Monday, January 23, 2023

Your tax refund may be smaller this year; here’s why

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CHICAGO– Official tax filing season starts on Monday and may have some surprises in store for your wallet.

Whether you expect to file your 2022 federal income tax returns immediately or wait until the last minute, now is a good time to get a feel for whether you owe the IRS more money or are likely to receive a refund, and if so , how much.

Here’s why: Amounts can be very different than last year. Since you filed your 2021 tax return, several popular tax breaks have changed. Your financial circumstances may also have changed if you have sold assets or been made redundant.

If it turns out that you owe the IRS additional money and need some time to collect the funds, “you can still apply, but your payment will be deferred to April 18.”&R block. (If you pay after April 18, penalties and interest may apply.)

Most Americans receive a federal tax refund every year, and for many, that refund is a major boon to their finances. CNN reported.

But that blessing could be lesser this year, in part due to the expiration of some tax breaks that were in effect the previous tax year.

Child Tax Credit: For the 2022 tax year, parents may claim a maximum child tax credit of $2,000 for each child age 16 and younger if your modified adjusted gross income is less than $200,000 ($400,000 if filing jointly). Above these levels, credit begins to expire. And the portion of the loan that’s treated as recoverable — meaning it’ll be paid to you even if you don’t owe federal income tax — is capped at $1,500 and is only available to those with a minimum earned income of $2,500.

But that’s well below the now-expired improved child allowance that was in effect for 2021. Among other things, he was fully reimbursable with no earned income requirements, Pickering noted. And the improvements allow parents to claim a maximum credit of $3,600 for each child under age 6 and up to $3,000 for children ages 6 to 17.

Child and Dependent Care Credit: The tax credit that working parents use to pay for child care or that claimants claim to pay for care of an adult dependent is also significantly lower for the 2022 tax year. That’s because Congress allowed the 2021 improvements to go out.

For example, when you return in 2022, you can claim a maximum of 35% of expenses of up to $3,000 for one person, or up to $6,000 of expenses for two or more people. This is a non-refundable credit, meaning you can only claim it if you have a federal income tax liability that needs to be offset.

In contrast, the credit for the 2021 tax year was fully refundable and had a maximum value of 50% on expenses up to $4,000 for one person or up to $16,000 for two or more people.

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Here’s how much of a difference that makes, Pickering said. If you have one child or dependent, you can only receive a maximum credit of $1,050 ($2,100 for two or more) this year. In contrast, last year your balance was $4,000 (or $8,000 for two or more).

Earned Income Tax Credit for Those Without Children: The EITC, which is an eligible credit, was a way to help low- and middle-income workers (defined in 2022 as those with earned income below $59,187), and particularly workers with to support children financially.

The EITC is also available to earners without eligible children. But the amount of credit for someone in this group for 2022 is only $560. That’s almost $1,000 less than the $1,502 they were allowed to claim in 2021 as a result of a year-long improvement that was part of America’s bailout plan.

Charitable Deductions: To justify the breakdown of your 2022 deductions that include charitable contributions, they must exceed the standard deduction of $12,950 for singles or $25,900 for married couples filing jointly.

Most filers do not provide any information. This usually means that any charitable contributions they made during the year are not reflected in their earnings as they have been subsumed under the standard deduction.

However, for tax years 2020 and 2021, claimants were allowed to make an over-the-line deduction for charitable contributions up to $300 ($600 if spouses filed jointly) in addition to the standard deduction.

However, this above-the-line deduction has expired.

Severance pay: If you were laid off last year and received a lump sum severance payment, that money will be taxable in 2022. By the way, if it happens late in the year, that can push your income into a higher income bracket for 2022, which could be a great one-off bonus.

Or if you received unemployment benefits, make sure the state withholds taxes on those payments. If not, that could mean you have to mail a check to the IRS, Pickering noted.

The 2022 tax year is over, but there may still be a few things you can do now to increase the money the IRS is sending you or reduce the amount you owe.

Check last year’s yield: While several tax breaks are less generous now, check your 2021 yield to make sure you’ve claimed any improved perks you were eligible for, Pickering said.

If you haven’t claimed them, “submit an amended statement for 2021,” she suggested.

Take advantage of your capital losses: If you sold assets for a profit in 2022, you will have to pay tax on that profit. Unless you sold other assets at a loss equal to or greater than your profit. Your losses can offset your gains dollar for dollar. And if you still have losses after that, you can also offset them against $3,000 of your normal income for 2022. Any excess losses can be used in future tax years.

If you only posted capital losses this year, you can still offset your income up to $3,000 and carry the rest forward.

These loss rules also apply to crypto losses.

Make an IRA Contribution: You can still make contributions to an IRA in 2022 through April 18, 2023. The annual limit for these contributions is $6,000 ($7,000 if you are 50 years of age or older).

Your contributions may be deductible if you make them to a traditional IRA. But how much the deduction is depends on two things: whether you have access to an employer-sponsored plan at work and your modified adjusted gross income.

In order to receive the full deduction, neither you nor your spouse must be covered by a retirement plan at work. Or, if you have access to a workplace plan, you can still take the full deduction if the modified AGI is $68,000 or less ($109,000 or less if married individuals file jointly).

But when you have access to a plan and your income is higher, the math is different. You can get a partial deduction if your modified AGI is over $68,000 but under $78,000 (over $109,000 but under $129,000 for a joint claimant).

However, if your income exceeds US$78,000 (or US$129,000), you may not make a deduction.

Maximize your Health Savings Account contributions: If you opened a Health Savings Account last year and are covered by an HSA-eligible health plan, you can still make your 2022 deductible contributions by your April 18th tax return date.

The maximum amount you can deposit is $3,650 for individual insurance or $7,300 for family insurance. Anyone aged 55 or older at the end of December can donate an additional $1,000.

The CNN Wire & 2023 Cable News Network, Inc., a Time Warner Company. All rights reserved.

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