The most important tax adjustments to know earlier than submitting your 2022 return

One doable motive for a smaller tax refund is the child tax credit and the child and dependent care tax credit have been lowered for 2022, defined licensed monetary planner Cecil Staton, president and wealth advisor at Arch Monetary Planning in Athens, Georgia.

Whereas each tax credit acquired a short lived enhance by the American Rescue Plan of 2021, the improved tax breaks weren’t prolonged to 2022. “The large image is lots of people are going to see much less cash of their pocket,” Staton stated.

In 2021, the kid tax credit score supplied as much as $3,600 per little one underneath age 6, and as much as $3,000 per little one ages 6 by 17, with half out there by way of upfront funds. However for 2022, the tax break reverts to the earlier quantity — as much as $2,000 per little one underneath age 17. 

The kid and dependent care tax credit score, which can assist offset the price of care for kids underneath age 13 or grownup dependents, has additionally been lowered for 2022.

In 2021, the credit score jumped to as much as $8,000 for one qualifying particular person or $16,000 for 2 or extra dependents. Nevertheless, for 2022, these caps returned to $3,000 and $6,000, for one or a number of dependents, respectively.

If you happen to’ve acquired funds by apps like Venmo or PayPal in 2022, you may get Form 1099-K in early 2023, which stories earnings from third-party networks.

The shape applies to enterprise transactions, resembling part-time work, facet jobs or promoting items, in accordance with the IRS. 

Earlier than 2022, the federal Type 1099-Okay reporting threshold was for taxpayers with greater than 200 transactions value an mixture above $20,000. Now, nevertheless, the edge is simply $600, and even a single transaction can set off the shape.

Austin Chau, a CFP and wealth advisor at Menlo Asset Administration in Menlo Park, California, stated private transactions like reimbursing your roommate for payments or dinner aren’t taxable.

What’s extra, you may solely owe taxes on earnings, he stated. For instance, if you happen to spent $150 on live performance tickets in 2022, and offered them for $200, the $50 revenue is taxable, Chau stated.

Whereas the IRS says you should not obtain Type 1099-Okay for private transfers, consultants say it is doable, and the error could require you to contact the issuer or make changes to your tax return.

Your tax refund might also be decrease as a result of it is harder to claim the charitable deduction in 2022.

Marguerita Cheng, a CFP and CEO of Blue Ocean World Wealth in Gaithersburg, Maryland, stated you will not get a charitable tax break in 2022 if you happen to do not itemize deductions in your return.   

Congress gave charities a lift in 2021 by permitting single donors to say a deduction for as much as $300 for money donations or $600 for married {couples} submitting collectively, regardless of whether you itemize, stated Cheng, who is also a part of CNBC’s Financial Advisor Council.

Nevertheless, the tax break wasn’t prolonged for 2022. Now, you may solely profit in case your itemized deductions, together with the tax break for charitable items, exceeds the usual deduction, which is much less widespread. In 2019, virtually 90% of taxpayers used the usual deduction, according to the IRS.