Personal Income Tax is something you need to be aware of. And, like in years past, there were some new tax changes to keep track of, such as how taxes were changed to account for inflation. Here’s a list of things to consider as you prepare to file your tax return for 2022.
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Tax brackets and marginal tax rates
Like the last few years, the federal government has seven marginal tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. However, the income thresholds went up from 2021 to 2022. Here are the tax brackets for the year 2022:
Normal deductions
The standard deduction is part of your income that doesn’t have to be taxed. You can take the standard deduction unless you use Form 1040 Schedule A to list each deduction you take. The Tax Cuts and Jobs Act (TCJA) of 2017 nearly doubled the standard deduction for 2018. These changes will end after 2025. Here are the standard deduction amounts for the 2022 tax year, based on how you file:
Itemized Tax Breaks
Most people find it easier to take the standard deduction, but it makes sense to itemise if the value of your itemised deductions is higher than your standard deduction. The year 2022 hasn’t changed much, but here’s a reminder:
- State and local taxes (SALT): You can only deduct up to $10,000 in state and local income taxes, property taxes, and real estate taxes.
- Mortgage interest deduction: You can deduct mortgage interest on up to $750,000 of debt. If you bought your home before Dec. 16, 2017, you could deduct mortgage interest on up to $1 million of debt.
- Charity donations: The limit of 60% of AGI for cash donations will stay the same in 2022. This limit is not set by default; you must choose it on your Form 1040.
- Medical costs: If your medical costs are more than 7.5% of your AGI, you can deduct them.
- Miscellaneous deductions: You can no longer deduct miscellaneous itemised deductions unless you claim a deduction for unreimbursed employee expenses.
Capital Gains Tax Rates
With the TCJA, there were changes to how long-term capital gains were taxed. Before 2018, capital gains tax brackets were very similar to income tax brackets. However, the TJCA made capital gains tax brackets that are different from income tax brackets:
In conclusion
The IRS makes changes to taxes to keep them in line with inflation. It’s important to note the changes because inflation started going up in 2021 and kept increasing in 2022, reaching levels that have never been seen before, especially in the last few decades. Keep an eye on recent changes to tax laws, even if they have nothing to do with inflation. Having the most up-to-date information can help you plan for the tax year of 2022 and the years after.
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