The pandemic brought on a whole new wave of tax law changes, making it important to start planning now. Many tax benefits individuals received during 2021 are set to expire, making it important to understand inflation adjustments, retirement plan alterations and COVID relief to start planning for your 2022 taxes. Remember, Abdul Tax Consulting & Accounting Services can help you navigate these new changes, ensuring you minimize any unfavorable tax impacts.
Each year the IRS adjusts tax rates, credit amounts and the standard deduction to mimic inflation adjustments. For the 2021 and 2022 filing season, the standard deduction, earned income tax credit, alternative minimum tax and IRA contribution thresholds all were slightly altered. Understanding the new phase out limitation thresholds will allow you to accurately plan for which credits you will be eligible for. If your income is too high this year, it might be time to think of other planning strategies.
Retirement Plan Alterations
COVID allowed for a temporary halt of the early withdrawal penalty from retirement plans, however, this has expired. Going forward, any early withdrawals will be assessed penalties and taxes, making it something to consider if you were planning on pulling funds out. Additionally, the required minimum distribution rules are reinstated.
As a part of COVID relief, stimulus checks, advanced child tax credits, temporary 100% meal deductions and unemployment benefits will revert back to normal, calling on the need to fully comprehend the impact on your taxes. You may be receiving a large refund this year but be sure you find effective planning strategies for the 2022 filing season to bridge the gap in federal aid.