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Filing Your 1040: What Your Need to Know

By: Tax Hotline
Winter 2023 (Vol. 40, No. 4)

The IRS officially started processing 2022 tax year returns on Monday, January 23, 2023, with a final date to file (or extend) of April 18, 2023.

2022 Marginal Tax

37% for individual single taxpayers with incomes over $539,900 ($647,850 for married couples filing jointly and $539,900 for head of household).

35%, for incomes over $215,950 ($431,900 for married couples filing jointly and $215,950 for head of household).

32% for incomes over $170,050 ($340,100 for married couples filing jointly and $170,050 for head of household).

24% for incomes over $89,075 ($178,150 for married couples filing jointly and $89,075 for head of household).

22% for incomes over $41,775 ($83,550 for married couples filing jointly and $55,900 for head of household).

12% for incomes over $10,275 ($20,550 for married couples filing jointly and $14,650 for head of household).

The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly and $14,650 for head of household).

The standard deduction this year is $12,950 for single filers (and married filing separately), $25,900 for married filing jointly, and $19,400 for head of household. If you are blind or 65 or older, you can add an additional $1,400 to your standard deduction.

Q: How do I determine if I take the standard deduction or itemize?

A: The simple rule is: If the total of your itemized deductions is more than your standard deduction then you may benefit by itemizing deductions on Schedule A (Form 1040). Qualifying deductions include mortgage interest paid on up to two homes, state and local income or sales taxes, property taxes, unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income, unreimbursed casualty, or theft losses from a Federally declared disaster (in excess of 10% of your AGI) and contributions to qualified charities. You may also deduct long term care insurance premiums to the extent the premiums exceed 10% of your AGI.

Q: Are there deductions I can take even if I don’t itemize?

A: Absolutely. These are referred to as ‘above the line’ deductions. Here’s a list of the most common:

Educators can take up to $250 for any unreimbursed classroom supplies, teaching materials or services.

You may be able to take up to $2,500 of paid interest on student loans. This tax break for single filers completely phases out if you modified adjusted gross income (MAGI) is higher than $70,000, and $140,000 for married couples filing jointly.

If you have a Health Savings Account (HSA) Single folks under the age of 55 can deduct up to $3,650. Those with family coverage can deduct up to $7,300 in 2022. Account holders who are age 55 and over get an additional $1,000.

An individual can contribute up to $6,000 to a traditional IRA (up to $7,000 for those over age 50) However, your ability to qualify for the traditional IRA deduction depends on your income level. It’s also based on whether you or your spouse has an employer- sponsored retirement plan. Single tax filers and heads of household with a 401(k) or a similar account at work can take the full deduction if their MAGI is under $68,000, and it phases out completely above $78,000. Filers age 72 or older are no longer eligible for the IRA deduction. And there’s no deduction for Roth IRA contributions.

Self-employed individuals can deduct contributions from self-directed retirement plans like SEP-IRAs or SIMPLE IRAs. The IRS says that employers can deduct up to 25% of an employee’s salary or $61,000 (whichever is less) for SEP-IRA contributions in 2022. And, if you’re the sole proprietor or partner of a business, you could deduct your own salary reduction contributions and your own matching or non-elective contributions.

You can deduct early withdrawal penalties. If you withdrew earnings from a certificate of deposit (or another time-deposit account) before it matures, the fee your bank charged can be deducted in full on your 1040.

You might be able to write off any alimony payments you’ve made to an ex-spouse as long as your divorce agreement was finalized by the end of 2018. You could lose this deduction if changes to your divorce agreement were made after 2018.

Certain business expenses. For the most part, employees have to itemize their business expenses using Schedule A. But some workers – like performing artists and certain government officials – can simply include them on their income tax returns as an above the line deduction.

Q: What is the difference between a deduction and a tax credit?

A: Deductions can reduce the amount of your income before you calculate the tax you owe. Credits can reduce the amount of tax you owe or increase your refund. Here are some popular tax credits:

The Child Tax Credit could get you up to $2,000 per child, with $1,500 being potentially refundable. The higher your income, the less you’ll qualify for. You may qualify for the full credit only if your modified adjusted gross income is under $400,000 for those married filing jointly and $200,000 for all other filers.

The Child and Dependent Care Credit may give you up to 35% of up to $3,000 of child care and similar costs for a child under 13, spouse or parent unable to care for themselves, or another dependent so you can work — and up to $6,000 of expenses for two or more dependents. The percentage of allowable expenses decreases for higher-income earners.

The Earned Income Credit will get you between $560 and $6,935 in tax year 2022 depending on your tax- filing status and how much you make.

The Adoption Credit covers up to $14,890 in adoption costs per child. The credit begins to phase out at $223,410 of modified adjusted gross income, and people with AGIs higher than $263,410 don’t qualify. Also, you can’t take the credit if you’re adopting your spouse’s child.

The Saver’s Credit runs 10% to 50% of up to $2,000 in contributions to an IRA, 401(k), 403(b) or certain other retirement plans ($4,000 if married filing jointly). The percentage depends on your filing status and income, but you may qualify if your AGI in 2022 was less than $68,000 if married filing jointly, $51,000 if head of household and $34,000 if single.

There are two education credits. The American Opportunity Tax Credit runs up to $2,500 per student for tuition, activity fees, books, supplies and equipment during the first four years of college.

The Lifetime Learning Credit can get you up to $2,000 for tuition, activity fees, books, supplies and equipment for undergraduate, graduate or even non-degree courses at accredited institutions.

The $2,000 limit is per return, not per student, so the most you can get back is $2,000 regardless of how many students you pay expenses for. You can claim both the American Opportunity Credit and the Lifetime Learning Credit on the same tax return, but you can’t claim both for the same student.

The Residential Energy Tax Credit gets you up to 30% of the cost of solar energy systems, including solar water heaters and solar panels.

The Electric Vehicle Credit, also known as the Clean Vehicle Credit, could get you up to $7,500 for buying a plug-in electric vehicle.