By Matt Litzler, Family Wealth Planner | Advisor
2022 Tax Season: changes and factors to consider
It’s tax season, and this time we have some notable changes and pandemic related factors to keep in mind. Below are some considerations for you as we approach the upcoming deadlines; if you have any questions or need help locating your PPC related tax documents, please give us a call.
· Tax filing date extended to April 18
· 2021 IRA contribution deadline in April
· Required minimum distribution deadline by April if you turned 72 in 2021
· Pandemic tax credits structured as advance payments
· Charitable deductions of small cash amounts for non-itemizers and 100% limit for cash itemizers
Tax Filing Date
The tax filing due date was extended to April 18, 2022, because April 15 is recognized as Emancipation Day in Washington, DC (Maine and Massachusetts have until April 19). You can request a six-month extension, but that doesn't delay the requirement to pay what you owe, including 2022’s first quarterly estimated tax payment if you are required to make one.
To avoid underpayment penalties, you must pay 100% of last year’s tax liability or 90% of this year’s tax. If your adjusted gross income for 2020 was more than $150,000, you must pay more than 110% of your 2020 tax liability to be protected from a tax year 2021 underpayment penalty.
2021 IRA Contributions
The deadline for contributing to traditional IRAs and Roth IRAs is the April tax deadline of the following year; so, you have until this coming April to make contributions for 2021. For 2021, the maximum IRA contribution you can make is $6,000 ($7,000 if you are age 50 or older by the end of the year).
For 2022, the contribution limits remain unchanged; however, the income phase-out ranges went up. For example, the income phase-out for Roth IRA contributions for 2022 is $204,000 to $214,000 for married filing jointly, compared with $198,000 to $208,000 for 2021.
Making a deductible contribution to traditional IRAs will help lower your tax bill subject to income limitations. Roth contributions are not deductible but could be the better choice because all withdrawals from a Roth can be tax-free in retirement.
Required Minimum Distributions
Increasing the required begin date for required minimum distributions (RMDs) to age 72, as well as a 10-year payout rule for most non-spouse beneficiaries, are new rules applicable to IRAs. If you turned 72 in 2021, you have until April 1, 2022, to take your first required minimum distribution; and, you have until December 31, 2022, to take your second required minimum distribution.
Beginning January 1, 2022, the IRS made changes to life expectancies and distribution periods when calculating RMDs from IRAs and defined contribution plans such as 401(k), 403(b), and 457(b) plans, to adjust for Americans living longer.
Pandemic Tax Credits
Congress authorized a third round of stimulus payments in 2021 structured as an advance payment of a tax credit; so, you may still qualify or be eligible for more based on your 2021 income and family situation.
Congress also directed the IRS to send advance payments of up to half the total anticipated 2021 child tax credits based on existing records. As a result, many parents will be due more money from the child credits while others may have received prepayments they don’t qualify for, leaving them owing unexpected tax bills for 2021.
Charitable Deductions
Ordinarily, individuals who elect to take the standard deduction cannot claim a deduction for their charitable contributions. The law now permits these individuals to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations of up to $300 for single filers and $600 for married individuals filing joint returns.
For itemizers, the law now permits electing individuals to apply an increased limit, up to 100% of their AGI, for qualified contributions made during calendar-year 2021. Qualified contributions are contributions made in cash to qualifying charitable organizations.
