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

One potential purpose for a smaller tax refund is the kid tax credit score and the kid and dependent care tax credit score have been decreased 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 provided as much as $3,600 per baby below age 6, and as much as $3,000 per baby ages 6 by 17, with half obtainable by way of upfront funds. However for 2022, the tax break reverts to the earlier quantity — as much as $2,000 per baby below age 17. 

The kid and dependent care tax credit score, which can assist offset the price of care for youngsters below age 13 or grownup dependents, has additionally been decreased 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. Nonetheless, for 2022, these caps returned to $3,000 and $6,000, for one or a number of dependents, respectively.

When you’ve acquired funds by apps like Venmo or PayPal in 2022, you could get Type 1099-Ok in early 2023, which stories revenue from third-party networks.

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

Earlier than 2022, the federal Type 1099-Ok reporting threshold was for taxpayers with greater than 200 transactions price an combination above $20,000. Now, nevertheless, the brink 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, in the event you spent $150 on live performance tickets in 2022, and bought them for $200, the $50 revenue is taxable, Chau stated.

Whereas the IRS says you should not obtain Type 1099-Ok for private transfers, consultants say it is potential, and the error might 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 say 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 in the event you 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, no matter whether or not you itemize, stated Cheng, who is also a part of CNBC’s Monetary Advisor Council.

Nonetheless, 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, nearly 90% of taxpayers used the usual deduction, in line with the IRS.