Checklist of Key Tax Changes for Individuals and Businesses in the US
Before you start preparing your taxes, go through our checklist. We have compiled a list of changes to various tax rules, for both individuals and businesses. Here is everything you need to know to before you file your taxes for 2021:
- Standard Deduction
The standard deduction for individuals rises to $12,950 in 2022 (up from $12,550 in 2021) and to $25,900 for married couples (up from $25,100 in 2021).
- Alternative Minimum Tax (AMT)
Individuals will have an AMT exemption of $75,900 in 2022 (up from $73,600 in 2021) and married couples filing jointly will have an exemption of $118,100 (up from $114,600 in 2021).
- Kiddie Tax
The amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax” for taxable years beginning in 2022 is $1,150. A child’s gross income for 2022 must be greater than $1,150 but less than $11,500 in order to qualify for the parental election.
- AGI Limit for Deductible Medical Expenses
The deduction threshold for deductible medical expenses will be 7.5 percent of adjusted gross income in 2022. (AGI).
- Foreign Earned Income Exclusion
The foreign earned income exclusion amount for 2022 is $112,000, up from $108,700 in 2021.
- Long-Term Capital Gains and Dividends
The tax rates on capital gains and dividends shall remain the same in 2022 as they were in 2021 (0 percent, 15%, and a top rate of 20%); however, the threshold amounts have increased: the maximum zero percent rate amounts for individuals are $41,675 and $83,350 for married filing jointly.
For taxpayers who earn more than $41,675 but less than $459,750 (single filers), the 15 percent rate applies.
The rate for both capital gains and dividends is capped at 20% for an individual taxpayer with an income of $459,750 or more ($517,200 married filing jointly).
- Estate and Gift Taxes
The basic exclusion amount for any decedent’s estate during the calendar year 2022 is $12.06 million, indexed for inflation (up from $11.70 million in 2021). The top tax rate of 40% remains unchanged. The annual exclusion for gifts has been raised to $16,000 per year.
Individuals - Tax Credits
- Adoption Tax Credit
In 2022, non-refundable credit of up to $14,890 is available for qualified adoption expenses for each eligible child (only those with tax liability will benefit).
- Earned Income Tax Credit (EITC)
The maximum Earned Income Tax Credit (EITC) for low and moderate-income workers and working families increases to $6,935 for the tax year 2022 (up from $6,728 in 2021). The credit varies depending on family size, filing status, and other factors, with joint filers with three or more qualifying children receiving the maximum credit.
- Child Tax Credit
The child tax credit is $2,000 per child for tax years 2018 through 2025. In 2022, the refundable portion of the credit is $1,500, so taxpayers who do not owe any tax can still claim the credit. For dependents who do not qualify for the Child Tax Credit, a $500 non-refundable credit is also available (e.g., dependents age 17 and older).
Individuals - Education
- Lifetime Learning Credit and American Opportunity Tax Credit
The American Opportunity Tax Credit has a maximum credit of $2,500 per student. The Lifetime Learning Credit continues to be worth $2,000 per return.
- Interest on Student Loans
The maximum deduction for student loan interest paid in 2022 is $2,500. For higher-income taxpayers with a modified adjusted gross income of more than $70,000 ($140,000 for joint filers), the deduction begins to phase out and is completely eliminated for taxpayers with a modified adjusted gross income of $85,000 ($170,000 for joint filers).
- Rates for Standard Mileage
The rate for business miles driven in 2022 is 58.5 cents per mile, a 2.5 cent increase from the rate in 2021.
- Expensing in Section 179
The Section 179 expense deduction will be increased to a maximum deduction of $1,080,000 of the first $2,700,000 of qualifying equipment placed in service during the current tax year in 2022. The exemption was expanded to include non-residential qualified actual property advancements such as security systems, roofs, air-conditioning systems, fire protection and alarm systems, and heating and ventilation
- Bonus Depreciation
Businesses can immediately deduct 100 percent of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80 percent in 2023, 60 percent in 2024, 40 percent in 2025, 20 percent in 2026, and 0 percent in 2027 and subsequent years.
- Tax Credit for Research and Development
Beginning in 2018, businesses with gross receipts of less than $50 million can use this credit to offset alternative minimum tax.
- Tax Credit for Work Opportunity (WOTC)
WOTC is available to employers who hire long-term unemployed individuals (those who have been out of work for 27 weeks or more) and is typically equal to 40% of the first $6,000 in wages paid to a new hire.
- Expenses for Employee Health Insurance
The dollar amount of average wages for taxable years beginning in 2022 is $28,700 ($27,800 in 2021). This amount is used to limit the small employer’s health insurance credit and to determine who qualifies as a small employer for credit purposes.
- Expenses for business meals and entertainment
Taxpayers who incur food and beverage expenses while operating a trade or business can deduct 100% (50 percent for tax years 2018-2020) of these expenses for tax years 2021 and 2022 if the meal is provided by a restaurant.
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