Every year, when you fill out your federal income tax return, you can choose whether to take the standard deduction or itemize your deductions. Most people claim the standard deduction. Recently, the IRS announced an adjustment to the 2022 tax year standard deduction, based on inflation rates. While it’s a while before you’ll have to file your 2022 taxes, it’s still a good idea to be thinking ahead when it comes to your tax bill and potential reductions.
What is the Standard Deduction?
The standard deduction is one of the easiest and most common ways of reducing your taxable income on your federal tax return. You simply claim a flat dollar amount that’s pre-determined by the IRS and that’s based on your filing status, age, and other conditions. Taxpayers who cannot claim a standard deduction include: non-resident aliens, dual-status aliens, married and filing separately from a spouse who itemizes, filing for less than a 12-month period, and filing as an estate, trust, common trust fund, or partnership.
Alternatively, if you’d prefer to itemize your deductions, you’d need to track expenses, save receipts, and fill out additional tax forms. Itemized deductions can include state and local taxes, out-of-pocket medical expenses, mortgage interest, charitable contributions, and other expenses.
Does Itemizing Save You More Money?
Whether you claim the standard deduction or itemize, the deduction will save you money by reducing your taxable income. For some taxpayers, itemizing expenses can reduce their tax bill even more than claiming the standard deduction. If your itemized deductions are greater than the standard deduction available, you might want to itemize them on your next tax bill.
Standard Deduction for the 2022 Tax Year
Next tax year, the standard deduction amount will increase. (So, this will affect the tax return you’ll file by April 2023). Here are the changes:
- Single or Married Filing Separately: from $12,550 (2021) to $12,950 (2022)
- Married, Filing Jointly and Surviving Spouses: from $25,100 (2021) to $25,900 (2022)
- Head of Household: from $18,800 (2021) to $19,400 (2022).
For taxpayers who are 65-years and older, you can claim an additional standard deduction of $1,400 (per Married person) or $1,750 (Single or Head of Household). This also applies to those who are blind. If you’re a taxpayer who can be claimed as a dependent, your 2022 standard deduction is limited to either $1,150 or earned income plus $400 – whichever amount is greater.
Other IRS Changes
It’s also important to note that the annual Gift Tax exclusion will change for the first time in several years. Between 2018 and 2021, the threshold was $15,000 before taxes applied on gifts. In 2022, that amount increases to $16,000.
Also in 2022, the Earned Income Tax Credit (a credit for low-to-moderate-income households with three or more children) increases from $6,728 to $6,935.
Have Additional Questions? Contact Brian M. Douglas & Associates
If you have questions about the 2022 changes and how they may impact your tax or estate plans, please reach out to us at (770) 933-9009 or via our online contact form. We’re always happy to help.