Blog

Tax law changes are as uncertain as ever, as Congressional bills are often stuck with a split Senate and individual representatives debate differing agendas. Given this uncertainty, the best tax advice is to stay flexible. But what about the economy and new inflationary challenges? Here is a preview of the tax landscape and some suggestions.

• Tax rates. The current income tax rates range from 0% to 37%. Capital gains tax rates remain at 0% to 20% with a potential 3.8% surtax. However, inflation of 5.9% expands the income brackets subject to the tax.

What could change: There is a desire to raise both income and capital gains tax rates on higher-income taxpayers. Rates could rise to over 39% for both high-income and high-investment earnings. There are even proposals to make the change retroactive to minimize your ability to plan for the change.

• The child tax credit. In 2022, the $3,000 per child credit for kids ages 6 through 17 ($3,600 for children under 6) is rolled back to $2,000 per qualifying child through age 16. The monthly advance payments of the credit is also no longer available.

What could change: Many in Congress want the expanded child tax credit to be made permanent. Your best bet is to plan for the lower credit, but to be alert for an expansion of the benefit.

• The child and dependent care credit. This credit is also returning to 2020 dollar amounts. If you have one qualifying child, the maximum credit in 2022 is $1,050. For two or more children, the maximum credit is $2,100. In 2021, the maximum credit was $4,000 for one child and $8,000 for two or more children.

What could change: As with the child tax credit, there are politicians who want to expand the higher benefit. Plan for the lower amount, but be prepared to act if the increase is brought back in 2022.

• 1099-Ks are more common. The IRS is expanding the use of Form 1099-K to report electronic payments from customers by way of credit cards, debit cards or payments to third party providers such as PayPal. You’ll receive a Form 1099-K from each financial institution or third-party provider from whom you’ve received $600 (down from $20,000).
• Cryptocurrency is in the spotlight. If you own cryptocurrency, expect to have holders of your currency to begin reporting your transactions to the government. While cryptocurrency reporting requirements are required in 2023, many institutions are implementing the rules in 2022.

What could change: An even greater expansion of these reporting requirements as the IRS focuses attention on unreported income and underreported sale of digital currency property.

At this point it is hard to tell what will pass into law, if anything. On the other side of the coin, the mounting debt situation is becoming more troublesome to hide or pass down the road. Your best bet is to stay alert and ask for assistance.