Filers who bought electric or plug-in hybrid vehicles could receive massive credits. Investors who lost money on cryptocurrency can find savings elsewhere on their tax bill.
If you have adult dependents, we’ll tell you how to claim them. Won the lottery? We can help with those taxes, too.
Here’s a primer of top things you need to know for tax season:
How to find your tax bracket
Tax brackets are the dollar ranges that dictate what percentage of earnings is subject to tax. The higher the tier, the higher the tax rate, which is capped at 37 percent for the biggest earners and 10 percent at the other end of the spectrum. Here are the income ranges for 2022:
- 37 percent: Individuals making more than $539,900, and married couples making more than $647,850.
- 35 percent: Individuals making more than $215,950, and married couples making more than $431,900.
- 32 percent: Individuals making more than $170,050, and married couples making more than $340,100.
- 24 percent: Individuals making more than $89,075, and married couples making more than $178,150
- 22 percent: Individuals making more than $41,775, and married couples making more than $83,550.
- 12 percent: Individuals making more than $10,275, and married couples making more than $20,550.
- 10 percent: Individuals making less than $10,275, and married couples making less than $20,550.
What to keep in mind if you need a tax preparer
Choose carefully when hiring a tax professional. The preparer who guarantees a fat return might be a fraud.
You may think that the tax preparer is on the hook for penalties and interest if something is incorrect with your tax return. Wrong. When you sign your return, you are ultimately responsible for all the information on it. To check — and you should — that your preparer is legit, go to irs.gov and search for “Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.”
Don’t neglect to report your gig income
When money is tight, there’s a temptation to underreport your income. Don’t do it. Don’t be a tax cheat.
Or maybe you think that you don’t have to tell the IRS about your side hustle money because it’s not that much. You must pay tax on those earnings. “You must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it’s a side job, part-time or temporary,” according to the IRS.
There are a number of reasons you should disclose your gig income to the IRS, including that it can boost your Social Security payments.
How to handle a lottery or inheritance
If you hit the lottery — or came into some unexpected cash through an inheritance or legal settlement — that money is generally taxable.
That sum may bump you into a higher tax bracket, and depending on where you live, you may owe other state and local taxes. Taxes on this money can get tricky in a hurry, so it’s a good idea to consult a reputable tax preparer.
If you’re a lottery winner, consider taking a lump-sum payment rather than receiving your winnings over 30 years. Historically speaking, the highest tax brackets are wealth-friendly right now, but they may not stay that way.
If you inherited money, you may owe state tax on those funds depending on where you live. For 2022, the estate will owe federal taxes only if the total value of the estate exceeds $12.06 million. In 2023, this federal exemption limit increases to $12.92 million. Some states levy their own estate taxes as well.
The nature of your legal settlement determines how much in taxes you will pay — or if that money is taxable at all. Learn more at the IRS website.
You can claim adult dependents under certain circumstances
There is a difference between a qualifying child and a qualifying relative. Increasingly, adult children find themselves financially responsible for a parent. And many Americans are still caring for an adult child. In either case, it’s good to know whether that person can be claimed as a dependent on a tax return.
Adult children and relatives can be counted as dependents as long as they meet certain criteria.
Yes, you need to report your crypto income
The tax system treats cryptocurrency like any other financial asset, such as stocks or bonds. That means you need to report your trading gains — and your losses. In 2020, the IRS started explicitly asking about cryptocurrency on tax returns.
For a lot of crypto investors, that could be a good thing in 2022. Cryptocurrency values plummeted, and by reporting losses from crypto sales (in other words, you sold a crypto asset for less than you paid) you could save money elsewhere on your taxes. Filers with “capital losses” can write off up to $3,000 to offset other earnings.
You may qualify for a tax credit, if you bought an EV
If you bought an electric vehicle or plug-in hybrid for personal use in 2022, there’s a good chance you can claim a tax credit of up to $7,500. How much your credit is worth or if your vehicle is eligible depends on when you bought it.
If you bought a new EV or plug-in hybrid before Aug. 16, it’s mostly straightforward. Cars are eligible if their manufacturer has sold fewer than 200,000 qualifying vehicles in the United States since 2009. Here’s a list of which of those vehicles are eligible.
If you made your purchase after Aug. 16, there’s an added requirement: The vehicle must have been assembled domestically. Plus, additional battery requirements will be implemented once the Treasury Department releases new rules by the end of March. Check your car’s “vehicle identification number,” or VIN (it’s usually on the outside of the driver’s side dashboard), and plug it into the Department of Energy’s searchable database.
Teachers, know this if you bought your own school supplies
An overwhelming majority of teachers spend their own money — several hundred dollars — on classroom supplies, according to a 2018 report by National Center for Education Statistics.
But here’s a small break handed to teachers as a result of higher inflation — a bigger tax deduction for school supplies. They can deduct as much as $300 in out-of-pocket classroom expenses that occurred in 2022, a $50 increase over the previous year. The deduction is $600 if married filing jointly and both spouses are eligible educators, but not more than $300 each, the IRS points out.
Sadly, this is the first time the annual limit has increased since the special educator expense deduction was enacted in 2002.
Parents, here’s where things stand on the expanded child tax credit
At the beginning of the tax season, the IRS said filers should expect smaller refunds.
Sure enough, as of the third week in February, the average refund was down 11 percent to $3,140.
The 2021 tax year was unique because many one-time refundable credits were available as the government tried to aid struggling families during the pandemic. For instance, there were higher payments for the child tax credit.
Those higher tax breaks didn’t carry over to the 2022 tax year.
The American Rescue Plan expanded the child tax credit for the 2021 tax year to $3,600 for children 5 and younger, and $3,000 for those 6 through 17. This credit, which helped lift families out of poverty, returned to the pre-pandemic maximum of $2,000 per child under 17.
If you’re worried you can’t pay your tax bill
Owing the IRS can be a scary thing. But fight the urge to skip filing your return. There’s a penalty for filing late and one for paying late. And interest accrues on top of penalties. Even if you don’t have the money, at least file on time.
Also, avoid tax debt-relief scams. That’s when a company promises to reduce your tax debt for pennies on the dollar. It’s almost always a lie or worse, a gross overstatement. Tax debt relief services can cost you thousands of dollars. Just think about it. That’s money you could use to pay down your debt.
If you are dreading the April 18 tax deadline because you can’t pay your bill, a former national taxpayer advocate offers advice on tackling the debt.
A previous edition of this article incorrectly stated when tax filers could claim tax credits for the purchase of used electric or plug-in hybrid vehicles. Credits for used vehicles began in 2023, not 2022.