ADVISORNEWS
Don’t Wait Until Next Year! Prepare For 2022 Tax Changes You may be helping clients get ready to file 2021 taxes, but now is the time for them to start thinking about the tax changes coming around the corner. • Lyle D. Solomon
Y
ou may be reviewing the past year with your clients as they get ready to file their 2021 income taxes, but your clients also are looking ahead to tax changes that may affect their plans. You may have begun amending your clients’ plans for 2022 to account for changes such as higher tax brackets and a more significant standard deduction, among other things. Let’s take a look at some tax changes your clients will need help in preparing for in the coming year.
Tax Brackets And Tax Rates
Due to inflation, income limitations in all tax bands will be changed in 2022 for taxes submitted in 2023. There will be seven federal income tax brackets starting next year, ranging from 10% to 37%. Anyone with taxable income beyond $539,900 for single filers and $647,850 for married joint filers are subject to the top tax rate of 37%. Let’s check them. For individual single taxpayers: • 10%: Taxable income up to $10,275 (up from $9,950 for 2021). • 12%: Taxable income between $10,275 and $41,775 (up from $9,950 to $40,525 for 2021). • 22%: Taxable income between $41,775 and $89,075 (up from $40,525 to $86,375 for 2021). • 24%: Taxable income between $89,075 and $170,050 (up from $86,375 to $164,925 for 2021). • 32%: Taxable income between $170,050 and $215,950 (up from $164,925 to $209,425 for 2021). • 35%: Taxable income between $215,950 and $539,900 (up from $209,425 to $523,600 for 2021). 38
• 37%: Taxable income over $539,900 (up from $523,600 for 2021). For married individuals filing jointly: • 10%: Taxable income up to $20,550 (up from $19,900 for 2021). • 12%: Taxable income between $20,550 and $83,550 (up from $19,900 to $81,050 for 2021). • 22%: Taxable income between $83,550 and $178,150 (up from $81,050 to $172,750 for 2021). • 24%: Taxable income between $178,150 and $340,100 (up from $172,750 to $329,850 for 2021). • 32%: Taxable income between $340,100 and $431,900 (up from $329,850 to $418,850 for 2021). • 35%: Taxable income between $431,900 and $647,850 (up from $418,850 to $628,300 for 2021). • 37%: Taxable income over $647,850 (up from $628,300 for 2021). These higher levels are intended to provide relief to Americans who find themselves paying more when the cost of living rises due to inflation. Although this may appear to be Congress and the IRS sympathizing with taxpayers, it is actually part of an automatic inflation-adjusted tax bracket modification.
Standard Deductions
On top of the change, taxpayers’ standard deductions will increase next year, and that increase may help clients achieve their financial goals. The standard deduction for individual taxpayers and married taxpayers filing separately will increase to $12,950 in 2022. For married taxpayers filing jointly, it is $25,900 and $19,400 for heads of household. The standard deduction will be $1,350 higher for individuals over age 65 and $1,650 higher for unmarried individuals who do not have a surviving spouse in 2021. For the 2022 tax year, individuals over 65 would pay $1,400 more, and those unmarried and without a surviving spouse will
InsuranceNewsNet Magazine » March 2022
pay $1,750 more. The high inflation rate that everyone witnessed last year affected budgets and constrained cash flow, but the tax adjustments that will take effect in 2022 could aid a lot of middle-class people. Michael Fischer, director and wealth advisor at Round Table Wealth Management in Westfield, N.J., said, “We’d also expect corporate rates to increase slightly from the current 21% to possibly 26.5% or 28%, which have both been suggested.” He also expects a tax reform bill will be passed at some point in 2022. Capital Gains Tax Earnings from selling an asset are subject to capital gains taxes. Short-term gains are taxed as ordinary income, whereas long-term gains are taxed at 0%, 15% or 20%, depending on the taxpayer’s filing status and taxable income. The IRS has raised the long-term gain income limits for the 2022 tax year. The tax rate will be 15% for: • Single filers: income range $41,676 to $459,750. • Married filing jointly: income range $83,351 to $517,200. • Married filing separately: income range $41,676 to $258,600. • Head of household: income range $55,801 to $488,500. No tax rate will be charged to the income level below $41,676, and a 20% tax rate will be imposed on all these incomes above this income range. Check out the income thresholds that might make investors subject to this additional tax: • Single or head of household: $200,000. • Married filing jointly: $250,000. • Married filing separately: $125,000. • Qualifying widow or widowers with dependent child: $250,000. Earned Income Tax Credit The earned income tax credit is a refundable tax benefit available to low- and
