2022 Client Letter

Dear Fellow Taxpayers,

As we begin the New Year, that means it is time to do the taxes. Here is a brief synopsis of what I know:

• Standard Mileage Rate has increased. $0.585 per mile before July 1st, and $0.625 after June 30th. Those of you that claim mileage (self-employed’s), please break it down. Total miles for the 1st 6 months, and total miles for the 2nd 6 months.

• Business meals at restaurants are again at 100%. Make sure you separate your business meals between sit down restaurants and a pre-made sandwich picked up at a truck stop.

• Gift tax exclusion has increased to $16,000. That is how much you can give or receive tax free. If a married couple agrees, they can each give $16K for a total of $32K.

• Did you sell something on EBay, or did someone pay you via PayPal or Venmo? Some of you may receive a 1099K this year for gross payments received that exceed $600 (was $20K prior to 2022), and any number of transactions (was 200 transactions prior to 2022). Be prepared.  What did you sell? How much did you purchase the item for? Did you pay any fees or shipping? 

On December 23rd, the IRS announced a delay in the reporting requirement of third party settlement organizations.  Some may have already been prepared to report though, so don't count it out.

• Teachers can deduct up to $300 (up from $200) for the cost of their unreimbursed expenses. Home schooling parents cannot take the deduction, and it’s only for K-12 educators.

• Electric Vehicle Tax Credit. This one has some changes mid- year that spill over into 2023. The max tax break remains at $7500, but the factors for figuring the credit are new, many of which are complex. If you purchased an EV, bring in your vehicle identification number. There is an on-line tool to input the VIN to see if the EV is credit-eligible. 

Last year’s covid relief enhancements have expired, and some credits return to 2019 levels:

• Cash charitable contribution deduction for non-itemizers is no longer available, and the Mortgage Insurance Deduction has not been extended.

• Child Tax Credit. Those who got $3600 per dependent in 2021 will, if eligible get $2,000. The Additional CTC, refundable up to $1500 may be available for all or a portion of the credit that is unused. AGI phase out of $400K for MFJ, and $200K for all other filing categories. A $500 Credit is available for Other Dependents.

• Child & Dependent Care Credit is 20 – 30% of the smallest of:

             1. $3,000 ($6,000 for 2 or more qualifying persons)

             2. Total Expenses

             3. Earned Income of taxpayer or spouse.

             Note that summer day camp costs, and before & after school care programs qualify for 

             the Dependent Care Credit, but the cost of summer school, tutoring, and overnight 

             camps do not.

• Earned Income Credit, you must be between the ages of 25 and 65.

Tax Planning:

• Do you have a high deductible health insurance plan? Consider a tax advantaged Health Savings Account (HSA) to pay for your out-of-pocket medical expenses. A high deductible health plan is defined as:

                                                                         Self-Only                                  Family Coverage

Minimum Allowable Deductible                   $1,500                                           $3,000

Max Out of Pocket Expenses                         $7,500                                         $15,000

HSA Contributions are deductible. The annual cap for those contributions is $3,850 for self-only coverage and $7,750 for family coverage. People born before 1969 can put in an additional $1,000. Earnings build up tax free, and they don’t have a use-it-or-loose-it rule.

• Effective for 2023, the re-named Energy Efficient Home Improvement Credit has expanded its usefulness. The lifetime credit limit of $500 has been removed, so if you had already maxed out, you may be able to take advantage. The credit is increased      to 30%, with different categories having different annual limitations. I will go into more detail when I post the on-line version of this letter on my website.  

            As promised, here are the details. 

           1.   Qualified improvements include energy efficient insulation, exterior windows, skylights 

           and exterior doors that meet various energy standard requirements.  The new law removes 

           roofs.  

           2.  In general, the credit is limited to $1200 per year, with the following exceptions.  A higher

           limit of $2K is allowed for heat pumps, heat pump water heaters, biomass stoves and boilers.

          The credit for windows is limited to $600, exterior doors $250 per year for one door, with a

         $500 cap on all exterior doors.  The credit for energy audits is limited to $150 per year.

Also Noteworthy: 

Interest Rates for both the IRS and MA DOR have increased on overdue taxes. However, they have also increased for overdue refunds.

One other item I would like to bring to your attention. The cost of paper has risen astronomically! In an effort to keep your cost and mine down, would you consider receiving a copy of your tax return electronically? You could bring in a thumb drive, and I can download a pdf copy of your return. You will then have a convenient way to transmit documentation to other institutions as needed, without having to make photo copies or scanning pages to make your own pdf copy. Also, the storage of your returns is in one convenient place, we can add each year’s pdf copy to the same thumb drive. No more bulky folders to store, especially when you never look at them again! This is not a requirement, just a request.  I will still provide a printed copy if preferred.

As the days get longer, I hope this letter has found you well! I look forward to seeing you all in the coming months!