The IRS released the new tax brackets and standard deduction amounts for the 2022 tax year.
All Americans are facing a long list of new tax laws for the 2022 tax year. As a business owner, it’s time to begin thinking about your 2022 tax return. There are plenty of year-end financial and tax planning moves for taxpayers to consider now.
Here’s a quick overview of some 2022 tax changes, compared to what they were in 2021.
Income Tax Rate Increases and Federal Tax Brackets
One of the most discussed propositions is the increase in income tax rates. These tax brackets differ from taxpayer to taxpayer, depending on your income and whether you are a single filer or a part of a married couple.
In 2022, the income thresholds for all tax brackets and all filers will be adjusted because of rising inflation. There are some significant increases to the upper limits of these new tax blankets, compared to what they were for 2021. There are seven federal income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, 37%. We highlight some of the key tax bracket changes between 2021 and 2022 below:
Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Jointly) | Taxable Income (Married filling separately) | Taxable Income (Head of household) |
10% | under $10,275 | under $20,550 | $10,275 | $14,650 |
12% | $10,275 | $20,550 | $41,775 | $55,900 |
22% | $41,775 | $83,550 | $89,775 | $89,050 |
24% | $89,075 | $178,150 | $170,050 | $170,050 |
32% | $170,050 | $340,100 | $215,950 | $215,950 |
35% | $215,950 | $431,900 | $539,900 | $539,900 |
37% | $539,900+ | $647,850+ | $539,900+ | $539,900+ |
These income tax brackets will only apply to taxable years beginning after December 31, 2021.
2022 Standard Deduction
The standard deduction limit will increase by $400 for singles. For the married filing jointly and heads of household, the numbers will increase by $500 and $600, respectively. Married filing separate filers claim the deduction of $25,900 (increasing by $800 compared to the last year).
Filing Status | 2021 | 2022 |
Single | $12,550 | $12,950 |
Married Filing Jointly | $25,100 | $25,900 |
Married Filing Separately | $12,550 | $12,950 |
Heads of Household | $18,800 | $19,400 |
New tax deductions changes are also available for people at the age of 60 or over, or the blind:
For single or head-of-household filers, an additional $1,750 is available in 2022 is $1,750 (up from $1,700 in 2021).
For married taxpayers 65 or over or blind, the additional standard deduction for 2022 is $1,400 (up from $1,350 in 2021). For anyone who is both blind and at least 65, the additional deduction amount is doubled.
Tax Law Changes of Retirement Plans - New 401(k) Contribution Limits for 2022
Those looking to further reduce their tax liabilities in 2022 will be allowed to make larger 401(k) contributions. The new maximum employee contribution to a 401(k) plan will be $20,500. The maximum contribution between employee and employer has increased to $61,000 per year. For taxpayers who are 50 or older, an additional $6,500 catch-up contribution is allowed bringing the grand total to $67,500 for 2022.
Setting up a solo 401(k) combined with a Cash Balance Plan can be an excellent way for high-income business owners to minimize their tax bills and plan for a secure retirement, especially in light of changes to standard deduction. Maximum contributions to the small business retirement plan combination of a 401(k) plus Cash Balance Plan could easily approach $300,000 per year or more if both spouses work in the business.
If you haven’t started already, it’s time to begin thinking about your 2022 tax return. We’re an online bookkeeping service with seasoned bookkeepers and accountants (CPA) who can help your business with tax preparation during tax seasons. Get a free initial consultation here!
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