As a taxpayer, it’s essential to stay up-to-date with changes to tax laws, as they can have a significant impact on your finances. With that in mind, this post will provide an overview of the main changes to tax laws for the current year. Read on to learn more about these changes and how they might affect you.
Changes to Deductions and Credits
One of the most significant changes to tax laws for the current year is the increase in the standard deduction. For 2022, the standard deduction for single filers has increased to $12,950, while the standard deduction for married couples filing jointly has increased to $25,900. This means that fewer taxpayers will need to itemize their deductions.
On the other hand, some popular tax credits, such as the Child Tax Credit and Earned Income Tax Credit, have also changed. For example, the Child Tax Credit has been expanded to include children up to age 17, and the maximum credit amount has increased to $3,000 per child.
However, the cap on state and local tax deductions has also been lowered to $10,000, which means that taxpayers in high-tax states may not be able to deduct as much as they have in the past.
Changes to Tax Rates and Brackets
Tax rates and brackets have also changed for the current year. The tax rate for the lowest bracket (10%) remains the same, but the tax rate for the highest bracket (37%) has been reduced to 35%. Additionally, the income threshold for each tax bracket has been adjusted. For example, the threshold for the 22% tax bracket has increased to $91,150 for married couples filing jointly.
To illustrate how these changes might affect taxpayers, let’s consider an example. Suppose a married couple filing jointly has a taxable income of $80,000. Under the old tax law, they would have been in the 22% tax bracket and owed $11,630 in federal income tax. Under the new tax law, they would be in the 12% tax bracket and owe $7,970 in federal income tax. This represents a savings of $3,660.
Changes to Retirement Accounts
Retirement accounts are an essential tool for saving on taxes, and there have been changes to contribution limits for various types of retirement accounts. For example, the contribution limit for 401(k) plans has increased to $20,500 for 2022, while the contribution limit for traditional and Roth IRAs has remained the same at $6,000.
There have also been other changes related to retirement accounts, such as the elimination of the “stretch IRA” provision. This provision allowed non-spouse beneficiaries of an IRA to stretch out distributions over their lifetime, but it has been replaced with a 10-year distribution requirement.
In summary, there have been significant changes to tax laws for the current year, including changes to deductions and credits, tax rates and brackets, and retirement accounts. By staying up-to-date with these changes, taxpayers can take advantage of new opportunities to reduce their tax liability. However, it’s essential to consult with a tax professional to ensure that you’re taking advantage of these changes in the most effective way possible. If you have questions or need help with your taxes, don’t hesitate to reach out to us at A.E.I. Tax at (707)538-8027 for guidance and support. Eric Imbuelten has 35 years of tax experience with situations just like yours whether you have a small business, file as head of household, or even if you are retired on a fixed income.