15 Things To Keep In Mind For 2022 Tax Filings
Written By: Dan Pilla
Read the article below or through Dan's website here
Tax Law Changes Continue to Muddy the Waters
The 2022 tax filing season is in full swing, but most people will not file their returns until the April filing deadline. If the IRS owes you money, it’s most certainly in your best interests to file as soon as possible, but don’t file your 2022 return without first considering these 15 critical points to keep in mind.
1. The due date of the return. The filing deadline for personal income tax returns is April 18, 2023, not April 15. The reason is that April 15 is a Saturday, and April 17 (the next business day) is a holiday – Emancipation Day – in the District of Columbia. So, the deadline goes the next business day, April 18. This applies regardless of whether or not you live in the District of Columbia.
2. A filing extension does not extend the payment deadline. An extension of time to file your return is available if you submit Form 4868 on or before the April 18 filing deadline. In that case, you’ll have until October 16, 2023, in which to timely file your return. The filing extension is automatic. However, getting an extension of time to file your return does not extend the due date for paying the tax. The tax must be paid by April 18. If you don’t pay by the April deadline, the IRS will assess penalties and interest. One of the IRS’s best-kept secrets is the fact that you can get an extension of time to pay taxes. That application is made on Form 1127. By filing that form on or before the April 18 deadline, you can get up to six additional months to pay without penalties (but interest still applies). The payment extension is not automatic. You must show that financial hardship will result if you are forced to pay on time. For more on this, see my book, The IRS Problem Solver.
3. File on time even if you can’t pay. Even if you can’t pay the tax, you must file the return on time. Failure to file the return carries a penalty of up to 25 percent of the tax owed. While penalties can be canceled for reasonable cause, the IRS and the courts regularly rule that not having the money to pay is not reasonable cause for not filing the return. It may be reasonable cause for not paying on time (depending on the facts), but not having the money is not an impediment to filing a return, such as would be an illness, injury, or missing financial records, etc. See my Problem Solver for more details on penalty cancellation procedures.
4. The FBAR filing deadline. If you have an interest in, or signature authority over, offshore financial accounts, you may be required to file a FinCEN Form 114 (the FBAR form). For more details see complete article.
5. Reporting digital asset transactions. If, at any time during 2022, you received, sold, exchanged, gifted, or otherwise disposed of a digital asset, you must answer ‘‘Yes’’ to the Digital Assets question on the tax return. The question applies to any type of digital asset, not just virtual currencies. See the detailed article on reporting digital assets found in this issue of Pilla Talks Taxes.
6. Increase in the standard deduction. For 2022, the standard deduction amount has been increased for all filers. The amounts are: (a) $12,950 (Single or Married Filing Separately); (b) $25,900 (Married Filing Jointly or Qualifying Surviving Spouse); and (c) $19,400 (Head of Household).
7. Expiration of certain health-related credits. The credit for sick and family leave for self-employed individuals was allowed to expire. As such, these credits may no longer be claimed. Likewise, the health coverage tax credit was not extended. It is no longer available for any year starting in 2022.
8. Credit for child and dependent care expenses. The changes to the credit for child and dependent care expenses implemented by the American Rescue Plan Act were not extended. As such, for 2022, the credit for child and dependent care expenses is nonrefundable. The dollar limit on qualifying expenses is $3,000 for one person and $6,000 for two or more persons. The maximum credit is 35 percent of employment-related expenses if AGI is $15,000 or less. The maximum amount allowed is reduced as AGI increases above $15,000.
9. The Child Tax Credit (CTC). None of the changes to the CTC imposed by the American Rescue Plan Act were extended. As a result, the following rules apply to 2022: (a) the credit is $2,000 for each qualifying child; (b) the amount that can be claimed as a refundable credit is limited as it was in 2020, except that the maximum refundable amount is increased to $1,500 for each qualifying child; (c) a child must be under age 17 at the end of 2022 to be a qualifying child; and (d) bona fide residents of Puerto Rico are no longer required to have three or more qualifying children in order to claim the credit.
10. The Earned Income Tax Credit (EITC). The enhancements for citizens without a qualifying child implemented by the American Rescue Plan Act don’t apply in 2022. This means that to claim the EITC without a qualifying child, you must be at least age 25 but under age 65 at the end of 2022. If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2022. It doesn’t matter which spouse meets the age requirement.
11. The standard mileage rates. Adjustments have been made to the standard mileage rates for deducting vehicle expenses. For business miles, the rate is 58.5 cents a mile from January 1, 2022, to June 30, 2022, and 62.5 cents a mile from July 1, 2022, to December 31, 2022. For volunteer miles, the rate is 14 cents a mile from January 1, 2022, to December 31, 2022. For medical miles, the rate is 18 cents a mile from January 1, 2022, to June 30, 2022, and 22 cents a mile from July 1, 2022, to December 31, 2022. A mileage log is required to support any deduction for miles driven in any of the three categories above.
12. AGI limit for traditional IRAs. If you are covered by a retirement plan at work, the deduction limit for contributions to a traditional IRA is reduced based on modified AGI as follows: For more details see complete article.
13. AGI limit for Roth IRAs. The Roth IRA contribution limit is reduced as follows: For more details see complete article.
14. Alternative minimum tax (AMT) exemption amount. The AMT exemption amount is increased to $75,900 ($118,100 if married filing jointly or qualifying surviving spouse; $59,050 if married filing separately). The income levels at which the AMT exemption begins to phase out are increased to $539,900, and $1,079,800 if married filing jointly or qualifying surviving spouse.
15. Adoption Credit. The adoption credit and the exclusion for employer-provided adoption benefits were both increased to $15,950 per eligible child. The amount begins to phase out if modified AGI exceeds $239,230 and is completely phased out if modified AGI is $279,230 or more.
PTT subscribers get this article and more when they download their February 2023 issue of Pilla Talks Taxes.
Looking for a tax pro in your area? Check out our Taxpayers Defense Institute consulting members.
Prudent Money Contributor and IRS Expert Dan Pilla can be heard on the Prudent Money Radio Show this afternoon, 3/8/2023, at 3:00 PM CST on FM Radio 91.3 KRKR