Key Tax Changes

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 taxes rule, for both individuals and businesses. Here is everything you need to know to before you file your taxes for 2021:

 

Individuals

  • 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 Taxes
    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 per cent 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.  In 2021 it was (0 cent, 15%, and a top rate of 20%); however, the threshold amounts have increased: the maximum zero per cent 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 per cent 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.

Persons – 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 in 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).

Businesses

 

  • 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

    In 2022, the first $2,700,000 of qualified equipment placed in service during the current tax year will be eligible for a higher Section 179 expenditure deduction of up to $1,080,000. The exemption now covers non-residential eligible actual property improvements such roofs, air conditioning systems, security systems, fire protection and alarm systems, and heating and ventilation systems.

  • Bonus Depreciation

    Businesses can immediately deduct 100 per cent 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 per cent in 2023, 60 per cent in 2024, 40 per cent in 2025, 20 per cent in 2026, and 0 per cent 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 per cent for tax years 2018-2020) of these expenses for tax years 2021 and 2022 if the meal is provided by a restaurant.

At 4i Advisory, we provide business and income tax returnsaccountingaudit supportdirect taxprivate equitypayrollassuranceUS-India tax and sales tax services to just name a few in the United States of America. To know more information please contact us (Urvesh Patel – urvesh.patel@4iadvisory.com) and we would be happy to assist you.