2022 tax tables

A tax bracket is a range of incomes subject to a certain tax rate, which is determined by your filing status and taxable income for the year. The Internal Revenue Service (IRS) makes adjustments every year and has announced changes that will be applied in the 2022 tax season (which will be filed in 2023). Your specific situation may not be straightforward, but a tax professional can help you determine your tax bracket.

When prepping your tax return, it pays to know the difference between tax deductions and credits, and which you’re eligible to claim. Working with a tax professional is the best way to find out what credits and deductions you qualify for.

Tax credits directly lower your tax bill. For example, if you owe $1,000 in taxes and qualify for a $1,000 credit, the credit can zero out your tax liability. Some, like the Child Tax Credit, are refundable, meaning if the credit amount exceeds what you owe in taxes, you receive the difference in your refund (conversely, if your income is higher, you may need to repay some or all of the money you received).

Tax deductions reduce the amount of income that’s subject to tax. They can be above-the-line (used to calculate your adjusted gross income (AGI) or below-the-line (deducted after AGI is calculated). Above-the-line deductions include things like Individual Retirement Account (IRA) contributions and student loan interest. Below-the-line deductions are itemized deductions you claim on the Schedule A tax form, which a tax professional can help prepare.

The standard deduction is a flat dollar amount you deduct based on your filing status. Your tax advisor can help you decide if a standard or itemized deduction is the right choice for your specific situation.

Itemized deductions are those you can take for individual expenses, like mortgage interest, charitable deductions or qualified medical expenses. These vary based on your own financial situation from year to year and will depend on your specific situation.

Running the numbers through a tax deduction calculator or consulting a tax professional can help you decide if you’ll benefit more from claiming the standard deduction versus itemizing or vice versa.

Keep in mind if you received any type of federal aid in 2021 related to the coronavirus pandemic, it could affect your tax filing, so be sure to include this information when you file or consult with your tax professional.

A stimulus check does not count as taxable income and doesn’t reduce your refund or increase your tax bill for the 2021 tax year. If you didn’t get a stimulus check in 2021 but you’re owed one, you should get it when you file your return by claiming the Recovery Rebate Tax Credit.

The CARES Act allowed distributions of up to $100,000 from a qualified retirement plan through December 31, 2020 without the 10% early withdrawal penalty. Keep in mind, while the penalty has been waived, the distribution is considered ordinary income and will increase your tax liability.

In March 2020, the CARES Act allowed those with federal student loans to temporarily pause payments without accruing interest (aka loan forbearance). If you paused payments, you may have less student loan interest you can deduct on your tax return than you might have in the past.

If it’s your first-time filing income taxes, there are some things to keep in mind:

Failing to file or not paying taxes owed can trigger a tax penalty or in extreme cases, the IRS could place liens against your property or file charges, so make sure to prioritize filing on time.

The IRS offers an  online tool  you can use to determine if filing a federal tax return is necessary for you.

Speaking of filing status, you can choose from: Single, head of household, married filing separately, married filing jointly or qualifying widow/widower with a dependent child. If you’re not sure, a tax professional can help you determine the proper filing status for you.

Be sure to gather all necessary tax forms and maintain documentation of any income, government benefits (such as unemployment benefits), receipts on major purchases, business expenses, distributions and any gains or losses from your investments.

Money made from dividends or investment profits is subject to tax. But tax implications vary depending on how long you’ve owned the asset before selling. A tax profession can help you explore certain strategies, like tax-loss harvesting, that can help you lower your investment tax bill.

You can collect your paperwork (W-2s, receipts for deductible expenses, etc.) and take it to a tax professional, who can get your tax return in order and file for you, in exchange for a fee.

Or, if you feel comfortable doing taxes on your own, you can prepare both your federal and state tax returns using an online tax filing program or by hand using paper and pencil. If you qualify, the IRS Free File program lets you file taxes for free.

While the DIY option is cheaper than hiring a tax pro, it may be more time consuming if you’re not well-versed in filing taxes.

Once completed, you’ll see whether you owe a tax bill or you’re due a refund. If you’re getting a refund, direct deposit is the fastest way to get the money. The IRS aims to send refunds within 21 days of a tax return being approved.

If you owe taxes, pay those by the tax filing deadline to avoid penalties and interest. If you owe a large sum of money to the IRS, you can set up an Installment Agreement, which doesn’t prevent penalties and interest from accruing but it can give you time to pay the IRS what you owe without fear of a lien or other consequences.

Getting your tax return together shouldn’t be a hassle. Whether you file on your own or work with a tax professional, staying organized throughout the year is a great way to ensure that the season doesn’t sneak up on you. Happy filing!

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