​What Individuals and Businesses Need To Know For the Upcoming Tax Season

Change has been constant during the past year, and taxes aren’t immune to that.

So, to help you get a handle on what you need to know going into next tax season, we put together a quick-hit list of some of the biggest changes for individuals and businesses.

This list is by no means comprehensive. And there are a lot of factors that can affect your individual tax situation. So, if you’re feeling a little over your head, please reach out to us.

Individuals

Child Tax Credit and Economic Impact Payments — A lot of families received various tax credit checks from the government in 2021. The IRS will be sending statements, letting you know how much you received in Child Tax Credits and Economic Impact Payments. Make sure you hold on to those papers and that your tax preparer has them when they go to file your taxes.

Child and Dependent Care Credit — For 2021, that credit is fully refundable, and more expenses now qualify. So, you can claim up to $8,000 of expenses for one child or disabled person you’re taking care of and up to $16,000 for more than one. There is a 50% maximum credit percentage. So, that puts the top credit for your 2021 taxes at $4,000 for one child or disabled person or $8,000 for more than one.

Standard Deduction — As has happened the past few years, the government increased the standard deduction:

• Single and married filing separately: $12,550
• Married filing jointly: $25,100
• Head of household: $18,800

Tax Brackets — The following are the tax brackets for each filing class in 2021:

Charitable Giving — Usually, if you opt to take the standard deduction on your taxes, you can’t also claim a deduction for charitable giving. But thanks to a temporary law change, you can now claim a limited charitable deduction on your 2021 taxes. Individual tax filers can claim up to $300 and $600 for those who are married and filing jointly.

Required Minimum Distributions — Seniors could skip their RMDs in 2020 without having to pay a penalty. But that was only true for one year. Now, anyone who’s at least 72 by the end of the year has to take an RMD for 2021. The amount individuals can contribute to their 401(k) plans in 2021 is $19,500. Also, if you take advantage of “backdoor Roth conversions,” there is some proposed legislation that’s aimed at removing that option for high-income individuals.

Businesses

First-Year Bonus Depreciation — The Tax Cuts and Jobs Act gives businesses a 100% first-year bonus depreciation for qualified used and new property. So, you might be able to get a tax break for the entire cost of assets your business purchased. If this year and next may result in a lot of income for you, you might want to consider making some purchases before the end of 2022. Right now, this benefit is set to start phasing out beginning in 2023. Starting after Dec. 31, 2022, the amount of allowable bonus depreciation drops to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.

Standard Mileage Rate — The 2022 standard mileage rate for business driving will be $0.585 a mile. Medical travel and military moves increased to $0.18. The charitable driving rate stays the same at $0.14 per mile.

Home Office Deduction — Business owners who worked from home this year may be able to take the home office deduction. But there are lots of caveats. This one is definitely worth talking to your financial tax professional about.

If you have questions about the upcoming tax season, please reach out to us.