With inflation hitting a 30-year high, now would be the time to consider tax-savings strategies for 2022. All taxpayers should be aware of the most significant tax deductions and credits to ensure they are taking advantage of those most applicable.
- Adding more funds to retirement accounts is one of the best options. This gives individuals the chance to keep their money, tax-free, and increase saved income. IRA contributions are another option. Individuals can contribute $6,000, and those over 50 are allowed an additional $1,000 catch-up contribution per year up until the April 15th deadline. One other strategy for those 70 ½ and up, who are required to take the minimum distribution, is to consider a qualified charitable distribution. Up to $100,000 can be transferred directly from an IRA to a qualified charity without tax implications.
- Consider making an extra mortgage payment. Single or married persons filing jointly, and itemizing tax deductions, can deduct the interest on mortgage debt up to $750,000. Married persons filing separately from a spouse can deduct interest payments on mortgage debt up to $375,000 each tax year. Taxpayers under these thresholds can make an extra payment during the 2022 tax year to write off additional loan interest.
- Take advantage of gift tax exclusions. Individuals can be gifted up to $16,000 and married couples up to $32,000 under the tax exemption. Read more about the tax implications of gifting.
- Make charitable tax donations. Contributions of financial or donated goods can reduce the amount of taxable income. However, these contributions must be made to a qualified tax-exempt organization. The IRS provides a Tax-Exempt Organization Search tool on its website. It is also a good idea to check with the charity on how much of the donation is tax-deductible.
- Contribute the maximum to Health Savings Accounts. The IRS slightly increased the maximum limits for 2022. Self-only limit is $3,650 (up $50 from 2021), while the family coverage limit is now at $7,300 (up $100 from 2021). HSA account holders 55 and up may make a “catch up” contribution of an additional $1,000. HSA contributions are tax-deductible, which means the money contributed to the account reduces the amount of taxable income.
Regardless of which tax-saving strategies are utilized in 2022, it is important to keep all relevant documents and forms well-organized and prepared for tax filing.
Changes to Income Tax Brackets
To offer a bit of relief, the IRS announced changes to the tax code at the end of last year. One notable change is adjustments to the 2022 tax brackets or range of income subject to taxes. Below is a breakdown of the rate changes.
Taxable income for married individuals filing jointly:
10%: Up to $20,550 (up from $19,900 for 2021)
12%: $20,550 to $83,550 (up from $19,900 to $81,050 for 2021)
22%: $83,550 to $178,150 (up from $81,050 to $172,750 for 2021)
24%: $178,150 to $340,100 (up from $172,750 to $329,850 for 2021)
32%: $340,100 to $431,900 (up from $329,850 to $418,850 for 2021)
35%: $431,900 to $647,850 (up from $418,850 to $628,300 for 2021)
37%: Over $647,850 (up from $628,300 for 2021)
Taxable income for individual single taxpayers:
10%: Up to $10,275 (up from $9,950 for 2021)
12%: $10,275 to $41,775 (up from $9,950 to $40,525 for 2021)
22%: $41,775 to $89,075 (up from $40,525 to $86,375 for 2021)
24%: $89,075 to $170,050 (up from $86,375 to $164,925 for 2021)
32%: $170,050 to $215,950 (up from $164,925 to $209,425 for 2021)
35%: $215,950 to $539,900 (up from $209,425 to $523,600 for 2021)
37%: Over $539,900 (up from $523,600 for 2021)
Married couples and individual filers should make note of the new tax brackets, since adding too much extra income might end up costing more at tax time.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.