2022 Tax Updates You Need To Know

If you’re preparing your 2022 tax return, there are some important updates you need to know. These changes will impact your tax bill and help you get back the most money possible.

The Child Tax Credit, a popular federal policy that helps millions of parents offset the cost of raising children, expires on December 31, 2022. If no further legislation is enacted before then, the credit will revert back to rules under the American Recovery and Reinvestment Act of 2009 (ARRA), including the phase-out income level, refundable threshold, and maximum amount. As a result, 19 million children will receive a partial credit or none at all this year.

Capital gains are the profit that comes from selling one or more investments or assets. These profits are taxable and can vary based on the type of asset you sell. The best way to calculate your tax bill is to keep track of the sales you make and the basis for each, plus any qualifying expenses that came with the asset. Then use the information to figure your net capital gain. You can save some cash on the tax bill by deferring some of your gains but be sure to check with your accountant before you do so. For example, if you sell a stock in your small business and defer a portion of the gain to purchase another, you may owe less. However, don’t take this as an invitation to skimp on your taxes or you could end up with a nasty surprise in your next tax bill.

Net investment income is a broad category that includes a variety of non-business income, such as interest, dividends, rents, royalties, and the profit you earn from trading stocks. It also includes trade or business income, such as from trading financial instruments or commodities. If you earn income from investments – dividends, capital gains, interest, royalties, rents and more – you may owe the tax on net investment income. The tax is 3.8%, and it’s imposed on high-income individuals, estates and trusts who exceed certain income thresholds.

The IRS created RMD rules to recapture income taxes on dollars saved in tax-advantaged retirement accounts like IRAs and 401(k) plans, which have accumulated without being taxed. When people reach a certain age, they must start withdrawing these funds to avoid tax penalties and prevent them from using their nest eggs as tax shelters. Starting in 2022, owners and beneficiaries of retirement accounts will use new tables to calculate RMDs. These new tables are being updated to reflect more current life expectancies than the ones used previously.

If you own a business that produces qualified business income (QBI), you can take a 20% deduction on that income. This is known as the pass-through deduction and applies to partnerships, LLCs, and sole proprietorships. The size of this deduction varies depending on your taxable income and the nature of your business. It also depends on whether you have W-2 employees or own business property. The new tax law sets a threshold for this deduction and increases it each year, but that doesn’t mean you have to reach it to claim it. It’s important to understand the threshold and how it works so you can use it correctly.