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Certain tax credit have been decreased
One attainable motive for a smaller tax refund is the child tax credit and the child and dependent care tax credit have been decreased for 2022, defined licensed monetary planner Cecil Staton, president and wealth advisor at Arch Financial Planning in Athens, Georgia.
While each tax credit obtained a short lived increase by the American Rescue Plan of 2021, the improved tax breaks weren’t prolonged to 2022. “The big picture is a lot of people are going to see less money in their pocket,” Staton stated.
In 2021, the kid tax credit score supplied up to $3,600 per baby beneath age 6, and up to $3,000 per baby ages 6 by 17, with half obtainable through upfront funds. But for 2022, the tax break reverts to the earlier quantity — up to $2,000 per baby beneath age 17.
The baby and dependent care tax credit score, which can assist offset the price of care for kids beneath age 13 or grownup dependents, has additionally been decreased for 2022.
In 2021, the credit score jumped to up to $8,000 for one qualifying individual or $16,000 for two or extra dependents. However, for 2022, these caps returned to $3,000 and $6,000, for one or a number of dependents, respectively.
You might get Form 1099-Okay for third-party funds
If you’ve got obtained funds by apps like Venmo or PayPal in 2022, you may get Form 1099-K in early 2023, which studies earnings from third-party networks.
The kind applies to enterprise transactions, reminiscent of part-time work, aspect jobs or promoting items, in accordance to the IRS.
Before 2022, the federal Form 1099-Okay reporting threshold was for taxpayers with greater than 200 transactions price an combination above $20,000. Now, nevertheless, the brink is simply $600, and even a single transaction can set off the shape.
Austin Chau, a CFP and wealth advisor at Menlo Asset Management in Menlo Park, California, stated private transactions like reimbursing your roommate for payments or dinner aren’t taxable.
What’s extra, you may solely owe taxes on earnings, he stated. For instance, should you spent $150 on live performance tickets in 2022, and bought them for $200, the $50 revenue is taxable, Chau stated.
While the IRS says you should not obtain Form 1099-Okay for private transfers, specialists say it is attainable, and the error might require you to contact the issuer or make changes to your tax return.
It’s more durable to declare the charitable deduction
Your tax refund might also be decrease as a result of it is harder to claim the charitable deduction in 2022.
Marguerita Cheng, a CFP and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, stated you will not get a charitable tax break in 2022 should you do not itemize deductions in your return.
Congress gave charities a lift in 2021 by permitting single donors to declare a deduction for up to $300 for money donations or $600 for married {couples} submitting collectively, regardless of whether you itemize, stated Cheng, who additionally is an element of CNBC’s Financial Advisor Council.
However, the tax break wasn’t prolonged for 2022. Now, you may solely profit in case your itemized deductions, together with the tax break for charitable items, exceeds the usual deduction, which is less frequent. In 2019, virtually 90% of taxpayers used the usual deduction, according to the IRS.