losses for noncorporate taxpayers from 2026 to 2028. This means that taxpayers other than corporations are limited on the amount of trade or business deductions that can offset nonbusiness income. For 2022, the limitation is $270,000 ($540,000 for joint returns). The CARES Act had suspended these rules for 2018, 2019, and 2020.
Repayment of Deferred Social Security Tax
Self-employed individuals and household employers who deferred half of their Social Security taxes for the 2020 tax year must repay the final half of the deferred amount by December 31, 2022 (the first half was due December 31, 2021). The IRS has indicated that although the due date is December 31, 2022, payments will be considered timely if received by January 3, 2023 because December 31 is a holiday. The repayment should be made with a separate tax payment and noted that it’s for “deferred Social Security tax” to be correctly applied.
Take Advantage of New Credit Opportunities in the IRA
The IRA is packed with a variety of tax credits. For example, if you’ve been considering installing new energy-efficient windows, doors, water heaters, or furnaces, there are tax credits for that. Or, if an electric car is on your wish list, there are tax credits for that, too. Although many of the credits won’t be available until 2023, individuals should consult their tax advisor to determine what opportunities are available under the IRA. The White House also has launched a website to help you determine what IRA tax credits are available to you and when.
Think Strategically About Your Income for 2022
Part of tax planning is considering if there is income you can postpone until the following year or deductions that you can accelerate into the current year. For example, you should consider reviewing your assets and investment holdings to determine the best time to sell.
How FORVIS Can Help
Consult a professional at FORVIS to discuss how you can maximize your tax planning opportunities for 2022 before the year ends or submit the Contact Us form below.
See more 2022 Year-End Tax Planning articles.