Irina Tubbs CPA 

2022 Year-End Tax Updates

It is time to get ready for the 2022 tax season. The 2022 tax season filing begins on January 24, 2022.

Please follow the link to see the tax calendar.

Please follow the link to schedule the year-end tax appointment with me (if needed): https://app.squarespacescheduling.com/schedule.php?owner=26560214

Please remember to make estimated tax payments by 01/15/2023: 

• Federal: https://www.irs.gov/payments and your state(s)
• Colorado: https://www.colorado.gov/revenueonline/_/#1

2022 Individual Tax Return:

Zero personal exemption for 2022 and 2023.

The Social Security wage will increase from $147,000 (2022) to $160,200 (2023). No Medicare wage limits. The Medicare rate is still 1.45%

To deduct qualified medical expenses, you must be able to itemize your deductions and exceed 10% of your adjusted gross income

Please remember about Nanny Tax for gross pay over $2,400. If you pay more than $2,400 a year to your household helpers (individual(s)), per IRS, they are your household employees. If your household helpers operate as a business, no need to worry about Nanny Tax. Ask me for more details before the year-end.

Usually, no charitable deduction is allowed if a donation is done through crowdfunding (gofundme) because the donee is not a qualified charitable organization and the donation is intended to benefit a specific individual.

Moving Expense Deduction is available to members of the Armed Forces on active duty moving pursuant to a military order and incident to a permanent change of station.

You may be able to deduct Long Term Care Insurance. Limits apply.

Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly and $125,000 for married taxpayers filing separately) pay an Additional Medicare tax of 0.9% of wages with respect to employment. No changes here.

Energy Credits are available per the Inflation Reduction Act (IRA) to homeowners (of residential and commercial properties) and vehicle buyers:

• Energy-efficient improvements: installing insulation, efficient exterior windows and doors.
• installing rooftop solar and certain metal roofs, qualified heat pumps, AC and heaters, and biomass stoves.
• Here is the list of vehicles available to receive the tax credit: https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit. Plugin cars must be with final assembly in North America.

2022 HSA Contribution:  Individual $3,650, Family $7,300

Foreign Activities:  Foreign Earned Income Exclusion for 2022 is $112,000 ($120,000 for 2023). 2022 Housing Exclusion $33,600.

2022 Vehicle Mileage Deduction:

• Business Mileage:  $0.585 (01/01/2022-06/30/2022) /$0.625 (07/01/2022-07/31/2022). Please let me know your annual business miles total as two separate totals. Depreciation Component: $0.26

• Charity: $0.14 (01/01/22-12/30/2022)
• Medical: $0.18 (01/01/2022-06/30/2022) /$0.22 (07/01/2022-07/31/2022). Please let me know your annual medical miles as two separate totals.

Student Loan Relief:

Student Debt Relief Eligibility Requirements. 

• To be eligible, the borrower’s annual income must be below $125,000 (for individuals) or $250,000 for married couples or heads of households). 
• If the borrower had received a Pell Grant and meets the income threshold, the individual will be eligible for up to $20,000 in debt relief. 
• If the borrower did not receive a Pell Grant and meets the income threshold, the individual will be eligible for up to $10,000 in debt relief.

Everyone who is eligible please file the application as soon as possible in order to receive relief before the payment pause expires on December 31, 2022: https://studentaid.gov/debt-relief/application.

The IRS announced that it expanded the Identity Protection (IP) PIN Opt-in program to all taxpayers who can pass a rigorous identity verification process. Taxpayers who want an IP PIN should go to irs.gov/ippin and use the Get an IP PIN tool.

2022 Standard Deduction:

Filing Status	2022 Standard Deduction
Single; Married Filing Separately	$12,950
Married Filing Jointly; Surviving Spouse	$25,900
Head of Household	$19,400

2022 Federal Tax Brackets Based On A Taxpayer’s Taxable Income

Tax rate	Single filers	Married joint filers	Heads of households
10%	$0 – $10,275	$0 – $20,550	$0 – $14,650
12%	$10,276 – $41,775	$20,551 – $83,550	$14,651 – $55,900
22%	$41,776 – $89,075	$83,551 – $178,150	$55,901 – $89,050
24%	$89,076 – $170,050	$178,151 – $340,100	$89,051 – $170,050
32%	$170,051 – $215,950	$340-101 – $431,900	$170,051 – $215,950
35%	$215,951 – $539,900	$431,901 – $647,850	$215,951 – $539,900
37%	$539,901 or more	$647,851 or more	$539,901 or more

2022 Business Tax Returns:

A 100% deduction for business meal expenses, including any carryout or delivery meals, provided by a restaurant, that are paid or incurred in 2021 and 2022. 

An employer can exclude from employees’ pay up to $5,250 of an employee’s student loans (must be made before 01/01/2026).

Partnerships and S corporations  (PTE) can elect to take the SALT (State and Local tax) deduction. SALT deduction includes all taxes imposed by your state and local jurisdiction. PTE entities can pass through these paid taxes to their partners and shareholders. It might be helpful for individuals who cannot deduct their state and local taxes as a part of their itemized deductions.

Depreciation for Business Vehicles:

• Passenger automobile (or truck or van) not > 6,000 GVWR: 
  • 2022 depr: $11,200 and $8,000 for new or used for bonus depreciation 
  • 2023 depr: $18,000 
  • 2024 depr: $10,800 
  • Then annual depreciation is $6,460 until fully deducted
• SUV > 6,000 GVWR: 
  •  §179 limit: $27,000 for 2022 and $28,900 for 2023 
  • Bonus Depreciaition is still available 
• Truck or van > 6,000 GVWR, not an SUV: 
  • No limits. If you take §179 depreciation or bonus depreciation, no standard mileage rate later on.

Pension:

• Defined contribution plans – $61,000 for 2022 and $66,000 for 2023 
• Compensation – $305,000 for 2022 and $330,000 for 2023 
• Section 401(k) – $20,500 & $6,500 for 2022 and $22,500 & $7,500 for 2023 
• SIMPLE IRA – $14,000 & $3,000 for 2022 and $15,500 & $3,500 for 2023 
• IRA – $6,000 and $1,000 catch-up for 2022, and $6,500 and $1,000 catchup for 2023

Crowdfundings: IRS states that crowdfunding revenues generally are included in gross income unless they are: 

• Loans that must be repaid; 
• Capital contributed to an entity in exchange for an equity interest in the entity; or 
• Gifts made out of detached generosity and without any “quid pro quo.” 

Penalties:

• Failure to file a partnership return – $220 for 2022 per month per a partner
• Failure to file an S corporation return – $220 for 2022 per month per a shareholder

Reasonable Compensation: S-corporations, please remember to pay reasonable compenation to your shareholder-employees before you make any distributions. If you need help to determine your reasonable compensation, please let us do a separate engagement so I can conduct the research and determining the reasonable compensation for your business. Here are some tips: http://www.cocpatax.com/s-corporation. You can hire a third-party company that can assist you with the process to identify your reasonable compensation.

Tax Strategies for the Year-End:

• Cash-basis taxpayers may postpone income until 2023 and accelerate deductions into 2022. This strategy might help some taxpayers to claim larger deductions (for example, student loan interest, IRA contributions, child tax credit, education tax credit) in 2022 that are phased out over various levels of adjusted gross income (AGI). In some situations, the income needs to be accelerated into 2022 if 2023 is expected to be at the higher tax bracket.
• You may consider converting IRA into a ROTH IRA by the year end. It might be beneficial if your IRA has lost its value. Please be aware it is a taxable transaction that has long-term benefits.
• You may do a gift sheltered by the annual gift tax exclusion before the end of 2022. The 2022 gift exclusion is up to $16,000 made to each recipient and $ 17,000 for 2023. (Exemption $12,060,000 for 2022 and $12,920,000 for 2023.)
• If you are 70½ or older by the end of the year, consider making 2022 charitable donations via qualified charitable distribution from a traditional IRA, especially if you do not itemize deductions. These distributions are made directly from IRA to charities and are not taxable.
• You may have to pay Kiddie tax for certain childrens who have unearned income over $2,200. To avoid the Kiddie tax problem, please make a deductible IRA contribution up to $6,000. The children’s tax returns with Kiddie tax are filed after the parents’ tax returns. The basic standard deduction for Kiddie tax return is $1,150.
• You can hire your kids and pay them W-2 wages. Youth Law | Department of Labor & Employment (colorado.gov)

 Year-End Accounting Check List 

If you work with third-party accountant, please work closely with your accountant to close the year and get the accounting records up to date. Please use the following list as guidance.

Finalize All Business Income & Expenses: 

❑ Send invoices for unbilled services or goods. Please make sure all invoices have been sent.

❑ Send reminders to customers who haven’t paid their invoices yet 

❑ Write off unpaid invoices as bad debt (if needed) 

❑ Record all business expenses 

❑ Separate business expenses from personal expenses. Please avoid charging personal expenses on your business accounts/credit cards. Please reach out to me discuss the plan of actions.

❑ Update your mileage log 

❑ Pay all open bills from vendors 

❑ Record principal and interest for all loans.

❑ Reconcile your bank, credit card, and loans accounts 

Update Fixed Assets: 

❑ Make sure fixed assets schedules are up-to-date. Please provide the up-to-date list with the Fixed Assets to Irina. 

Ready Payroll: 

❑ Decide on employee bonuses. Please reach out to me for ideas. Some gifts are not taxable. 

❑ Withhold taxes for employee bonuses 

❑ Make sure your payroll taxes match your quarterly payroll returns 

❑ Verify all employee contact information is correct for W-2’s 

Contractors and Outside Service providers:

❑ Get W-9 from each LLC and Individual

❑ Pay contractors for completed jobs 

Check Inventory: 

❑ Count inventory (on the date you close your books) 

Backup Information: 

❑ Run and verify your Profit & Loss report (or income statement) 

❑ Run and verify your Balance Sheet 

❑ Run your Statement of Cashflows 

❑ Create a backup company file (or export data) 

Close Your Books: 

❑ Close your books 

❑  Provide the annual POS reports (if available) and necessary data to Irina

Resources:

• Bloomberg Tax and Accounting Software & Solutions
• Accountant’s Education Services
• American Institute of Certified Public Accountant
• Irs.gov