Tax Changes for 2022
Mid-Summer Tax Planning
Now is the perfect time to discuss strategies to reduce tax liability for 2022! Using your financial information from the first half of the year, we can create a tax projection and adjust estimated payments to avoid a large tax bill in April or prevent overpaying in taxes.
Don’t wait until tax season to reduce what you owe in taxes, by then it can be too late to maximize potential savings. While we do look for basic tax savings during the tax preparation stage, tax planning provides the most in-depth analysis of tax strategies for your specific business industry and situation.
Tax planning is a proactive service that includes planning advice, monitoring your tax bracket, considering future tax laws/regulations and upcoming business changes, actively working to increase bottom-line and reduce tax liability, managing charitable or retirement contributions, and calculating depreciation strategies. Contact us here if you’d like to take advantage of this service!
Tax Changes for 2022
FEDERAL CHANGES
Child Tax Credit + Dependent Care Credit
Last year, the IRS experimented with distributing half of the Child Tax Credit between July-Dec in monthly payments. That will not be happening again in 2022. Instead, the entire Child Tax Credit will be claimed when filing the tax return per usual. The credit will be reduced back to the $2,000 per child maximum, and 17-year-olds are no longer eligible for the credit.
For the dependent care credit, the percentage of qualified expenses used to calculate the credit was reduced from a maximum of 50% to 35%, and the maximum amount of qualified expenses was reduced from $8,000 to $3,000 for one qualifying dependent, and from $16,000 to $6,000 for two or more qualifying dependents. The income phaseout levels were also significantly reduced.
Business Mileage Rate Expense
The standard mileage rate was increased to 62.5 cents per mile for the remaining 6 months of 2022. This adjustment was made due to the recent increase in fuel prices. Businesses will need calculate their mileage expense using 58.5 cents per mile for mileage between January and June, and 62.5 cents per mile for mileage between July and December.
Business Meals Deduction
The temporary allowance for meals (food + beverages) from a restaurant to be 100% deductible will remain for 2022. Minnesota still requires a 50% add-back for state taxes.
Tax Brackets
The tax brackets for each tax rate has widened for 2022 to adjust for inflation, including tax rates on long-term capital gains. The standard deduction has also increased for 2022.
Charitable Contributions
There will no longer be a $300 or $600 deduction for charitable contributions in additional to the standard deduction in 2022. The temporarily allowance for charitable contributions up to 100% of AGI has also expired and has returned to a limit of 60%.
MINNESOTA CHANGES
2019-2020 Itemized Deductions
The Minnesota Department of Revenue has been sending out tax notices to some clients regarding changes made to their Individual Income Tax liability for 2019 and/or 2020. Per the tax notices, “this adjustment was due to an issue with our worksheet, not errors you or your tax preparer made”.
The worksheet concerned the Itemized Deduction Limitation and included instructions to multiply a line item but an incorrect percentage. The Minnesota Department of Revenue claims that these changes are allowable by state law under the Minnesota Statutes, 270C.03, subdivision 1(2) and 270C.33, subdivision 4. Since this error arose due to incorrect tax instructions produced by the state, no interest or penalties were assessed on amounts owed.
Those impacted may include clients with a federal adjusted gross income (AGI) greater than $276,000 (single) or $357,334 (married filing joint) in 2019 and 2020.
Changes to Business Unemployment Insurance
The Minnesota Legislature passed a bill in April 2022 reducing the 2022 unemployment insurance base tax rate, additional assessment, and special assessment percentages beginning 1st quarter of 2022. Wage detail reports that were already submitted for 1st quarter have been recalculated and some employers may now have a credit on their account.
Minnesota Frontline Worker Pay
Any bonuses received through the Minnesota Frontline Worker Pay Program will not be subject to Minnesota income tax, however the payment will be subject to federal income taxes.