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Tax Deductions and Retirement Limits You Should Be Familiar With

Tax Deductions and Retirement Limits You Should Be Familiar With

| November 04, 2021
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TAX INFLATION ADJUSTMENTS[1]

The Internal Revenue Service today announced the tax year 2022 annual inflation adjustments, including the tax rate schedules and other tax changes.

The tax year 2022 adjustments described below generally apply to tax returns filed in 2023.

The tax items for tax year 2022 of greatest interest to most taxpayers include the following dollar amounts:

  • The standard deduction for married couples filing jointly for tax year 2022 rises to $25,900 up $800 from the prior year. For single taxpayers 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.
     
  • The personal exemption for tax year 2022 remains at 0, as it was for 2021, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
     
  • Marginal Rates: For tax year 2022, the top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly). The other rates are:
     
    • 35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
    • 32% for incomes over $170,050 ($340,100 for married couples filing jointly);
    • 24% for incomes over $89,075 ($178,150 for married couples filing jointly);
    • 22% for incomes over $41,775 ($83,550 for married couples filing jointly);
    • 12% for incomes over $10,275 ($20,550 for married couples filing jointly);
    • The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).
       
  • For 2022, as in 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
     
  • The Alternative Minimum Tax exemption amount for tax year 2022 is $75,900 and begins to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption begins to phase out at $1,079,800). The 2021 exemption amount was $73,600 and began to phase out at $523,600 ($114,600 for married couples filing jointly for whom the exemption began to phase out at $1,047,200).
     
  • The tax year 2022 maximum Earned Income Tax Credit amount is $6,935 for qualifying taxpayers who have three or more qualifying children, up from $6,728 for tax year 2021. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
     
  • For tax year 2022, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $280.
     
  • For the taxable years beginning in 2022, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $2,850. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $570, an increase of $20 from taxable years beginning in 2021.
     
  • For tax year 2022, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,450, up $50 from tax year 2021; but not more than $3,700, an increase of $100 from tax year 2021. For self-only coverage, the maximum out-of-pocket expense amount is $4,950, up $150 from 2021. For tax year 2022, for family coverage, the annual deductible is not less than $4,950, up from $4,800 in 2021; however, the deductible cannot be more than $7,400, up $250 from the limit for tax year 2021. For family coverage, the out-of-pocket expense limit is $9,050 for tax year 2022, an increase of $300 from tax year 2021.
     
  • The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
     
  • For tax year 2022, the foreign earned income exclusion is $112,000 up from $108,700 for tax year 2021.
     
  • Estates of decedents who die during 2022 have a basic exclusion amount of $12,060,000, up from a total of $11,700,000 for estates of decedents who died in 2021.
     
  • The annual exclusion for gifts increases to $16,000 for calendar year 2022, up from $15,000 for calendar year 2021.
     
  • The maximum credit allowed for adoptions for tax year 2022 is the amount of qualified adoption expenses up to $14,890, up from $14,440 for 2021.

SOURCE: IRS

 

 

TAX BREAKS[2][3]

The tax law changed and you may not be aware of all the tax breaks you are eligible to receive. Some standard deductions continue to climb in 2022 by $400 to $12,950 for single taxpayers and married individuals filing separately; $19,400 for heads of households, up $600; and $25,900 for married couples filing jointly and surviving spouses, up $800 from the prior year.

While the large increase in the standard tax deduction will allow for many Americans to forgo the task of itemizing their deductions, there are still some ‘above-the-line’ deductions you may want to claim. Most of these have no income limits so everyone is able to claim them.

  • School Teachers Expenses: In 2022, qualifying teachers can claim $300, up from $250 in 2021, for expenses paid or incurred for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used in the classroom.
     
  • Student Loan Interest: The $2,500 deduction for interest paid on student loans begins to phase out when modified adjusted gross income hits $70,000 ($145,000 for joint returns) and is completely phased out when MAGI hits $85,000 ($175,000 for joint returns).
     
  • Health Savings Account (HSA): For 2022 there are higher HSA contribution limits available. You can contribute $3,650 for individual coverage for 2022, up from $3,600 for 2021, or $7,300 for family coverage, up from $7,200 for 2021.
     
  • Charitable Donations: The $300 charitable deduction ($600 for joint filers) that was available to nonitemizers in 2021 has not been extended for 2022. 
     

 

 

RETIREMENT PLAN LIMITS[4]

Retirement plan contributions are tax deductible. By putting money aside in a tax advantaged retirement account, you are saving for your future and also reducing your taxable income. And remember, you have until April 15, 2022 to make your 2021 IRA plan contribution!

 


ROTH PLANS

For Roth accounts, you can only contribute to them if you make less than a certain amount of money. This salary amount was increased for 2022. Note that your contributions may be phased out at certain income levels so it is best to speak with your financial or tax advisor about your specific situation.

 


CONTACT US with any retirement planning questions you have.

 

 

None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation. An individual retirement account (IRA) allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status and other factors. Taxes must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59½, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. Contributions to a Roth IRA are not tax deductible and there is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions). 403(b) withdrawals are taxed as ordinary income in the year received. Tax penalties and penalties for early withdrawal may apply if funds are withdrawn prior to age 59 ½.

 

  1. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022
  2. https://www.forbes.com/sites/ashleaebeling/2021/11/10/irs-announces-2022-tax-rates-standard-deduction-amounts-and-more
  3. https://www.ltcnews.com/articles/news/irs-reveals-2022-long-term-care-tax-deduction-amounts-and-hsa-contribution-limits
  4. https://www.irs.gov/newsroom/irs-announces-401k-limit-increases-to-20500


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