Another year of tax law changes has passed, and there are some significant changes for the 2022 filing season.
- These include the possibility of a smaller refund and larger tax bills.
- Some people may have had their tax credits reduced.
- Also, it may be harder to claim the charitable deduction.
- In addition, you can now get Form 1099-K, which allows you to report income from third-party networks.
It’s essential to start planning for the year ahead, as many Americans may be affected by the reduced tax breaks.
According to the IRS, tax refunds may be smaller in 2023. There are also some lesser-known ways to boost or trim your tax bill.
Reductions
According to financial planner Cecil Staton, a certified financial planner based in Athens, Georgia, the reduction in the dependent care and child tax credits could cause refunds to be smaller in 2022.
Although the tax credits were temporarily increased through the American Rescue Plan in 2021, it wasn’t extended into this year.
In 2021 the child tax credit was $3,000 for children under 6 years old and up to $3,600 for children ages 6 to 17. However, in 2022, it reverts to the previous amount of up to $2,000 for kids under 17 years old.
The dependent care credit was increased in 2021 to $8,000 for a qualifying individual and $17,000 for two or more dependent children. However, in 2022, these caps are $3,000 and $6,000.
1099-K
You can now report income from payments made through third-party networks. In early 2023 if you used apps such as PayPal or Venmo, the 1099-K form will allow you to report income from these platforms.
According to the IRS, this form is for business transactions, such as selling goods or working part-time. Before 2022, this form was only allowed for taxpayers with over 200 transactions worth over $20,000. However, in 2022, the threshold was reduced to $600 and can be used for a single transaction.
Crypto losses can offset capital gains using the 1099-K.
Charitable Deductions are now More Difficult to Claim.
The charitable deduction is harder to claim in 2022. According to Marguerita Cheng, a certified financial planner in Maryland, you will only be able to take a charitable deduction in 2022 if you itemize.
In 2021, Congress boosted charitable organizations by allowing individuals to deduct up to $300 for cash donations and $600 for married couples filing jointly. It was not extended for 2022. Charitable deductions must exceed standard deductions and be itemized on your tax return.