by 2022 has been a bumpy ride for Americans, with an economy in turmoil, virus angst, rising numbers of layoffs, a lackluster stock market, and a general downward slope in consumer confidence.
Weary US adults may not be in the mood, but the end of the year represents a good time to get some of that mojo back in the form of money-saving tax breaks. 2022 has also been a year of change for the Internal Revenue Service, with new rules and allowances introduced by Congress and the IRS over the past 12 months.
“There have been significant changes in the way Americans report their taxes for the 2022 tax year,” said Taxfyle co-founder Richard Lavina. “Much of that relates to the rampant inflation we’ve been dealing with this year.”
To account for rising inflation, the IRS has increased the standard deduction for taxpayers.
For tax year 2022, married couples claiming the standard deduction will receive $25,900, single filers can claim a standard deduction of $12,950 and heads of households will receive a standard deduction of $19,400.
“The IRS has also adjusted income thresholds on long-term capital gains tax rates and tax brackets to try to offset the price hike we’ve felt,” Lavina said. “Many changes to tax credits have been adjusted to pre-pandemic levels.”
Take these tax breaks at the end of the year
With change in the air and a continuing need for household savings at stake after a tough year, why not use the IRS rules – old and new – to save some money to head into the new year?
Tax experts note these year-end deductions could take the sting out of a tough 2022.
Sell off any investments at a loss. 2022 has been a tough year for the stock market, with the S&P 500 index down 20% for the year through late December.
Make amends by selling all the losers in the portfolio and secure a tax gain.
“If your stock is at a loss right now, sell it before the end of the year and take the deduction,” advised tax specialist Kara Dennis. “Sell even if you have cryptocurrency losses. If so, sell your cryptocurrency to create a taxable event and take advantage of the losses.”
Other tax experts agree.
“Collecting losses can help offset capital gains or get up to $3,000 to offset other income,” said Delagify Financial certified financial planner Robert Persichitte.
Tax planning on retirement accounts. It’s a good idea to max out your 401(k) or IRA plans at the end of the year.
“Some employers will allow you to contribute up to 100% of your paycheck,” Persichitte said. “Be careful if you try this, though. You’ll probably need to write a check to your employer to pay your benefits, if that’s the case.
Home office deductions. If you are self-employed and use part of your home as office space for your business, you can deduct a certain amount of taxes from rent, mortgage interest, utilities or insurance.
“However, it’s important to note that this only applies if you’re self-employed. If you work from home but have an employer, this doesn’t apply to you,” said Top Dollar founder and former Wall Street trader Josh dudick. “The amount of tax you can deduct will also depend on how much space you use in your home for an office. The more space you have, the more you can deduct, within reason.”
Also, if you’re self-employed, you can deduct any business insurance premiums or health insurance premiums from your tax return. “Health insurance premiums count for you, your spouse, children under 27, or any dependents on your premium,” Dudick said.
Take advantage of expanded tax breaks. Deductions for certain tax categories have been expanded for 2022.
“For example, the annual gift tax exemption comes to $17,000 and the state and gift tax exemption comes to $12,920,000,” said Fred Freifeld, director of Fiske & Company. “Also, maximum contributions to 401(k) plans come in at $22,500. If you’re 50 or older, go up to $30,000.
