2022 had numerous tax law changes that may impact you when filing your 2022 taxes. Depending on your situation, the changes may mean a reduced refund or a larger tax bill.
Here are some of the updated IRS tax law changes to know before filing your 2022 tax return:
Both credits have been reduced for 2022:
The 2022 child tax credit is $2000 per child under age 17. Which is between $1000 and $1600 less than in 2021. In 2021 provided age-based tax credits depending on the child’s age.
One tax law change is the child and dependent care tax credit to care for children under age 13 or adult dependents have been reduced for 2022. In addition, for one qualifying person receiving care, the credit is $3000, and for two or more dependents, a combined total of $6000.
For your 2022 return, you can claim the deduction if your itemized deductions, including the tax break for charitable gifts, exceeds the standard deduction. The tax break Americans received in response to COVID-19 was not extended for 2022, meaning there’s no longer a benefit for charitable gifts if you take the standard deduction. Therefore, only those who itemize deductions can claim the charitable deduction on their 2022 taxes.
The third of the tax law changes is a 7702 plan is a tax-advantaged life insurance policy. It is named based on the Internal Revenue Code that spells out how cash-value life insurance policies retain their tax-advantaged status. Contrary to its name, a 7702 plan is not a type of life insurance policy. Such as a term or whole life.
The proceeds of life insurance policies that do not meet the government’s definition are taxable as ordinary income. However, proceeds from genuine life insurance contracts are tax-advantaged. Section 7702 applies only to life insurance contracts issued after the year 1984.
Source- IRS Section 7702: What It Is and Recent Tax Code Changes, Investopedia.
When a cash value life insurance is overfunded and fails the IRS Section 7702 tests, it becomes a Modified Endowment Contract (MEC) and loses its tax-advantaged status.
If you have questions about cash value life insurance and IRS Section 7702, contact your financial professional or tax professional. In order to help ensure you’re not overfunding your policy and losing the tax-advantaged benefits.
Now is a great time to get your documents in order. In order to prepare for filing your 2022 tax return during quarter one to help determine if you will receive a refund or need to pay the IRS.
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This article is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid penalties or to promote, market, or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.
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In conclusion, at Financial Security Management Agency, Inc. we believe that you shouldn’t have to do it alone. If you need help with retirement planning or creating tax-advantaged retirement strategies, we can help you. In addition, contact us today to schedule a free consultation. Remember don’t do it alone!