We’ve compiled a list of the top six federal tax changes for 2022 that you should be aware of as a taxpayer before filing your income tax return in 2023. Are you curious about the changes that have occurred in the world of taxes since last year?
The coronavirus pandemic caused significant tax changes in tax year 2021, but many of those changes disappeared in tax year 2022. Let’s look at the main events and how they might impact your tax refund this year.
A historic piece of legislation, the Inflation Reduction Act of 2022 (IRA) attempts to address healthcare costs, combat climate change, and shrink the federal deficit. This extensive bill is a game-changer for people hoping to reduce their taxes while supporting a greener future because it also offers a plethora of new tax credits and deductions for individuals and businesses.
Energy-Related Tax Credits and Deductions: Powering Up Your Savings
The IRA offers a wide range of tax incentives for individuals and businesses who invest in clean energy solutions, These include:
- Clean Vehicle Credits: Individuals who purchase new electric vehicles (EVs) in 2023 or later can qualify for a tax credit of up to $7,500. Those who bought EVs in 2022 may still be eligible for a credit of up to $4,000.
- Home Energy Credits: The IRA expands the existing residential clean energy property credit and introduces a new energy-efficient home improvement credit, providing tax breaks for homeowners who invest in energy-saving upgrades like heat pumps, solar panels, and insulation.
- Business Energy Tax Credits: Businesses that invest in renewable energy projects, energy-efficient buildings, and clean vehicles can benefit from various tax credits, including the investment tax credit, production tax credit, and clean electricity investment credit.
Credits for Individuals: Saving Money While Making a Difference
The IRA offers numerous tax credits for individuals, making it easier for them to save money while making eco-friendly choices
- Clean Vehicle Credits: As mentioned earlier, individuals who purchase new or used EVs can qualify for significant tax credits.
- Home Energy Credits: Homeowners can claim tax credits for installing energy-efficient appliances, making energy-saving upgrades, and investing in renewable energy systems.
- Earned Income Tax Credit (EITC): The IRA expands the EITC, providing tax relief for low- and moderate-income individuals and families.
- Child Tax Credit: The IRA makes the expanded Child Tax Credit permanent, providing monthly payments to families with qualifying children.
Credits and Deductions for Businesses: Powering Up Sustainability and Innovation
The IRA offers a wide range of tax incentives for businesses that invest in clean energy sustainable practices and advanced manufacturing.
- Clean Energy Tax Credits: Businesses can claim tax credits for investing in renewable energy projects, energy-efficient buildings, and clean vehicles.
- Advanced Manufacturing Tax Credits: The IRA introduces new tax credits for businesses that invest in advanced manufacturing technologies, including robotics, automation, and artificial intelligence.
- Research and Development (R&D) Tax Credit: The IRA expands the R&D tax credit, making it easier for businesses to invest in innovation and development.
- Corporate Alternative Minimum Tax (CAMT): The IRA imposes a 15% minimum tax on corporations with annual adjusted financial statement income exceeding $1 billion.
Frequently Asked Questions: Navigating the New Tax Landscape
Many new tax credits and deductions are introduced by the IRA, which may cause confusion for both individuals and businesses. Here are some frequently asked questions:
- Who is eligible for the Clean Vehicle Tax Credit? Individuals who purchase new or used EVs that meet specific requirements can claim the credit.
- How do I claim the Home Energy Credit? Homeowners can claim the credit on their federal income tax return using Form 5695.
- What is the Corporate Alternative Minimum Tax? The CAMT is a minimum tax imposed on corporations with annual adjusted financial statement income exceeding $1 billion.
- How do I learn more about the IRA’s tax provisions? The IRS website provides comprehensive information about the IRA’s tax credits and deductions.
The Inflation Reduction Act of 2022 offers a plethora of tax incentives for individuals and businesses to embrace clean energy, sustainable practices, and advanced manufacturing. By understanding these new tax credits and deductions, individuals and businesses can save money on their taxes while contributing to a greener future.
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Other COVID-19 tax enhancements
- Child and Dependent Care Credit: The maximum credit percentage decreased to 35% (from 50% last year), and this credit will no longer be refundable in 2022. For one child under the age of thirteen, you may deduct up to $3,000 in expenses, and for two or more, up to $6,000 in expenses.
- Recovery Rebate Credit: The Recovery Rebate Credit will not be available for this tax year since there were no additional stimulus checks for 2022.
Standard deduction increase
The Internal Revenue Service (IRS) also increased the standard deduction amount for 2022. The standard deduction is an automatic deduction all filers can take (unless you choose to take itemized deductions).
Here are the new 2022 standard deduction amounts:
- Married filing jointly: $25,900 ($800 increase)
- Single and married filing separately: $12,950 ($400 increase)
- Head-of-household filers: $19,400 ($600 increase)
For more information on all of the 2022 tax adjustments due to inflation, you can check out the IRS’s detailed article about it.