Another year has come and gone in what feels like a blink of an eye. So much occurred in 2022, and we're excited (and anxious) to see what 2023 has in store!
As we look back on the good, the bad, and everything else that’s happened in the past year, there’s a lingering question we are left to address (whether personally or for our clients): “What impact do these changes have and what should we brace for?”
While we can wish for a magic eight-ball that gives us all the answers to the burning questions we have about the future, at the very least, we on the tax team can support you by shedding light on some of the tax-related issues to look out for as we head into the new year.
Digital Assets (Cryptocurrency)
The wording of the cryptocurrency question has changed for 2022. It now reads: “At any time during 2022, did you (a) receive (as a reward, award of payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or financial interest in a digital asset)?" It’s a little clearer now that it’s asking if your client sold a digital asset or received a digital asset as a reward or payment.
If your client sold or received cryptocurrency as a reward or payment, make sure they are checking this box on their tax return. You can see the new wording in the draft version of the 2022 Form 1040 here.
Student Loan Debt Forgiveness
In August of 2022, President Biden announced student loan debt forgiveness of up to $20,000 for certain taxpayers. If your client had student loan debt forgiven, is it considered taxable income on their 2022 federal income tax return? The answer is no.
However, the forgiveness may still be considered taxable income on their 2022 state income tax return, depending on the state, so be sure to look out for that. In this article by the Tax Policy Center, you can see the states which are taxing student debt cancellation, as of September 15, 2022.
The IRS annually increases the standard deduction, tax brackets, and some other amounts due to inflation. The increase from 2021 to 2022 was modest. However, keep an eye out for the increased numbers from 2022 to 2023, which have increased significantly because of recent inflation numbers. Starting in 2023, when you are doing tax planning for clients, you may have more room to work with because of these increased amounts. You can find the highlights of the inflation adjustments for 2023 here.
Changes To Note Around Credits
Energy Efficient Home Improvement Credit
The Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement credit. Starting in 2023, the credit will be equal to 30 percent of the costs of all eligible home improvements made during the year. The $500 lifetime limit on the total credit amount will be replaced with a $1,200 annual limit. Note that for 2022, the prior credit rules still apply. There are additional limit adjustments for 2023 and going forward, you can view all of them here.
Residential Clean Energy Credit
The Residential Energy Efficient Property Credit is now called the Residential Clean Energy Credit, and it has been extended through 2034 instead of expiring at the end of 2023. The credit amount will be 30 percent for 2023-2032, 26 percent for 2033, and 22 percent for 2034.
Clean Vehicle Credit
The Inflation Reduction Act extends the Clean Vehicle Credit until the end of 2032. There are new requirements to claim the credit, such as the vehicle must be assembled in North America. There are also MSRP and AGI limitations. The vehicle cap for automakers has also been eliminated, meaning many Teslas may now qualify for the credit again.
Return to Normalcy?
Will 2022 tax preparation be simpler than 2021? To be honest, we can’t be too sure. That question is subjective. What we can be sure about is there are a lot of provisions that are “returning to normal” (i.e. reverting to their pre-pandemic rules) for 2022, most notably the following:
- There were no Economic Impact Payments for 2022, so your clients don’t have to worry about reconciling payments for the recovery rebate credit like they did in 2021 and 2020.
- There were no Advanced Child Tax Credit payments in 2022, so your clients won’t have to reconcile those payments to determine their child tax credit for 2022.
- The charitable deduction of $300 or $600 for nonitemizers is gone in 2022, so those clients who take the standard deduction won’t benefit from charitable contributions.
Some rules are still in place for 2022 (e.g. expanded ACA health insurance subsidies, which are still available through 2025), so the return to normalcy is still a ways away.
We know this short list doesn’t begin to cover everything you and your clients should know going into the 2023 tax season. Luckily, there are resources available to help you navigate the tax season. Whether you work with XY Tax Solutions or lean on your network to assist, rest assured there is always someone on your side to guide you if you get lost.
With that, we say great job tackling 2022. Time to take on 2023!
XYPN makes no representations or warranties as to the timeliness, availability, accuracy, or completeness of any information contained in this material. Like any published material, the information provided may become outdated over time. XYPN undertakes no obligation to correct or update any content or information in this blog and reserves the right to alter or delete its content and information at any time.
About the Authors
As the Director of Operations for XY Tax Solutions (XYTS), Sara analyzes business operations and identifies client needs to bring the two closer together. She manages the flow of the workplace and optimizes day-to-day activities.
Sam Nguyen is a Director of Tax for XY Tax Solutions and has over 11 years of experience in tax planning and preparation in the financial planning industry. He is an Enrolled Agent, a CERTIFIED FINANCIAL PLANNER™, and graduated from Virginia Tech’s financial planning program in 2009. Sam has extensive experience working with financial planners and their clients, and knows that understanding the goals and the comprehensive financial planning picture of a client allows for better tax planning and advising.
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