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The IRS has released the 2025 optional standard mileage rates used in calculating the deductible costs of operating a vehicle for business, charitable, medical or moving purposes. The rates apply to electric and hybrid-electric vehicles as well as vehicles powered by gasoline and diesel fuel. Beginning Jan. 1, 2025, the standard rate for the use of a car, van, pickup truck or panel truck will be:
70 cents per mile driven for business use, up 3 cents from 2024
21 cents per mile driven for medical purposes or for moves by qualified active-duty members of the armed forces, unchanged from last year
14 cents per mile driven in service of charitable organizations, the rate is set by statute and unchanged from 2024
Premium Tax Credit Regulations Finalized
The IRS and Treasury Department have issued final regulations amending the definition of “coverage month” and amending certain other rules in existing income tax regulations addressing the computation of an individual's premium tax credit. The regulations apply to tax years beginning after Jan. 1, 2025, for taxpayers who may be eligible for the premium tax credit to enroll themselves or a family member in individual health insurance coverage through a health care exchange.
The coverage month amendment generally provides that, for the purposes of calculating the premium tax credit, a month may qualify as a coverage month for an individual if the amount of premium paid is sufficient to avoid terminating the individual's coverage for the month. This includes advance payments of the premium tax credit.
The final regulations also amend the existing regulations related to the enrollment premiums used in computing the taxpayer's monthly premium tax credit if a portion of the monthly premium for a coverage month is unpaid. Lastly, the finalized regulations clarify when an individual is considered to be ineligible for coverage under a state's basic health program.
Relief for Failure to Provide Payee Statements
The IRS is offering additional penalty relief to partnerships that don't furnish Forms 8308, Report of a Sale or Exchange of Certain Partnership Interests, to a transferee or transferor in specified 2024 partnership exchanges by the later of Jan. 31, 2025, or 30 days after the partnership is notified of the §751(a) exchange. Specifically, the relief applies to partnerships with unrealized receivables or inventory items described in §751(a) that don't furnish Part IV of Form 8308 to the transferor and transferee in a §751(a) exchange.
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Beneficial Ownership Information (“BOI”) reporting is a newfederal law requirement estimated to impact more than 30 million businesses as soon as January 1, 2024. In general, any entity, domestic or foreign, created by filing a document with a secretary of state (or equivalent state office) will be required to file a BOI report. Unlike a lot of government requirements, BOI reporting targets small businesses.
If you are a small business owner, there is a likelihood that your business is subject to BOI reporting. BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury. Penalties for willful noncompliance may result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time. That’s why we care.
Entities subject to BOI reporting requirements, called “reporting companies,” must file reports identifying (1) the beneficial owners of the entity, and, in some instances, (2) the individuals who have applied with specified governmental authorities to form the entity or register it to do business (“company applicants”).
Why might your refund lower in 2022 than in prior years when nothing in your finances have changed much? Watch this video to learn more about the new tax laws impacting the result your tax return.
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Believe it or not, it’s already time to start gearing
up for another tax season. As we wrap up the
2022 tax year, we thought it would be a good
time to review the actions Congress and the IRS
have taken in the last few months that may have
an impact on your returns, refunds and future
tax planning. If you have any questions about the
changes and how they could impact your return, or
need advice on how you can reduce your tax bill
for the rest of the year and get a start on planning
for tax season, please get in touch with us.
Inflation Reduction Act Tax Credits
The tax legislation that has received the most
attention in the past year is the Inflation Reduction
Act of 2022 (IRA of 2022), which was signed into
law this August. One of its goals was to address
climate change by offering tax incentives for
going green. While some of these incentives are
targeted at U.S. businesses, most are available
to U.S. homeowners who make energy-saving
improvements to their homes.
Many of the tax benefits offered by the IRA of
2022 are not new but are actually extensions and
modifications to existing credits that either had
expired or were set to expire soon. For example,
the nonbusiness energy property tax credit was
renamed the energy efficient home improvement
credit and extended through 2032. Beginning in
2023, the credit amount will be 30% of the costs
of eligible home improvements made during the
tax year, with a $1,200 annual limit. The specific
annual limits for improvements are:
• $150 for home energy audits
• $250 for exterior doors meeting Energy Star
requirements ($500 total for all doors)
• $600 for windows and skylights meeting Energy
Star’s most efficient certification requirements
• $2,000 for specified heat pumps and heat pump
water heaters, biomass stoves and boilers
(neither the $1,200 annual limit on total credits
nor the $600 limit on other qualified energy
property applies to this amount)
• $600 for other qualified energy property,
including central air conditioners; electric
panels and certain related equipment; water
heaters powered by natural gas, propane, or oil;
oil furnaces and water boilers
The IRA of 2022 also renames the residential
energy efficient property credit as the residential
clean energy credit. This credit was scheduled to
expire at the end of 2023 but has been extended
through 2034. The credit amount increased to
30% for 2023 through 2032, but drops to 26% in
2033 and 22% for 2034. The energy efficient home
improvement credit no longer applies to biomass
furnaces and water heaters, but will apply to
battery storage technology with a capacity of at
least three kilowatt hours
Updated Electric Vehicle Credit
It may seem the IRA of 2022’s $7,500 tax credit
for purchases of new electric vehicles is just a
continuation of a credit that was already available,
but the legislation made many substantive changes.
The credit is now known as the clean vehicle credit,
and the IRA of 2022 placed several restrictions
on the credit that may make it difficult for some
buyers of electric vehicles to take advantage of it.
The changes that are expected to have the
broadest impact include caps on the income of
the taxpayers eligible for the credit, a limit on
the retail price of qualifying vehicles and new
sourcing requirements. Starting in 2023, only
households with incomes of up to $300,000
qualify for the credit, with the credit limited
to individual taxpayers with incomes below
$150,000. Additionally, only battery-powered
cars priced at less than $55,000 are eligible, or
$80,000 for vans, SUVs and trucks. Finally,
final assembly of the vehicle must have been
in North America, and the materials from
which it is constructed must meet specified
sourcing requirements.
Student Loan Forgiveness
Not Taxable
President Biden’s decision to forgive a portion
of some student loans and the objections some
have raised to his actions received a great deal
of media attention over the summer. Receiving
significantly less attention were the potential tax
implications for those whose loans were forgiven.
Many in the tax community were concerned
that those who received forgiveness would end
up paying much larger tax bills because the IRS
has traditionally taxed forgiven debt as income to
the taxpayer. Fortunately, Congress had already
anticipated the problem and the American Rescue
Plan Act of 2021 preemptively excluded most
student loan debt from income for the 2021
through 2025 tax years.
Educators Expense
Deduction Increased
The out-of-pocket expenses that educators can
claim as a deduction increased to $300 for 2022,
up $50 from last year. This is the first increase
since 2002. The deduction for unreimbursed
expenses is available to all educators, even
those claiming the standard deduction. Married
educators who are both claiming the deduction
can claim a deduction of up to $600. If you
or your spouse are an educator who plans on
claiming the deduction for 2022, remember
that you need to track the receipts for your
out-of-pocket expenses to verify the amounts
you claim
Improperly Forgiven
PPP Loans Taxable
One of the primary benefits of the Paycheck
Protection Program (PPP) loans to help businesses keep their workforce employed during the
COVID-19 pandemic was that many eligible borrowers qualified to have their loans forgiven, and
the forgiveness is not taxed. However, there were
some instances where borrowers had their loans
forgiven despite not being eligible for forgiveness.
An IRS review of the program discovered that
some ineligible taxpayers got their loans forgiven,
often through misrepresentations or omissions.
This fall, the IRS announced that those taxpayers
whose loans had been improperly forgiven must
include the forgiven amount in their income.
New Funds to Improve
IRS Enforcement
Treasury Secretary Janet Yellen recently outlined
the IRS’s plans for the nearly $80 billion in additional funding in the IRA of 2022, which includes
increasing the agency’s compliance and enforcement efforts. While the additional funding will
decrease the gap between what U.S. taxpayers
owe and actually pay, Yellen stressed that the
new resources will not be used to increase the
audit rates for households with less than $400,000
in annual income.
In addition to increased enforcement, Yellen
explained the funds will be used to transform
the IRS into a 21st century agency and improve
customer service by fully staffing IRS Tax
Assistance Centers, hiring 5,000 additional
phone representatives and improving the
agency’s slow turnaround for paper returns.
COVID Penalty Relief for Late Filers
The COVID-19 pandemic made it difficult for some
taxpayers to file their returns, and in September,
the IRS announced it would stop imposing failure
to file penalties on individuals and businesses that
filed their 2019 and 2020 returns late. The deadline
for taxpayers to file late returns for those years
and have their full penalty forgiven has already
passed, but the IRS says taxpayers can still file
and pay a reduced penalty within the next few
months. To receive complete relief from failure
to file penalties, taxpayers needed to have their
returns for those years filed by Sept. 30. The nearly
1.6 million taxpayers who have already paid the
failure to file penalty for that year received more
than $1.2 billion in refunds or credits.
Unfortunately, the penalty relief only applies to
the failure to file penalty for the 2019 and 2020
tax years. The IRS has said taxpayers who have
unpaid taxes from those years will still be assessed
the failure to pay penalty and interest, even if the
taxpayer is eligible for relief from the failure to file
penalty. However, taxpayers who have not filed
for 2019 or 2020 and owe tax should still make an
effort to file because the failure to pay penalty is
usually assessed at 0.5% per month from the date
the return was originally due. The interest rate the
IRS charges on unpaid taxes rose from 5% to 6%
on Oct. 1.
IRS Crackdown on Crypto Continues
This summer’s crash in cryptocurrency prices has
many Americans souring on digital assets as an
investment, but the IRS continues to expand its
efforts to locate taxpayers who are using crypto currency to avoid taxation. The COVID-19
pandemic slowed down the agency’s Virtual
Currency Compliance Campaign, but the IRS is
once again ramping up its enforcement efforts.
In September, the agency received a judge’s
permission to issue a summons requiring that a
bank turn over information on customers using
the popular crypto broker sFOX. It has also
warned taxpayers that it may take additional action
to get banking information for taxpayers using
other brokers. Additionally, the IRS is planning to
spend a portion of the funding the agency received
through the IRA of 2022 to improve its ability to
monitor cryptocurrency transactions.
The IRS treats cryptocurrencies such as Bitcoin
and Ethereum as property, and taxpayers are
required to pay the capital gains tax on any profits
they earn by buying and selling virtual currency.
For the 2022 tax year, the draft of Form 1040,
U.S. Individual Income Tax Return, includes
an updated question on whether a taxpayer has
engaged in any cryptocurrency transactions. If you
sold or are planning to sell any cryptocurrency
during 2022, it’s better to disclose your profits to
the IRS and pay the tax due than it is to get caught
not disclosing the assets to the government and
face penalties and interest.
WASHINGTON — The Internal Revenue Service today announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2022-38PDF provides details about these annual adjustments.
New for 2023
The Inflation Reduction Act extended certain energy related tax breaks and indexed for inflation the energy efficient commercial buildings deduction beginning with tax year 2023. For tax year 2023, the applicable dollar value used to determine the maximum allowance of the deduction is $0.54 increased (but not above $1.07) by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent. The applicable dollar value used to determine the increased deduction amount for certain property is $2.68 increased (but not above $5.36) by $0.11 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent.
Highlights of changes in Revenue Procedure 2022-38
The tax year 2023 adjustments described below generally apply to tax returns filed in 2024.
The tax items for tax year 2023 of greatest interest to most taxpayers include the following dollar amounts:
The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
The other rates are:
35% for incomes over $231,250 ($462,500 for married couples filing jointly);
32% for incomes over $182,100 ($364,200 for married couples filing jointly);
24% for incomes over $95,375 ($190,750 for married couples filing jointly);
22% for incomes over $44,725 ($89,450 for married couples filing jointly);
12% for incomes over $11,000 ($22,000 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).
The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.
For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.
For tax year 2023, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up $350 from 2022. For tax year 2023, for family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.
For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.
Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.
The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022
Items unaffected by indexing
By statute, certain items that were indexed for inflation in the past are currently not adjusted.
The personal exemption for tax year 2023 remains at 0, as it was for 2022, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
There are seven federal tax brackets for tax year 2022, the same as for 2021. As noted above, the top tax bracket remains at 37%. The other six tax brackets set by the IRS are 10%, 12%, 22%, 24%, 32%, and 35%. This means that the highest earners fall into the 37% range, while those who earn the least are in the 10% bracket.1
The tax rates and brackets for 2022 are provided in the following chart.3
2022 Tax Brackets
Rate
Married Filing Jointly
Single Individual
Head of Household
Married Filing Separately
10%
$20,550 or less
$10,275 or less
$14,650 or less
$10,275 or less
12%
Over $20,550
Over $10,275
Over $14,650
Over $10,275
22%
Over $83,550
Over $41,775
Over $55,900
Over $41,775
24%
Over $178,150
Over $89,075
Over $89,050
Over $ 89,075
32%
Over $340,100
Over $170,050
Over $170,050
Over $170,050
35%
Over $431,900
Over $215,950
Over $215,950
Over $215,950
37%
Over $647,850
Over $539,900
Over $539,900
Over $323,925
There is no longer a personal exemption due to the 2017 Tax Cuts and Jobs Act.4 Taxpayers whose net investment income exceeds the IRS limit ($200,000 for an individual taxpayer, $250,000 married filing jointly, or $125,000 married filing separately) are subject to a 3.8% net investment income tax (NIIT) on investment income above those limits.
2022 Standard Deductions
The deduction set by the IRS for 2022 is as follows:
The additional standard deduction amount for an individual who is aged or blind is set at $1,400. That amount increases to $1,750 for individuals who are unmarried and if they aren’t surviving spouses. The standard deduction for claiming a dependent is $1,150 or $400 plus the individual’s earned income (as long as it’s not over $12,950)—whichever is greater.
Capital Gains
Capital gains rates are lower than a taxpayer’s ordinary income rate. But they depend on the taxpayer’s taxable income and filing status.7 The maximum adjusted capital gains rates apply for both the regular income tax and the alternative minimum tax.
Your capital gains rate is 0% for the 2022 tax year provided your income does not exceed:
$83,350 for married couples filing jointly
$41,675 for married couples filing separately
$55,800 for the head of a household
$41,675 for single filers8
In 2022, the 15% rate applies to adjusted net capital gains for:
Joint returns of up to $517,200
Married individuals’ separate returns of up to $258,600
Head of household returns of up to $488,500
Single individual returns of up to $459,7509
The applicable capital gains rate is set at 20% for any income amounts above these ceilings.
Individual Tax Credits
Earned Income Tax Credit (EITC)
The maximum amount of the earned income tax credit (EITC) for taxpayers whose self-reported incomes were in the lowest income bracket and the taxable income levels for its thresholds and ceilings are also adjusted for inflation. The maximum credit for three or more children is $6,935 in 2022. For married couples filing jointly, the phaseout of the credit begins at $26,260 of adjusted gross income (or earned income, if higher). The credit is completed at $59,187.
No EITC is allowed if the aggregate amount of investment income, such as from interest, dividends, net capital gains, or other passive activities, exceeds $10,300 in 2022.
Advanced Child Tax Credit (ACTC)
The expansion of the Child Tax Credit and the monthly advance payments only applied to 2021. There was an option to receive the credit as a lump sum by opting out on the IRS Child Tax Credit Update Portal, which is no longer available. (That money will come at one time when 2022 taxes are filed in the spring of 2023.)The child tax credit for tax years 2022 and onward will revert back to pre-2021 rules.
Qualified Adoption Expenses
The credit for qualified adoption expenses, as well as the special credit for the adoption of a child with special needs, amount to $14,890 for 2022. The exclusion from an employee’s income for qualified adoption expenses that are paid or reimbursed under an employer plan will be increased to the same level.
Lifetime Learning Credit
In 2022, the maximum $2,000 per return lifetime learning credit (LLC) for qualified educational expenses for a taxpayer, spouse, or dependent is phased out for taxpayers with MAGI in excess of $80,000 ($160,000 for joint returns).
The alternative minimum tax (AMT) applies to alternative minimum taxable income, such as regular taxable income with certain tax benefits added back, in excess of an exemption level.
The alternative minimum tax exemption levels for 2022 are as follows:
$118,100 for joint returns
$75,900 for unmarried individuals
$59,050 for married people’s separate returns
These alternative minimum tax exemption levels phase out, in 2022, from:
$1,079,800 to $1,552,200 for joint returns
$539,900 to $843,500 for unmarried individuals
$539,900 to $776,100 for married people’s separate returns
The alternative minimum tax rate is 28% for alternative minimum taxable income up to a maximum of $206,100 (for 2022) for returns of married couples and single individuals ($103,050 in 2022, for married filing separately).
Increased Allowances: Fringe Benefits, Medical Spending Accounts, and Estates
The monthly limit for qualified transportation and qualified parking fringe benefits is set at $280 for 2022.
The maximum salary reduction for contributions to health flexible spending accounts (FSAs) is $2,850 for 2022. The maximum carryover of unused amounts for cafeteria plans is $570 for 2022.
$2,450 to $3,700 with a maximum out-of-pocket expense of $4,950 for self-coverage for 2022
$4,950 to $7,400 with a maximum out-of-pocket expense of $9,050 for family coverage for 2022
For a decedent dying in 2021, the exemption level for the estate tax is set at $12.06 million in 2022. The annual gift tax exclusion is $16,000 for 2022.
Retirement Plans
The IRS also sets limitations on retirement plan contributions and phaseout ranges. The income exclusion for employee contributions to employer retirement plans, such as 401(k)s, 403(b)s, 457 plans, and the federal government’s Thrift Savings Plan, are set at $19,500 for 2021 and $20,500 for 2022. The catch-up contribution for employees ages 50 and older is $6,500 for both years. The limitation for SIMPLE (Savings Incentive Match Plan for Employees) retirement accounts is set at $13,500 for 2021 and $14,000 for 2022.
Individual Retirement Accounts (IRAs)
The deductible amount for individual retirement account (IRA) contributions is set at $6,000 for both 2021 and 2022. People ages 50 and older can contribute an additional $1,000 each year.
The phaseout levels for the deduction, though, are adjusted upward. If either a taxpayer or their spouse is covered by a workplace retirement plan during the year, the deduction may be reduced or phased out until it is eliminated.
The phaseout ranges for 2021 are as follows:
If an individual is an active participant in an employer retirement plan, the deduction phaseout for adjusted gross incomes is $66,000–$76,000 for single individuals and heads of households, and $105,000–$125,000 for joint returns.
For an IRA contributor who is not an active participant in another plan but whose spouse is an active contributor, the phaseout ranges from $198,000 to $208,000.
For a married active contributor filing a separate return, there is no adjustment and the phaseout range will remain $0 to $10,000.
The phaseout ranges for 2022 are as follows:
If an individual is an active participant in an employer retirement plan, the deduction phaseout for adjusted gross incomes is $68,000–$78,000 for single individuals and heads of households, and $109,000–$129,000 for joint returns.
For an IRA contributor who is not an active participant in another plan but whose spouse is an active contributor, the phaseout ranges from $204,000 to $214,000.
For a married active contributor filing a separate return, there is no adjustment and the phaseout range will remain $0 to $10,000.
IRA phaseouts do not apply if neither a taxpayer nor their spouse is covered by a workplace retirement plan.
Roth IRAs
For 2022, the phaseout ranges for Roth IRA contributions are $129,000 to $144,000 for single taxpayers and heads of households and $204,000 to $214,000 for joint returns. The Roth IRA phaseout for a married individual’s separate return remains at $0 to $10,000.
Saver’s Credit
Low-income taxpayers who make contributions to 401(k), 403(b), SIMPLE, SEP (Simplified Employee Pension), or certain 457 plans, as well as traditional and Roth IRAs, are entitled to claim a nonrefundable tax credit in addition to their exclusions or deductions.
Married taxpayers filing joint returns are eligible to claim a credit for contributions of up to $4,000 at a rate for 2022 of:
50% with AGI up to $41,000
20% with AGI up to $44,000
10% with AGI up to $68,000
Heads of households can claim, in 2022, a credit for up to $2,000 of contributions at a rate of:
50% with AGI up to $30,750
20% with AGI up to $33,000
10% with AGI up to $51,000
All other taxpayers are eligible to claim, for 2022, a credit for up to $2,000 of contributions at a rate of:
