January 2022
Tax Planning

Higher tax brackets and a larger standard deduction in 2022 may offer some relief for taxpayers who are seeing their budgets busted by inflation. The IRS has announced new standard deductions and new tax brackets for 2022, reflecting higher price levels thanks in part to inflation.

While the top federal tax rate remains at 37% for 2022, less of your income will likely get hit by this tax rate. Married couples filing jointly will not enter the 37% tax bracket until their taxable income passes $647,850 for 2022. This is almost a $20,000 jump from the tax brackets in 2021.

The most common tax deduction for the average taxpayer is the standard deduction.  For married couples, this valuable tax break will be increased by $800. While not life-changing, every bit helps! The new standard deduction for married couples in 2022 will be $25,900. Likewise, the maximum contribution to a flexible spending account (FSA) for healthcare has increased to $2,850, up from $2,750 in 2021.  Not to be confused with a healthcare savings account (HAS) – this contribution allowance has also increased moderately.  Single taxpayers may contribute $3,650 toward their healthcare savings account and families may contribute $7,300; please note that this maximum should take into consideration any contributions made by your employer to these savings accounts.  If you are over age 55, there is an additional $1,000 “catch-up” allowance that you may also take.

Those looking to further reduce their tax liabilities in 2022 will be allowed to make larger 401(k) contributions. The new maximum employee contribution to a 401(k) plan will be $20,500. The maximum contribution between employee and employer has increased to $61,000 per year. For taxpayers who are 50 or older, an additional $6,500 catch-up contribution is allowed bringing the grand total to $67,500 for 2022.

For yet another year, the IRA and Roth IRA contribution limits remain unchanged.  For 2022, the IRA contribution limit is just $6,000. Similarly, the IRA catch-up contribution limit will remain at $1,000 for those age 50 and older in 2022.

A very important reminder!  If you made a charitable contribution using appreciated stock, if you made a Qualified Charitable Distribution (QCD) from your IRA or if you made a ROTH conversion or “Back Door ROTH” contribution – all of these are very important pieces of information you need share with your tax preparer in order to insure you receive proper credit on your tax return. 

Your 1099’s are required to be posted by TD Ameritrade no later than February 15, 2022, but many of you with IRA distributions may start seeing those as early as the end of this month.  The past two years, due to the pandemic, we have seen the tax filing deadlines extended several months.  At this point, there has been NO such discussion but due to the 16th falling on a weekend, your tax filing deadline will be Monday, April 18th. 

Tax planning is important for everyone and if you ignore it, it’s like leaving a giant tip for the IRS. If you have questions on your contributions for 2022 or your tax situation, or need a referral to a tax preparer, please give us a call at the office!

If you have questions, please contact us.

MARKET UPDATE
FINANCIAL PLANNING
401(K) ALLOCATION

To download the January 2022 Newsletter: CLICK HERE