News and Announcements

Taxes are one of the few certainties in life, and yet, they can also be quite unpredictable. While you can certainly plan on paying taxes every year, there are usually tax law changes each year as well. Often, these are minor changes that won’t impact the majority of tax payers. But this year, there are some tax changes that you should be aware of. These changes to tax law will likely impact your 2022 tax return, so it’s important to plan for them accordingly.

Standard Deduction Increasing

While this increase isn’t quite as dramatic as the one that was provided through the Tax Cuts and Jobs Act several years ago, it’s still worth noting if you intent to take the standard deduction when you file your return (as most people do). The standard deduction typically increases each year to account for inflation. Here are the new standard deductions by filing status:

• Single filers: $12,950
• Heads of household: $19,400
• Joint filers: $25,900

Keep these new numbers in mind if you’re still deciding between taking the standard deduction and itemizing your deductions.

No Limit on Itemized Deductions

Speaking of itemized deductions, we would like to take a moment to remind taxpayers that the Tax Cuts and Jobs Act also abolished the limits on itemized deductions through 2025. So, while this new law has been in effect for a couple of years now, it’s an important factor to keep in mind when comparing your itemized deductions with your new standard deduction rate.

Deduction Limits on Roth IRA Contributions

Roth IRAs can provide taxpayers with a nice post-tax savings opportunity while preparing for their retirement. However, you cannot contribute to a Roth IRA if your adjusted gross income exceeds certain limits—income limits that are increasing for 2022 to account for inflation. Single filers can contribute the maximum annual amount to their Roth IRAs so long as they earn under $129,000. At that income level, the maximum contribution begins to decrease until they are no longer able to contribute to a Roth IRA at $144,000 of annual income. Joint filers will see their maximum contribution begin to decrease at $204,000 and will phase out at $214,000.

Changes to Traditional IRA Deductions

The other type of IRA that people rely on to save for retirement is a traditional IRA. This account allows users to make pre-tax contributions, so they can deduct any amount they save on their tax return for that year. The contribution limit to IRAs remains unchanged this year, with a maximum annual contribution of $6,000, with an additional $1,000 catchup contribution allowed for those 50 and older. However, 2022 does introduce a change related to receiving that coveted tax deduction for your IRA contributions.

This year, if you are covered by an employer-sponsored plan, your income limit for receiving a deduction will be increasing. For single filers earning less than $68,000, you can take the full deduction for your IRA contributions. The deductible amount steadily decreases beyond this income threshold and phases out entirely at $78,000 of annual income. For joint filers, those income thresholds are $109,000 and $129,000, respectively.

Increased Limits for Retirement Contributions

In addition to these changes for IRAs, 2022 also introduces a change to employer-sponsored retirement plans, like 401(k)s, 403(b)s, and more. Elective deferrals to these accounts now have a cap of $20,500. Additionally, the maximum amount you and your employer can contribute cannot exceed $61,500; in 2021, this maximum was $58,000. The catchup contribution amount for those 50 and older has not changed, and remains at $6,500 for the year.

Tax Bracket Changes

Again, this is something that changes almost every year, based on inflation rates. The new inflation rates for 2022 are listed below. Be sure to keep them in mind as you make financial decisions and do your tax planning for this year.

If you have questions about how these new tax brackets or any of the other tax law changes in this article affect you, contact us today to speak to one of our experienced CPAs. We’ll help you understand these changes and provide the necessary assistance for advanced tax planning for 2022.