TAX UPDATES
Basic Tax Information - Tax Year 2022
1) Section 199-A (Qualified Business Income Deduction-QBID)
20% income deduction
Business taxpayers who are engaged in the following business types: self-employment, partnerships, S Corps, LLCs – may deduct 20% of their taxable income (phase-outs and income thresholds may reduce the deduction). If qualified, this deduction is reflected on Line #10, Form 1040, even for those who own and rent Commercial Buildings or Residential Rental Property. This provision does not apply to high-income taxpayers.
2) Premium Tax Credit
For health insurance purchased through “Marketplace”, such as Covered California. Must update the estimated income by January of the following year. If estimated income is lower than actual income, taxpayers might have to pay portions of credit received back with tax return. Taxpayers will receive Form 1095-A for federal and state copy, such as CA Form 3895 to file tax.
3) EV Credit, Residential Clean Energy Credit gets better for 2023. For more information, please consult with the tax preparer to plan your purchase and remodeling.
4) Standard Deduction
Standard Deduction (Taxpayer without Itemized deduction) – 2022
| Filing Status | Deduction Amount |
|---|---|
| Single or Married Filing Separate | $12,950 |
| Head of Household | $19,400 |
| Married Filing Jointly | $25,900 |
Additional Standard Deduction – 65 and Older or are Blind
| Single or Head of Household | $1,750 |
| Married | $1,400 |
| Married Filing Jointly | $2,800 |
5) Itemized Deduction.
SALT (State and Local Tax) – For itemizing purposes, the SALT deduction has been capped at $10,000. E.g. real estate taxes, automobile taxes, such as DMV fees, and state and municipal taxes.
Maximum Home Mortgage Interest Deduction: Mortgage interest deductions are limited to the first $750,000 of the mortgage (Mortgages created after Dec. 15, 2017). Please refer to Publication 936 (2019), Home Mortgage Interest Deduction from the IRS.
Charitable Contributions: Up to 60% of AGI is deductible for 2022.
6) 2022 Child Tax Credit:
$2,000 Max, refundable portion $1,500. (Child under 17)
7) Other Dependent Credit: $500
8) 2022 Capital Gain Tax Rate: 0%, 15%, 20% and 28%
| 2022 (TAXABLE INCOME) | 0% | 15% | 20% |
|---|---|---|---|
| Single | $41,675 | ~ $459,750 | Starts $459,751 |
| Married Filing Separately | $41,675 | ~ $258,600 | Starts $258,601 |
| Head of Household | $55,800 | ~ $488,500 | Starts $488,501 |
| Married Filing Jointly | $83,350 | ~ $517,200 | Starts $517,201 |
| Estate and Trusts | $2,800 | ~ $13,700 | Starts $13,701 |
18) Earned Income Credit
For low-income taxpayers who worked throughout the year, the maximum credit that can be received in 2021 is shown below:
| Qualifying Children | AGI (MFJ) | Other Filing Statuses (AGI) | Maximum Credit |
|---|---|---|---|
| No Children | $27,380 | $21,430 | $1,502 |
| One Child | $48,108 | $42,158 | $3,618 |
| Two Children | $53,865 | $47,915 | $5,980 |
| Three or More Children | $56,414 | $51,414 | $6,728 |
19) Social Security Benefits
Social Security Benefits increased to a maximum of $4,9194. The Social Security Benefit was raised due to a “cost of living” (5.9%) adjustment.
Retirement Earnings Tax Exempt Amounts: Year 2022
| Age | Retirement Earnings Test Exempt Amounts | Reduction of benefits for every $3 in earning in excess of limit | Tax-free average monthly income |
|---|---|---|---|
| Under 66 years old | $19,560 | 1/2 (50%) | $1,630/Month |
| 66 years old | $51,960 | 1/3 (33%) | $4,330/Month |
| Over 66 years of age | No limit | None | N/A |
**2022 Social Security Benefits: Maximum Monthly Benefit: $4,194
| Filing Status | % Taxed | Income Threshold |
|---|---|---|
| Single, HOH,QW, MFS Apart All Year | Up to 50% | $25,001-$34,000 |
| MFJ | Up to 50% | $32,001-$44,000 |
| Single, HOH, QW, MFS Apart All Year | Up to 85% | Over $34,000 |
| MFJ | Up to 85% | Over $44,000 |
| MFS Living With Spouse | Up to 85% | 0 |
20) Medicare Premium Amount for 2022-$170.10 (Part B)
Part A Premium (Medicare Hospital Insurance) – Taxpayers with 40 credits or more will not pay Monthly Premium beyond the age of 66. If you are still 65 years old, you will have to pay the maximum base premium of $471 for up to a year to the Social Security Office if the taxpayer had a surgery and/or hospitalization.
Part B Premium (Medicare Medical Insurance) – Monthly Standard Monthly Standard Premium $170.10 in 2022 – Used when visiting a hospital without surgery. Discounted prescriptions may be purchased. If the taxpayer is still 65, you must pay this premium separately to the Social Security Office for one year. The premiums are automatically distributed from your Social Security Benefits (SSA) from age 66.
Monthly premiums are higher for high-income taxpayers. As annual income increases the standard premiums will increase accordingly. E.g. $170.10, $238.10, $340.20, $442.30, $462.70, $544.630, and $578.30, etc. Premiums may rise to the maximum amount.
21) Health Insurance
Self-employed Premiums paid in 2021 can be deducted from 100% of the total income. Employees may deduct health insurance premiums on Schedule A.
22) Self-employment Tax
If you are self-employed, you are subject to 15.3% in self-employment taxes on net income up to $142,800 in 2021 and $147,000 in 2022. If net income exceeds the above threshold, the taxpayer is subject to an additional 2.9% in taxes (after the 15.3% threshold is met).
23) Standard Mileage Deductions 2021
| Business Mileage | 58.5 cents/ Jan - Jun 62.5 cents/ Jul - Dec |
| Charity Mileage | 14 cents |
| Medical or Moving Purposes | 18 cents |
24) Student Loan Interest
a) If the taxpayer is a student in 2021, he/she may deduct up to $2,500 of student loan interest paid from his/her total income before AGI.
b) Limits: If the MFJ taxpayers’ AGI (adjusted gross income) is between ($140,000-$170,000), and for Singles, HOH, or qualifying widower ($70,000-$85,000), a phaseout of deductions will occur. Student loan interest is not deductible if the AGI exceeds the maximum ceiling of the bracket.
c) MFS (married filing separate) couples and dependents of another may not claim this deduction.
25) The American Opportunity Credit
a) If the taxpayer is a student in 2021, he/she may deduct up to $2,500 of student loan interest paid from his/her total income before AGI.
b) Limits: If the MFJ taxpayers’ AGI (adjusted gross income) is between ($160,000-$180,000), and for Singles, HOH, or qualifying widower ($80,000-$90,000), a phaseout of deductions will occur. Student loan interest is not deductible if the AGI exceeds the maximum ceiling of the bracket.
c) MFS (married filing separate) couples and dependents of another may not claim this deduction.
26) The Lifetime Learning Credit – Effective 7/1/98
Maximum Credit: $2,000 per year
a) Tuition: up to $10,000
b) 20% of tuition fee – Ex) Tuition $4,000 x 20% = $800
This credit is available for children as well as taxpayers. Taxpayers with high incomes will see a phaseout of the credit. In the case of married couples, if the revised AGI (income – various expenses prescribed by the tax law) is $130,000- $160,000, or in the case of a single or head of household ($65,000- $80,000), the credits will be phased out.
27) Section 179 Depreciation
If you’ve purchased equipment or machinery this year, and you are considered to continue your business for more than 5 or 7 years, you may deduct purchases of up to $1,050,000 in the first year (2021). Bonus Depreciation is allowed from September 28, 2017 to 2026. From September 27, 2017, the bonus depreciation rate will gradually decrease annually from 100% to 20%.
28) IRA Maximum Contribution
The max IRA contribution for 2021 is $6,000. The taxpayer must have earned income in order to contribute. A catch up contribution of $1000 is permitted for taxpayers over the age of 50 ($7,000 limit).
| Year | Maximum Contribution | Maximum Contribution (for those over 50) |
|---|---|---|
| 2022 | $6,000 | $7,000 ($6,000 + $1,000) |
| 2023 | $6,500 | $7,500 ($6,500 + $1,000) |
29) Gift Tax
For 2021, you may give up to $15,000 to an individual without filing a gift tax form. If the gift exceeds $15,000, Form 709 must be filed. The lifetime gift limit without having to pay a gift tax is $11,700,000 in 2021. Lifetime gifts that exceed the $11.7 million dollar are subject to a gift tax. The highest gift tax rate is 40% in 2021.
30) Estate Tax Exclusion
| Applicable Exclusion Amount | |
|---|---|
| 2022 | $12,060,000 (40% of exceeding amount) |
| 2023 | $12,920,000 (40% of exceeding amount) |
31) Foreign Earned Income Exclusion
Tax exemption of $108,700 USD in 2021 (and will be announced in the following year in 2020) on foreign income if the U.S. citizen or permanent resident continues to live in Korea or abroad for more than 330 days in a calendar year. Employees working abroad will be able to apply their foreign taxes paid against their foreign earned income. If self-employed abroad, a self-employment tax (15.3%) is applied.
32) 2021 Basic Tax Rate (BASIC TAX RATES)
General Income Tax Rate: This tax rate is calculated based on Taxable Income.
Single Filers
| Tax Rate | Begins | Ends |
|---|---|---|
| 10% | $0 | $10,275 |
| 12% | $10,276 | $41,775 |
| 22% | $41,776 | $89,075 |
| 24% | $89,076 | $170,050 |
| 32% | $170,051 | $215,950 |
| 35% | $215,951 | $539,900 |
| 37% | $539,901 |
MFJ (Married Filing Jointly) Filers
| Tax Rate | Begins | Ends |
|---|---|---|
| 10% | $0 | $20,550 |
| 12% | $20,551 | $83,550 |
| 22% | $83,551 | $178,150 |
| 24% | $178,151 | $340,100 |
| 32% | $340,101 | $431,900 |
| 35% | $431,901 | $647,850 |
| 37% | $647,851 |
HOH (Head of Household)
| Tax Rate | Begins | Ends |
|---|---|---|
| 10% | $0 | $14,650 |
| 12% | $14,651 | $55,900 |
| 22% | $55,901 | $89,050 |
| 24% | $89,051 | $170,050 |
| 32% | $170,051 | $215,950 |
| 35% | $215,951 | $539,900 |
| 37% | $539,901 |
33) Tax rate on long-term capital gains (over 12 months)
1) 0% – Applicable to taxpayers whose ordinary income is in the 10% and 12% income tax brackets.
2) 15% – Applicable to taxpayers whose ordinary income is in the 12%, 22%, 24%, 32% or 35% brackets.
3) 20% – Applicable to taxpayers whose ordinary income is in the 35% and 37% brackets.
4) 25% – Applies to the gain from selling real estate that has been depreciated.
5) 28% – Collectibles and rare metals (tax rate can go as high as 28%) Small business stock.
Note: Taxpayers with a tax rate of 37% are subject to an additional Medicare tax of 3.8%, which is imposed on short-term capital gains and other net investment income. The general tax rate for short term capital gains is 41.7% (37 + 3.8). Long term capital gains rate for these taxpayers is 23.8% (20 + 3.8).
34) QUALIFYING WIDOW(ER) TEST (IRC SEC. 2(A))
In the year of the spouse’s death, the tax return may be filed as MFJ, and in the second year, the taxpayer may file as a Qualifying Widow(er) for up to 2 years as long as there is a dependent.
What is the age limit for a qualifying child? 19 years old.
To meet the qualifying child test, your child must be younger than you and either younger than 19 years old or be a “student” younger than 24 years old as of the end of the calendar year. There’s no age limit if your child is “permanently and totally disabled” or meets the qualifying relative test.
35) Net Investment Income Tax (NIIT) – 3.8% – Form 8960
Taxpayers whose income exceeds a certain MAGI threshold and investment income are subject to an additional 3.8% tax (net investment income tax).
| Filing Status | Threshold Amount |
|---|---|
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Single | $200,000 |
| Head of household (with qualifying person) | $200,000 |
| Qualifying widow(er) with dependent child | $250,000 |
Taxpayers should be aware that these threshold amounts are not indexed for inflation.
1) Net Investment Income (included): Capital gains, dividends, rental and royalty income, taxable interest, passive income from investments, etc.
2) Net Investment Income (not included): SSA and Veterans’ benefits, wages, qualified retirement plan withdrawals, tax-exempt interest from funds or bonds, life insurance proceeds, etc.
36) Identity Theft Affidavit-Form 14039
Due to an increase of ID theft in recent years, the IRS has been issuing notices to taxpayers whose identity may have been compromised. If you have received an identity theft notice from the IRS, you must paper file your tax return with a completed Form 14039. Electronic filing of Form 14039 is not permitted.
37) First- Time Penalty Abatement Waiver-FTA
* The IRS’s first-time abatement penalty waiver (FTA), although introduced 12 years ago, is infrequently used by qualifying taxpayers. An FTA can be obtained for a failure- to-file, failure-to-pay, or failure-to-deposit penalty.
* A taxpayer may claim an FTA for only a single tax period. To qualify, taxpayers must not have been assessed any other penalties of a “significant amount” on the same type of tax return within the past three years and must be in compliance with all filing and payment requirements.
38) Taxpayers who are more likely to be audited
a) High-income taxpayers
b) Taxpayers with multiple Forms 1099 and W-2 (all sources of income must be reported even if a tax form was not received)
c) Taxpayers with high charitable contributions in a given year
d) Taxpayers who claim a home office while having excessive deductions for their business/es
e) Rental property shows an excessive loss
f) Taxpayers who claim 100% of their automobile expenses as business expenses
g) Schedule C self-employed taxpayers who report multiple years of losses in a row
h) Businesses that deal frequently in cash transactions
i) Taxpayers who receives high interest income from a foreign bank
j) A taxpayer who deposits and/or withdraws more than $10,000 in cash from a bank
k) Taxpayers who do did not retain sufficient supporting documents for deductions claimed on Schedule A
39) Form 1099-K-Matching Program
Small business owners who receive revenues from credit card transactions will be issued a Form 1099-K from the credit card processor. This summary of credit card transactions will be reported directly to the IRS from the credit card processor. If revenue is calculated correctly (cash sales + credit card sales), reported revenue should almost always exceed the credit card sales reported on Form 1099-K. If a taxpayer only reports their credit card sales (while excluding cash sales), the IRS will use industry average statistics to calculate an estimated cash sale figure for his/her business.
