2022 has been a bumpy ride for Americans, with a roiling economy, angst over viruses, surging numbers of layoffs, a lackluster stock market,, and a general downward tilt in consumer confidence.
Weary U.S. adults may not be in the mood for it, but the end of the year represents a good time to get some of that mojo back in the form of cash-saving tax deductions. 2022 has also been a year of change for the Internal Revenue Service, with new rules and allowances in place ushered in by Congress and by the IRS over the course of the past 12 months.
“There have been significant changes in how Americans file their taxes for the 2022 tax year,” said Taxfyle co-founder Richard Lavina. “Much of that relates to the rampant inflation we faced this year.”
To account for rising inflation, the IRS increased the standard deduction for tax filers.
For the 2022 tax year, married couples who claim the standard deduction will receive $25,900, while single filers can claim a standard deduction of $12,950, and heads of household receive a standard deduction of $19,400.
“The IRS also adjusted the income thresholds on long-term capital gains tax rates and tax brackets to try to make up for the price rise we’ve felt,” Lavina said. “Many changes to tax credits were adjusted to pre-pandemic levels.”
Take These Tax Deductions at Year-End
With change in the air and with an ongoing need for household savings in play after a tough year, why not use IRS rules – new and old – to save some money heading into the new year?
Tax experts note these end-of-the-year deductions that may take the sting out of a taxing 2022.
Sell off any losing investments. 2022 was a rough year for the stock market, with the S&P 500 Index down 20% for the year in late December.
Make amends by selling any portfolio losers and lock in a tax gain.
“If your stocks are at a loss right now, sell them before year end and take the deduction,” advised tax specialist Kara Dennis. “Also sell if you have crypto losses. In that event, sell your crypto to create a taxable event and take advantage of the losses.”
Other tax experts concur.
“Loss harvesting can help offset capital gains or get up to $3,000 to offset other income,” said Delagify Financial certified financial planner Robert Persichitte.
Tax planning around retirement accounts. It’s a good idea to maximize your 401(k) or IRA plans at year-end.
“Some employers will let you contribute up to 100% of your paycheck, “Persichitte said. “Be careful if you try this, though. You'll likely need to write your employer a check to pay for benefits if that's the case.”
Home office deductions. If you’re self-employed and use part of your home as office space for your business, you can deduct a certain amount of tax from your rent, mortgage interest, utilities, or insurance.
“However, it's important to note that this is only applicable if you are self-employed, if you work from home but have an employer, this doesn’t apply to you,” said Top Dollar founder and former Wall Street trader Josh Dudick. “The amount of tax you can deduct will also depend on the amount of space you use in your home for an office. The more space you have, the more you can deduct, within reason and limits.”
Additionally, if you’re self-employed, you can deduct any business insurance premiums or health insurance premiums from your tax returns. “The health insurance premiums count for yourself, your spouse, children under 27, or any dependents on your premium,” Dudick said.
Take advantage of expanded tax deductions. Deduction allowances for certain tax categories have been expanded for 2022.
“For example, the annual gift tax exemption goes to $17,000 and the state and gift tax exemption goes to $12,920,000,” said Fiske & Company principal Fred Freifeld. “Additionally, maximum contributions to 401(k) plans goes to $22,500. If you’re 50 years old or more it goes to $30,000.”
