Have the new tax brackets been released?
- Yes they have! There are several tax brackets and they stay the same this year. There are 10, 12, 22, 24, 32, 35, and 37%. But the brackets for the 2022 tax year, the IRS bumped up the income threshold for all the statuses to account for the inflation. So for instance, if you are married and filing jointly then last year you could make between $81,051 to $172,750 to be in the 22% tax bracket but now you can make between $83,500 to $178,150 to stay in that bracket. That was kinda nice that they went up along with the inflation rate.
We’re not that far away from getting those taxes done. What should people be doing to get prepared?
- My clients can go to my website at jenniferyoungsbookkeeping.com and print my tax questionnaire and start filling that out or they can fill it out online and it will automatically send it to me. It has a list on there of things that they can potentially get in January so they know that they will have everything so that they are looking out for their W-2’s, their 1099’s and all of those things. Maybe even a K1 if they have a business. I am not sure if this tax year will be accredited like it has in the past so they may need to get things started earlier since we have been accustomed to the extra time and we may not get that this year.
Are there any changes in tax law?
- Oh there’s a lot of changes but the one i would like to mention is that there is a proposal that has not been passed through yet but they are trying and it is called Build Back Better. It affects people who have 6 different qualifications including if your AGI is at least $400,000, you itemize, your modified AGI is above $10,000,000, you have an IRA or retirement plan, you have a trust, or you own an LLC or S corp.
How does this affect an IRA and retirement plan?
- An excise tax would be imposed on additional contributions by high income taxpayers who have a high aggregate retirement account balance of in excess of the $10,000,000 threshold. The house bill also prohibits all employees after tax contributions in qualified plans and tax IRA contributions from being converted to a Roth IRA regardless of the income level for distribution. Contributions and transfers are all made after December 31st, 2021.
How will this affect people who itemize?
- The current law claims that taxpayers who itemize are restricted to a cap of $10,000 on the expenses related to your state, which we don’t have in South Dakota but if you are coming in from other states, you might, and you local income tax including your property taxes. The proposed law would raise this to $80,000 until 2023 which would be a huge tax break for people.
What changes could affect your business?
- The NIIT is a 3.8% surtax that applies to individuals, estates and trust with income over $400,000 for a single taxpayer and $500,000 for married people filing jointly. The expanded scope of the NIIT or the self-employment tax beyond deemed reasonable compensation as an employee. Also the top applicable corporate tax rate is currently 21%. The new law would impose a 15% alternative minimum tax on the adjusted financial statement income of corporations that report more than $1,000,000 in profits to shareholders.
A lot of this information can seem intimidating which is why you need to go to a tax preparer because things are changing at such an incredible rate so you need someone you can trust that will take care of this stuff for you.
Contact us at jenniferyoungsbookkeeping.com or call 605-787-3230