Don't Mess With Taxes

Tax year-in and tax year-out, most filers claim the standard deduction instead of itemizing.

The option has always been appealing because it's easy. There are no receipts to save, no added calculations.

Even better, the Internal Revenue Service provides the standard amount you can claim, based on your filing status, right there on the first page of Form 1040.

The standard deduction trend got even more participants after the Tax Cuts and Jobs Act (TCJA) of 2017 essentially doubled the standard amounts.

And those now more valuable deduction amounts still usually get a boost at the end of every year thanks to inflation adjustments.

Inflation deduction increase: The Internal Revenue Service has confirmed that's the case with its announcement of the 2022 tax year standard deduction adjustments.

For those tax returns, which will be due in 2023, the standard deduction amounts for most taxpayers younger than 65 are:

• $12,950 for single taxpayers and married taxpayers filing separate returns, $400 more than in 2021;
• $19,400 for heads of household, $600 more than this year; and
• $25,900 for married filing jointly couples and surviving spouses, $800 more than in 2021.

Again, these standard claims are for the upcoming 2022 tax year. When you file your return for 2021 and claim them, the table below compares them.

Age adds to deductions: I know my tax-savvy readers caught my earlier reference to "most taxpayers younger than 65" when it comes to standard deduction amounts.

The age distinction is important because tax code allows older filers and those who are visually impaired to claim additional standard deduction amounts. You do so by ticking a checkbox on your tax return.

Each added standard deduction amount option is separate for each filer, meaning that an older married couple could check up to four boxes on their joint return. The total number of boxes checked then is used to determine the filer(s) standard deduction amount.

For the 2022 tax year, aged or blind filers get an additional standard deduction amount for each qualifying circumstance of $1,400. That's $50 more than allowed on 2021 returns.

This added standard deduction amount goes to $1,750 next year if the individual also is unmarried and not a surviving spouse. Again, that's a $50 increase over the 2021 bump.

And if you're a tax filer who also can be claimed as a dependent of another taxpayer, in 2022 your standard deduction amount cannot be more than the greater of either $1,150 or the total of $400 plus your earned income. This is $50 more than the 2021 standard deduction requirement for dependent taxpayers.

Itemized deduction issues: A key component of annual tax planning is determining whether you'd be better off claiming the standard deduction or itemizing all your allowable tax expenses on Schedule A.

The TCJA changes made the standard deduction choice a no-brainer for tens of thousands or filers. But not all.

And don't just assume that taking the standard route is the best tax deduction map to follow. You know that old tax saying: Assuming can get your a$$ kicked by the IRS in the form of a higher tax bill.

OK, maybe that's just my personal old tax saying, but you get the idea. Double check your deduction choice so that you don't cheat yourself at filing time.

Basically, and even the IRS says this, you always want to use the deduction method that gives you the larger amount to offset your income. You're not locked into any one way. It's a decision you make each tax year. One year, itemizing might be better. The next year, it's wise to take the standard deduction.

Knowing what's available on the standard side gives you a baseline to use in measuring your potential itemized expenses.

For some folks, even under the new tax law, their total itemized deduction amount will still be more than their standard deduction amount. In these cases, by all means itemize.

Many taxpayers could find themselves itemizing again if Congress does increase the $10,000 deduction cap now imposed on state and local taxes (SALT).

In addition to SALT claims, many medical expenses remain deductible as long as they exceed 7.5 percent of your adjusted gross income (AGI). And COVID-19 charitable tax deduction changes also have made giving more tax valuable for those who itemize.

My post on bunching your tax-deductible expenses has more on how this process of collecting Schedule A items into one tax year could make filing that form worthwhile.

Exemptions, sorta, still around: The personal exemptions, a once-popular tax reduction option that was eliminated by the TCJA through 2025, still is off the tax books.

Exemptions were a specific dollar amount, adjusted annually for inflation, that taxpayers could claim for themselves, their spouses if filing jointly and dependents. The exemptions total helped reduce the amount of filers' income subject to tax.

TCJA supporters say the exemption elimination isn't a big deal, although some filers with larger families disagree. The exemption loss is offset, they argue, by the previously discussed larger standard deduction amounts and the expanded child tax credit and the credit for other dependents.

Since the tax law changes didn't mean to invalidate other tax situations where a personal exemption amount is involved, the IRS continues to calculate the officially now zero exemption amount based on pre-TCJA exemption data.

A common situation where this matters is when a taxpayer wants to claim a tax break for a qualifying relative. For the 2022 tax year, that means the deemed exemption amount, based on a gross income limitation, in such cases is $4,400. That's $100 more than in 2021.

More inflation info on the way: Well, this has turned into a numbers-heavy post for a tax deduction that's supposed to be simple and easy. But ain't that the way so often when it comes to taxes?

This is Part 2 of the ol' blog's annual tax inflation series. I'll continue breaking out and down more 2022 adjustments in the coming days.

And as the box below indicates, you can find a directory to all 10 parts in the first post of the series. Thanks for reading and especially for your inflation explanation patience! 

This post on 2022 standard and itemized tax deductions
is Part 2 of the ol' blog's annual series on tax inflation adjustments. 
The 10-part series started with a look at next year's income tax brackets and rates.
That first item also has a directory, at the end of the post,
of all of next year's tax-related inflation updates.
If, after perusing this post on deduction options, you want to check out
other inflation adjustments for 2022, you'll find the links, when posted, there.
Note: The 2022 figures in this post apply to that tax year's returns to be filed in 2023.
For comparison purposes, you'll also find 2021 amounts that apply to this year's taxes that,
pending any COVID-19 Tax Day delays like we've faced the last couple of years, will be due April 15, 2022.

Advertisements