Effective tax planning can accomplish much more than just saving income taxes for the current and future years. If done properly, effective tax planning can maximize the amount of funds you will have available for retirement, reduce the cost of financing your children’s education, reduce eventual estate taxes, and assist you in managing your cash flow to help you meet your financial objectives.
DLA is here to help you navigate through your taxes and finances as efficiently as possible. We are here to help with any questions you may have. We have put together tax tips to be aware of.
In the last couple of years, there have been many legislative changes: the SECURE Act, Inflation Reduction Act, American Rescue Plan Act, Consolidated Appropriations Act and the CARES Act are just a few. Below is a summary of changes that will help you in your tax planning process.
- Starting January 1, 2023, the standard business mileage rate used for vehicles used in business is 65.5 cents per mile. This is an increase of 3 cents from the second half of 2022 (62.5 cents) which had already gone up 4 cents from the first half of 2022 (58.5 cents). This rate even applies to hybrid and electric vehicles, not just gas and diesel powered vehicles.
- While 100% bonus depreciation will be ending in 2022, it will phase down 20% annually. This means you will still be allowed to use bonus depreciation for first year qualified assets, it will just be a smaller amount in year one. This may apply to vehicles, computers, software, machinery, equipment or even office furniture.
- The child tax credit and the child and dependent care tax credit have been reduced for 2022. While both tax credits received a temporary boost through the American Rescue Plan of 2021, the enhanced tax breaks were not extended to this year. In 2021, the enhanced child tax credit meant that taxpayers with children ages 6 to 17 could get a credit of up to $3,000. For children under 6, the amount jumped to $3,600. For 2022, that amount reverted to $2,000 per child dependent 16 and younger.
- The IRS has announced that they are delaying the $600 1099-K reporting requirement. Instead of CashApp, Venmo and Paypal sending you a 1099-K for $600 of transactions, this limit will be $20,000. This does not mean you should not report any business income received via these apps, it just changes their reporting requirement.
- Repealed the maximum age for traditional IRA contributions for tax years 2020 and later. An individual of any age may contribute to a traditional IRA if compensation is received.
- The required minimum distribution (“RMD”) age increased from 70½ to 72 beginning in 2020.
- An IRC Sec. 529 Plan that has unused funds after a beneficiary graduated can now be used to repay student loans of the beneficiary plus his/her siblings up to $10,000 each. Additionally, it can also be used toward apprenticeship programs, private elementary and secondary school costs as well as homeschooling and religious schools.
- Starting in 2024, you will be able to rollover a 529 Plan into a Roth IRA. Here are the limitations… $35,000 Cap on lifetime transfers, Rollovers are subject to annual Roth contribution limits, Rollovers are for beneficiaries of Roth IRA, and 529 Plan must have been open for 15 years.
- In 2021, taxpayers that did not itemize their deductions were entitled to an above-the-line charitable deduction of $300 ($600 for married couples filing jointly) to qualified charities. This has not been extended to 2022.
- For tax years 2021 and 2022 only, business meals provided by a restaurant were fully deductible. In 2023, all business-related restaurant meals will go back to the regular rate of 50% deductibility.
- Student loan debt forgiveness is not taxable from 2021 through 2025.
- Changes expanding the Earned Income Tax Credit for 2021 and future years including more workers and working families who also have investment income can get the credit. Starting in 2022, the limit on investment income is increased to $10,300 and indexed for inflation each year.
- The clean vehicles credit was enhanced and the rules related to the purchase of electric vehicles changed. For vehicles purchased and possession taken after August 16, 2022, the final assembly of the vehicles must occur in North America. For years beginning in 2023 and 2024 additional restrictions are implemented.
- The Energy Efficient Home Improvement Tax Credit was renewed and upgraded, allowing consumers to get 30% back for energy-saving renovations, up to $1,200 per year (up from the previous $500 lifetime maximum). This change applies to projects completed between January 1, 2022 and December 31, 2032.
- The “HOMES” (Homeowner managing energy savings) Rebate program offers rebates up to $8,000 and the “High-Efficient Electric Home Rebate Act” offers rebates of $14,000 to qualified taxpayers. These rebates begin in 2023 and run until September 30, 2031.
- Retirement account contribution limits have increased.
- New tax brackets for 2022 have increased.
Contact DLA today with any questions.