2022 Tax Year Updates

Another year has come to a close and it is time to start preparing for your 2022 Tax Return.  There have been a number of tax law changes, some tax law expirations, and a Presidential Declaration that affect the 2022 tax returns.  Before we dig into the details, here are some Housekeeping items.

NATIONWIDE ELECTRONIC FILING START DATE:  

E-Filing typically opens near the end of January.  The exact date has not been announced by the IRS as of the printing date of the postcard.  Your tax return can be prepared any time prior to E-File opening and will be automatically processed on the E-Filing start date.  Once the date is announced we will update that information on the website.

1099-K FORMS

If you utilize Paypal, Venmo, CashApp, or other payment services to transfer money to other people, it is possible that you may receive a 1099-K for 2022.  The American Rescue Plan of 2021 changed the reporting threshold for these organizations.  The new threshold requires reporting of transactions in excess of $600 per year.  The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member for a household bill.  However, it is possible that you may have a 1099-K issued for these transactions anyway.  Please log in to any third party settlement organizations (payment apps, paypal, etc) that you may use and look under tax forms for a 1099-K.  Please bring this with you when you come to have your tax return prepared.

UPDATED: The IRS announced on December 23, 2022 that calendar year will be treated as a transition year for the reduced reporting threshold of $600.  For calendar year 2022, third party settlement organizations who issue 1099-K Forms are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions.  The $600 limit will be in effect for 2023 at this point in time. 

CHILD TAX CREDIT FOR 2022

The Child Tax Credit for 2021 was expanded for one year only when the President signed the Affordable Care Act in March, 2021.  This law reverts back to the amount of $2,000 per child under age 17 for 2022.  Children over age 17 who qualify as a dependent will receive $500 as an Other Dependent Credit.

DEPENDENT CARE BENEFITS

The Dependent Care Benefits for 2022 have reverted back to an expense limitation of $3,000 for one child and $6,000 for two or more children.  The maximum tax credit is back to $600 for one child and $1,200 for two children.  

STUDENT LOAN FORGIVENESS

President Biden announced in August, 2022 that certain student loans could qualify for up to $10,000 of forgiveness.  In the case of those students who had Pell Grants, they could then qualify for up to $20,000 of forgiveness.  Since that time the program was blocked with two legal challenges.  The Supreme Court has agreed to consider the case and the legal process is ongoing.  Currently legal briefs are being filed and the date for Oral Arguments has been set for February 28th, 2023.  After the Oral Arguments the Supreme Court deliberates and issues a ruling.  The ruling could come at any time during the Spring or early Summer of 2023.  

What does this mean for you?  It means that for the 2022 tax year, you will not have to deal with student loan forgiveness on your tax return.  The possibility exists, should the Supreme Court rule in favor of the administration, that 2023 will be the year that the Education Department can process student loan forgiveness applications.  Why do we bring this up?  I'm glad you asked!  Usually debt that is forgiven is considered to be taxable income to the taxpayer.  The taxpayer took out debt to acquire something (a car, a boat, a credit card that purchased items or services, an education, etc).  When you have debt forgiven, waived, reduced, or outright cancelled; the borrower has to include the amount forgiven as income on the tax return in the year that the cancellation actually occurred.  Our starting point is that you include forgiven debt as income on your tax return.  There are exceptions which allow for certain debt to be excluded from your taxable income.  Proving that you are insolvent at the time the debt is cancelled is one of several ways.  However, under the American Rescue Plan Law, there was a provision that exempts ALL federal student loan forgiveness from being included as taxable income through 2025.  The State of Wisconsin, at this point in time, would still include the student loan forgiveness as taxable income.  End result for any Wisconsin taxpayer is that the debt would be forgiven for Federal tax purposes, but included as income for Wisconsin State Tax Purposes.  

ENERGY EFFICIENCY TAX CREDITS:

The Inflation Reduction Act of 2022 resurrected and revamped the home energy credits that have been around since 2006.  For 2022 you can qualify for up to a $500 tax credit maximum for energy efficiency products purchased for your personal residence.  This is a LIFETIME limitation which means that if you already used the credit in a prior year (2006 through 2021) then you are not eligible to take the credit in 2022.  

However, for 2023 through 2032 (the next 10 years) we now have a new and improved energy efficiency credit.  First, this credit has been increased to a $1,200 maximum for doors, windows, insulation, etc.  Second, this is now an ANNUAL limit which means you can take the credit for windows in 2023, and then put more new windows in 2024 and take the credit again.  There is no longer any need to look back to prior years to determine if you already used the tax credit.  The new law takes effect January 1, 2023.  Feel free to ask your tax preparer about how you can best utilize this credit to your maximum advantage for 2023 and beyond.  The website for the complete list of items that qualify for the tax credit is right here: https://www.energystar.gov/about/federal_tax_credits/non_business_energy_property_tax_credits

SERVER & COMPUTER UPGRADES:

We have significantly upgraded our computer server, workstations, and software in order to provide a higher level of security to protect your data.  This sizeable investment was done to ensure that we comply with new IRS minimum security requirements.  The IRS requirements are a good starting point, but our goal is to ensure that your data stays secure forever.  That is why we have made this investment to ensure the data is as protected as it can possibly be now and in the future.  I would love to go into detail about our new software protections, physical protections, etc; but we don't want to give out too much information as that would definitely be a security risk.  The expense of this project, and the ongoing monitoring and maintenance, was quite high.  We did increase the base fee by $20 to cover the additional expense created with this project.  Unfortunately it is no longer a situation where we purchase equipment and use it for 7 to 10 years.  Now it seems that every piece of software is required to be a monthly or annual subscription based product which creates a need for the increase in revenue to cover the increased expense, along with the expense of the new equipment.  

THANK YOU!

Finally, thank you for being a loyal client.  We appreciate your trust and loyalty through the years.  We will continue to strive and maintain our service to you with your tax and financial questions.  We are here year round specifically because taxes are not a three month thing, they are a year round thing.  When you have a question, we want to be available to help answer those questions for you.  Thank You and have a Great Day!

Jason Rose, EA