Your status for filing a federal tax return generally depends on your marital status as of December 31. However, more than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax.
The statuses are single, married filing jointly, married filing separately, head of household and qualifying widow or widower with a dependent child. In general, head of household status is more favorable than filing as a single taxpayer. To qualify, you must “maintain a household” that, for more than half the year, is the principal home of a “qualifying child” or other relative that you can claim as your dependent.
Your filing status can affect the amount of tax you owe, and it may even determine if you have to file a tax return at all. We’ll help determine which filing status is best for you when we prepare your tax return.
Each year, the IRS adjusts the amounts for certain tax breaks based on inflation. The 2022 adjustments that were recently announced generally apply to tax returns to be filed in 2023. A few highlights: the standard deduction increases $800 to $25,900 for married couples filing jointly; up $400 to $12,950 for single taxpayers and married individuals filing separately; and up $600 to $19,400 for heads of households. The 2022 alternative minimum tax exemption increases by $2,300 to $75,900 and begins to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption begins to phase out at $1,079,800). Click here for a list of all the annual inflation numbers.
The federal gift and estate tax exemption will be increasing to $12,060,000 for an individual dying in 2022 (from $11,700,000 in 2021). The Tax Cuts and Jobs Act doubled the exemption base amount from $5 million to $10 million, with the amount indexed for inflation. Be aware that the doubled amount will continue to be adjusted annually for inflation, but it expires after 2025. Without further legislation, the gift and estate tax exemption will return to an inflation-adjusted $5 million in 2026. For 2022, the annual gift tax exclusion will increase to $16,000 per recipient (from $15,000 in 2021).
And the IRS has also issued the 2022 long-term capital gains rate bracket numbers. The maximum income required to qualify for the 0% bracket will be $41,675 for single taxpayers, $83,350 for married taxpayers filing jointly and $55,800 for heads of households. For the 15% bracket, the maximum income for 2022 will be $459,750 for single filers, $517,200 for joint filers and $488,500 for heads of households. Taxpayers with income over the amounts for the 15% rate bracket will fall into the 20% bracket. In the case of an estate or trust, the amount will be $2,800 to qualify for the 0% rate and $13,700 for the 15% rate. Contact your tax advisor with any questions.
There are some steps that you can take now to make filing in 2022 less stressful. Create a file of tax forms as you receive them, such as W-2 Wage and Tax Statements, Forms 1099 for Misc. Income and Form 1099-G for unemployment compensation. If you received Economic Impact Payments or Advance Child Tax Credit payments, add the accompanying notices to your file. Also add documentation for deductible expenses incurred during the year. If you’ve moved, avoid delays by ensuring the IRS has your new contact information.
If you received Economic Impact Payments (EIPs) or advance Child Tax Credit (CTC) payments in 2021, expect to hear from the IRS in January. Letters will be mailed, listing the total EIPs or CTC payments you received. Keep the letters with your tax records. Depending on your eligibility, you may be able to claim an additional EIP, called a Recovery Rebate Credit, on your 2021 tax return (even if you don’t usually file). If you received advance CTC payments, compare the amount received with the total you qualify to claim. If you were overpaid or underpaid, you may have to repay the excess on your return or claim a credit for the difference.
Educators who qualify will see an increased deduction for certain classroom expenses. For 2022, the deduction for these expenses that educations aren’t reimbursed for rises to $300 (up from $250 for 2021). Married couples who are both eligible educators and who file jointly may claim up to $600.
Eligible educators generally include teachers, counselors, principals and aides in kindergarten through grade 12. To be eligible, they must also have worked at least 900 hours during a school year in a school that provides education under state law.
Qualifying expenses include professional development course fees, books, certain supplies, computer equipment, software and COVID-19 protective items. Contact your tax advisor with questions.
A self-directed IRA owner can direct how assets are invested without forfeiting the tax benefits. However, an IRA owner can’t have “unfettered control” over a self-directed IRA’s assets.
In one case, a taxpayer had a self-directed IRA that invested in an LLC that purchased collectible coins. The U.S. Tax Court ruled that she received a taxable distribution when she took possession of the coins. The court found the taxpayer had unfettered control over the assets because she had physical possession of them. Therefore, she had a taxable distribution from her self-directed IRA. The court stated a third-party fiduciary is “fundamentally important” to IRAs.
The court stated: “When coins or bullion are in the physical possession of the IRA owner (in whatever capacity the owner may be acting), there is no independent oversight that could prevent the owner from invading her retirement funds. This lack of oversight is clearly inconsistent with the statutory scheme. Personal control over the IRA assets by the IRA owner is against the very nature of an IRA.” (McNulty, 157 TC No. 10, Nov. 18, 2021)
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Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.