2022 is around the corner, and with the new year will come new changes in the tax code. It’s important to stay updated on these changes, as they will directly affect your financial planning and decisions.
Here are the top 5 changes in the 2022 tax code that you need to know:
1. Increased Standard Deduction – For taxpayers filing as single, the standard deduction will increase from $12,550 to $12,900, for heads of household, it will increase from $18,800 to $19,400, and for married filing jointly, it will increase from $25,100 to $25,800. This means that less of your income will be subject to taxes, providing a tax break for many taxpayers.
2. Changes in Medical Expense Deductions – Medical expenses that exceed 7.5% of your adjusted gross income will be deductible in 2022. This is down from 10% in prior years. This change allows more taxpayers to deduct their medical expenses, providing some relief for those with high medical costs.
3. Impact of Inflation – The cost of living adjustment (COLA) has been implemented, increasing the income thresholds for tax brackets, credits, and deductions in 2022. This is good news for taxpayers as this inflation adjustment will reduce the tax burden for many.
4. Changes in Retirement Plan Limits – Contribution limits for 401(k), 403(b) and most 457 plans will increase from $19,500 to $20,500 in 2022. The catch-up contribution limit for taxpayers aged 50 and older will also increase from $6,500 to $7,000. This gives taxpayers a great opportunity to save more money for their retirement and reduce their taxable income.
5. Dependent Care FSA – The maximum amount that can be contributed to a dependent care flexible spending account (FSA) has increased from $5,000 to $10,500 for joint taxpayers and from $2,500 to $5,250 for single and married filing separately taxpayers. This change is great news for working parents who have dependent care expenses, as they can now save more pre-tax dollars and reduce their taxable income.
In conclusion, keeping up-to-date with the tax code changes is vital in ensuring that you’re making informed financial decisions. The 2022 tax code changes provide opportunities to reduce taxable income, increase savings, and overall provide relief from the tax burden. Make sure you take advantage of these changes and consult with your tax advisor about how these changes might affect your financial planning.
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