December 2022 Tax Update

Itemizers have the most flexibility in shifting write-offs, as shown here. Home interest. If you pay your Jan. 2023 mortgage bill before year-end, you can deduct the interest portion on Schedule A of your 2022 income tax return. State and local taxes. If under the $10,000 cap and your locale allows it, pay the property tax bill due in Jan. 2023 in Dec. of this year so you can deduct it. Bunch into 2022 charitable gifts you would usually give over multiple years. Heed the timing rules for charitable donations and other tax-deductible items. Put checks in the mail by year-end to lock in a 2022 deduction. For charges made with bank credit cards, you can claim the write-off in the year you charged the expense.

Use your annual gift tax exclusion. You can give up to $16,000 to each person this year without having to tap your lifetime estate and gift tax exemption, pay gift tax or file a gift tax return. The recipient isn’t taxed on the amount received, either. Any unused amount is gone forever. You can’t give extra next year to make up for it. Your spouse can also give $16,000. Say you’re married with two kids and one grandkid. You can give each relative up to $32,000 ($96,000 total) this year in excludable gifts. Annual gifts over the exclusion amount will trigger filing of a gift tax return for 2022, but no federal gift tax will be due unless your total lifetime gifts exceed $12,060,000.

Here are two ways to help your kids or grandkids with their college education: Pay tuition directly to the school. The payment is nontaxable to the student, it doesn’t count against the $16,000 gift tax exclusion, and it reduces your estate. Contribute to a 529 plan. You can shelter from gift tax up to $80,000 in contributions per beneficiary this year ($160,000 if your spouse agrees). If you put in the maximum, you’ll be treated as gifting $16,000 (or $32,000) to that beneficiary in 2022 and in each of the next four years…2023 through 2026.

Capital losses offset capital gains plus up to $3,000 of other income. Excess losses are then carried over to the next year and can help offset future capital gains, but don’t run afoul of the wash-sale rule.

Check your health flexible spending account. You must clean it out by Dec. 31 if your employer hasn’t implemented the 2½-month grace period or $570 carryover rule. Otherwise, you will forfeit any money left in your account. Also, consider electing to contribute to a health FSA for 2023. You can put in up to $3,050 next year to your employer’s health FSA to cover out-of-pocket medicals. Amounts contributed to an FSA escape federal income tax as well as payroll taxes.

Max out your 2022 401(k) and IRA contributions. You have until Dec. 31 to stash money in 401(k)s, 403(b)s and other workplace retirement plans, and until April 18, 2023, to contribute to a traditional IRA or a Roth IRA for 2022. Individuals can contribute up to $20,500 to a 401(k), plus $6,500 more if age 50 or up. The 2022 payin cap for IRAs is $6,000, plus an extra $1,000 if age 50 and older.

People 70½ and older can transfer up to $100,000 yearly from IRAs directly to charity. Qualified charitable distributions can count as RMDs, but they’re not taxable and they’re not added to your AGI, so they won’t trigger a Medicare premium surcharge in 2024. The QCD strategy can be an effective way to get tax savings from charitable gifts for taxpayers not taking charitable write-offs because of higher standard deductions.

Beginning with 2022 returns filed next year, nonitemizers can no longer write off on page 1 of the Form 1040 up to $300/$600 in cash donations paid to charity. Of course, you can’t deduct the donation on Schedule A.

Make the most of your generosity when donating to charitable organizations. Contribute appreciated property, such as stocks or shares in mutual funds. If you’ve owned the property for more than a year, you can deduct its full value in most cases if you itemize. Neither you nor the charity pays tax on the appreciation. Don’t donate assets that have dropped in value. If you do, the loss is wasted.

There are very generous write-offs for business asset purchases this year. Businesses can save lots on taxes with first-year 100% bonus depreciation. Firms can deduct the full cost of new and used qualifying business assets, with lives of 20 years or less, that they buy and place in service by Dec. 31.

Forgiven college debt under Joe Biden’s program escapes federal income tax. That’s because a provision in last year’s stimulus law exempts most student loan debt that is forgiven in 2021 through 2025 from federal income tax. This is an exception to the general rule that income from the cancellation of indebtedness is taxable. But beware of state taxes, although most states will follow the federal lead.

The recently passed Inflation Reduction Act extended for 10 years, through 2032, a nonrefundable credit equal to 30% of the cost of equipment and installation for EV home chargers or $1,000, whichever is smaller. Businesses get an even juicier credit…the lesser of 30% of the cost or $100,000 per EV charger that is installed on the premises after 2022. Firms must reduce the basis in the EV charging property by the credit amount.

Individuals will get an additional three days to file their tax returns for 2022. The due date will be April 18, 2023, because April 15 falls on a Saturday and Washington, D.C., celebrates its Emancipation Day holiday on April 17. This also affects returns filed by calendar-year C corps, estimated taxes and other actions that are tied to April 15, such as the IRA contribution deadline. The deadline for calendar-year S corporations and partnerships is March 15.

All 1040 and 1040-SR filers must answer a question on virtual currency. On 2021 returns, taxpayers had to tell the Service whether they received, sold, exchanged, or otherwise disposed of any financial interest in any virtual currency. That question is being expanded for 2022 returns to cover digital assets. And it is broader. Taxpayers must answer whether, at any time during 2022, they received, sold, exchanged, gifted, or otherwise disposed of a digital asset or a financial interest in a digital asset.