The filing deadline to submit your 2022 tax returns, or to request an extension, is Tuesday, April 18, for most of us. And if you haven’t filed your 2022 taxes yet, there are some important updates to keep in mind this year. We’ve compiled some of the most impactful ones, including deadline extensions for some Californians in the wake of severe winter weather, as well as changes to tax-credit rules and the introduction of reporting requirements for business transactions on apps like VenmoTM and PaypalTM. We end with a few tips that we hope are helpful every year when tax season rolls around.
Deadlines extended for Californians
To help alleviate some of the hardships many Californians have faced due to this winter’s intense storms, both the IRS and the state’s Franchise Tax Board have extended the tax filing and payment deadlines for individuals and businesses in affected areas to October 16, 2023.
Changes to tax-credit rules
The American Rescue Plan Act, enacted in 2021, temporarily increased certain tax credits and added a special rule for charitable deductions. With these programs now ending, you should check eligibility rules and deduction amounts to see what’s currently available.
Some changes to keep in mind:
- Child tax credit – In 2021, you may have received up to $3,600 per eligible child, half of which was sent as monthly advance payments. In 2022, the Child Tax Credit returns to its 2019 maximum: up to $2,000 per qualifying child.
- Child and dependent-care credit: In 2021, this credit topped out at $8,000. In 2022, the maximum is $2,100.
- Earned-income tax credit: In general, these credits are lower than last year. For details on new income eligibility and credits for 2022, it’s best to check with the IRS.
- Premium tax credit: For those who purchased health insurance through the health insurance marketplace in 2022, the American Rescue Plan Act temporarily expanded eligibility for this credit by including taxpayers with household incomes 400% above the federal poverty line.
- Clean-energy vehicle credit: Tax credits of up to $7,500 are still available for qualifying electric and plug-in hybrid vehicles. But eligibility rules changedwith the passage of the Inflation Reduction Act in 2022. Before claiming the credit, EV owners should check to make sure their vehicle purchase qualifies.
- Charitable donations: In 2021 only, these types of donations were deductible as a separate line item, even if you took the standard deduction. This year, you’ll have to itemize each of your donations if you want to claim a deduction for charitable giving.
Pause on business payments by app
If you run a business and rely on apps like Venmo and Paypal as a way for customers to pay you, you likely heard about a new law that will require third-party payment companies to report transactions to the IRS using Form 1099-K. This would apply to business-account holders on the apps who received at least $600 in payments in 2022—up from the threshold of $20,000 in 2021.
However, a last-minute change in the law paused implementation of this new rule until the 2023 tax year. So, businesses on these payment platforms aren’t required to report income from a 1099-K form for the 2022 tax year. (That said, with or without a 1099-K, you must still report on your tax return income from self-employment, gig work, sales of goods or other business transactions.)
Best practices to make a habit
Start early. The first step in filing your taxes every year is gathering all the official IRS forms sent to you by your employer, financial institutions, tax boards and other entities. In most cases, the deadline for these organizations to send out these forms for 2022 tax reporting was January 31. So, if you haven’t started your tax filing yet, it’s time to start digging through your unopened mail and tracking down those forms and other wage statements.
Go digital. Taxpayers and tax professionals are encouraged to file their returns electronically, to avoid both potential mail delays and slow paperwork processing due to staffing shortages. Setting up direct deposit with the IRS will speed up the delivery of any refund due back to you.
Be accurate. Discrepancies on your tax return are a common trigger for an IRS audit and delay your refund. If the information you provide differs from what the agency has on file, it may be flagged for manual review. You can prevent inaccuracies by requesting a digital copy of your tax transcript through this IRS site.
Fund Your IRA. Though 401(k) contributions were due by the end of 2022, you have until April 18 of this year to contribute to a traditional IRA or a Roth IRA. Making a deductible contribution helps you lower your tax bill by reducing your taxable income while contributing to a tax-deferred IRA account. To qualify for the full annual deduction on a traditional IRA, you (and your spouse, if filing jointly) must:
- Not be eligible to participate in a company retirement plan
- Be eligible but have an adjusted gross income of $68,000 individually or $109,000 or less as a married couple filing jointly
Want to find out whether a traditional IRA or Roth IRA is right for you? We can help. Whether you’re new to investing or you’d just like a second opinion on your current plan, we’ll help you find your path to financial security in retirement. We can also help you determine if IRA Term Certificates – a dependable, federally insured investment option – might fit within your overall retirement plan.
Consult a tax professional regarding your individual tax situation or a licensed professional for financial planning and investment advice. This content is for informational purposes only and is not intended to be financial or investment advice.
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