This year has presented changes around every corner, and finance has by far been no exception. Factors like PPP loans, child tax credit payments, and stimulus checks have created financial situations that tax professionals had had no previous experience with. And if you’re trying to get in touch with someone from the IRS, your local tax office, or your local unemployment office about it, we wish you the best.
It’s not hard for changes in tax laws and regulations to fly under the radar. But neglecting such changes can lead to a surprising and unfortunate tax bill come April. So what can you do to prepare for filing your taxes in 2022? What changes should you be aware of?
Child Tax Credit Payments
For years, parents with children under the age of 17 have been able to deduct up to $2,000 per child from their annual taxes. The final amount they received would depend on their income and the amount of taxes owed. Until recently, when lawmakers put in place the ability for parents to deduct anywhere from $3,000 to $3,600 per child. Income is taken into consideration, so families with high incomes didn’t receive as much or possibly any credit.
This new federal program allowed eligible families to receive half of their total Child Tax Credit amount (which would normally be received when they file their 2021 taxes) in advance monthly payments. These payments were sent automatically to eligible families. But in 2022, the child tax credit will be reverted to normal. Parents will receive the lump sum of $2,000 in April 2023 when they file their taxes.
But since these payments were made in advance, they were calculated based on parents’ income from their 2020 tax return. With the pandemic, came millions of job changes and income changes. So many families received higher child tax credit payments than they were entitled to. What happens next? All families will be required to reconcile their child tax credit on their 2021 tax returns. Lower-income families who might have received excessive payments may qualify for repayment protection if their income hits below a certain mark.
Income Tax Planning
Where are you planning on putting the money you save in 2022? Carl Carlson, Founder of Carlson Financial suggests setting a firm date to figure out your tax situation, and then separate dates to fix each facet of it. Look into the different types of tax or tax-free accounts available to you, consider whether you’re in your earning or non-earning years, and decide where it would be best to put the money you’re saving. Having that determined now will save you plenty of headaches down the line.
If some residual credit card debt is standing in the way of you saving money, make a plan to take care of that now. Set a budget to determine exactly how much you can pay off each month and when your debt will be covered.
Be Mindful of Security
2021 already brought with it a series of documents you didn’t have in your 2020 return, documents pertaining to PPP loans, PUA, and more. You’re going to likely have a lot more than a W-2 to share with your tax preparer this season. So keep cybersecurity at the forefront of your mind. Don’t share private documents through text or email. Why? Giving someone access to these documents can also mean giving them access to your home address and social security number. The safest option is to upload those documents to your tax preparer’s online portal.
Tax Planning in 2022
The best way to keep your tax records organized, accurate, and predictable is to work with a trustworthy CPA. Chris Haro, CPA and his team have over 20 years of experience in accounting and tax preparation services. With Chris and his team, you're given a team of experts that are ready to answer your questions. You're not trusting a computer program to catch mistakes, you have a trained professional ensuring your bases are covered. Start getting answers to your financial questions today.