Filing 2022 Taxes: Best to Get Ready Now

Taxpayers ought to start getting ready to file 2022 taxes.  Going through statements, receipts, tax forms and other financial documents when it’s time to prepare to file 2022 taxes in 2023 can be a downer for those individuals who haven’t managed their records. A good record-keeping system year-round can make filing 2022 taxes easier by knowing what to keep and how long to keep it for.  Moreover, good recordkeeping can also assist taxpayers if they receive a letter or notice from the IRS.

New 2022 Taxes items to consider

1. Form 1099-K: IRS states that:

“Reporting rules changed for Form 1099-K. Taxpayers should receive Form 1099-K, Payment Card, and Third-Party Network Transactions, by January 31, 2023, if they received third party payments in tax year 2022 for goods and services that exceeded $600. There’s no change to the taxability of income. All income, including from part-time work, side jobs or the sale of goods is still taxable. Taxpayers must report all income on their tax return unless it’s excluded by law, whether they receive a Form 1099-K, a Form 1099-NEC, Nonemployee Compensation, or any other information return. Prior to 2022, Form 1099-K was issued for third party networks transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. The American Rescue Plan Act of 2021 lowered the reporting threshold for third party networks that process payments for those doing business.

After the completion of IRS transition period relief (See below) announced on December 23, 2022, a single transaction exceeding $600 will require the third-party platform to issue a 1099-K. Money received through third party payment networks from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable.

The IRS cautions people in this category who may be receiving a Form 1099 for the first time – especially “early filers” who typically file a tax return during the month of January or early February – to be careful and make sure they have all of their key income documents before submitting a tax return. A little extra caution could save people additional time and effort related to filing an amended tax return. And if they have untaxed income on a Form 1099 that isn’t reflected on the tax return they initially file, that could mean they need to submit a tax payment with an amended tax return.

If the information is incorrect on the 1099-K, taxpayers should contact the payer immediately, whose name appears in the upper left corner on the form. The IRS cannot correct it”.

On Dec. 23, 2022, the IRS announced that calendar year 2022 will be treated as a transition year for the reduced reporting threshold of $600. For calendar year 2022, third-party settlement organizations who issue Forms 1099-K are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions.

2. Digital Assets: Form 1040 for 2022 Taxes has changed.  Form 1040 has been asking taxpayers about their virtual currency doings on the front page.  Form 1040 2022 changes the crypto terminology from “virtual currency” to “digital assets”.  The purpose of the change in terminology could be interpreted as a “head up” to taxpayers that the IRS is looking more closely as well as an intention to provide more clarity. That said, taxpayers ought to treat the expanded terminology or rewording that the IRS wants to know all about a taxpayer’s crypto dealings and if a taxpayer is uninformed – he or she will be an easy IRS audit target.  The question changed as follows:

Digital Assets:    At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.) Yes or No

There are 2 take-aways:

• Receiving cryptocurrency is now further defined as digital assets earned through “rewards, awards or compensation.”
• IRS wants to know if taxpayers have sent or received crypto as a gift.

3. Some tax credits return to 2019 levels

Affected taxpayers will likely receive a significantly smaller refund compared with the previous tax year. Changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit. Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year.  For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 in 2022.  The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.

4. No above-the-line charitable deductions

During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations.

5. More people may be eligible for the Premium Tax Credit.

For 2022 taxes, taxpayers may still qualify for temporarily expanded eligibility for the premium tax credit.

6. Eligibility rules changed to claim a tax credit for clean vehicles.

Good Recordkeeping will help such as:

• Identifying sources of income. Taxpayers may receive money or property from a variety of sources. The records can identify the sources of income and help separate business from non-business income and taxable from nontaxable income.
• Keeping track of expenses. Taxpayers can use records to identify expenses for which they can claim a deduction. This will help determine whether to itemize deductions at filing. It may also help them discover potentially overlooked deductions or credits.
• Preparing tax returns. Good records help taxpayers file their tax return quickly and accurately. Throughout the year, they should add tax records to their files as they receive them to make preparing a tax return easier.
• Supporting items reported on tax returns. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if the taxpayer receives an IRS notice.

Taxpayers should keep records for three years from the date they filed the tax return including:

• Tax-related records. This includes wage and earning statements from all employers or payers including payment apps or cards, such as Form W-2, 1099-K, 1099-Misc, 1099-NEC. Other records include interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions. Taxpayers should also keep receipts, canceled checks, and other documents that support income, a deduction, or a credit reported on their tax return.
• IRS letters, notices, and prior year tax returns. Taxpayers should keep copies of prior year tax returns and notices or letters they receive from the IRS. These include adjustment notices when an action takes place occurs on the taxpayer’s account.
• Property records. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
• Business income and expenses. Business taxpayers should find a bookkeeping method that clearly and accurately reflects their gross income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
• Health insurance. Taxpayers should keep records of their own and their family members’ health care insurance coverage. If they’re claiming the premium tax credit, they’ll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums they paid.

Who is your professional tax preparer filing your 2022 Taxes?   ©