The biggest tax changes to know before filing your 2022 return
Tom Werner | DigitalVision | beautiful pictures
Some tax credits have been reduced
One possible reason for less tax refund is child tax credit and child and dependent care tax credit has been reduced for 2022, explains certified financial planner Cecil Staton, president and wealth advisor at Arch Financial Planning in Athens, Georgia.
While both tax credits received a temporary boost through the 2021 American Rescue Plan, the enhanced tax breaks were not extended until this year. “The big picture is that more people will see less money in their pockets,” says Staton.
In 2021, the child tax credit is offered up to $3,600 per child under 6 and up to $3,000 per child aged 6 to 17, with half provided through through prepaid payments. But by 2022, the tax relief returns to the previous amount — up to $2,000 per child under 17.
The Child and Dependent Care Tax Credit, which can help offset the cost of caring for children under 13 or dependent adults, has also been reduced for 2022.
In 2021, the credit has increased to $8,000 for one eligible person or $16,000 for two or more dependents. However, in 2022, those limits revert to $3,000 and $6,000 for one or more dependents, respectively.
You can get Form 1099-K for third party payments
If you received payments through apps like Venmo or PayPal in 2022, you can get Form 1099-K as early as 2023third-party network earnings reports.
According to the IRS, this form applies to business transactions, such as part-time jobs, side jobs, or sales.
Prior to 2022, the federal Form 1099-K reporting threshold was for taxpayers with more than 200 transactions totaling more than $20,000. However, now the threshold is just $600 and even a single transaction can trigger the form.
Austin Chau, CFP and wealth advisor at Menlo Asset Management in Menlo Park, California, says personal transactions like paying a bill or a roommate dinner are not taxable.
Furthermore, you will only owe tax on the profits, he said. For example, if you spend $150 on concert tickets in 2022 and sell them for $200, the $50 gain is taxable, Chau said.
While the IRS says you shouldn’t receive a Form 1099-K for personal transfers, experts say it can happen, and the error could cause you to contact the issuer or regulator. correct your tax return.
Harder to claim charity deduction
Your tax refund may also be lower because it’s harder claim charity deduction in 2022.
Marguerita Cheng, CFP and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, says you won’t get a charity tax break in 2022 if you don’t list deductions on your return.
Congress pushed charities into 2021 by allowing single donors to claim a deduction of up to $300 for cash donations or $600 for married couples. married filed together, no matter you itemizesaid Cheng, who is also part of CNBC Financial Advisory Council.
However, the tax relief is not extended for 2022. You will now only benefit if your itemized deductions, including the tax credit for charitable gifts, are exceeded. standard deductible, this is less common. In 2019, nearly 90% of taxpayers used the standard deduction, according to the IRS.