Updated as of September 2022
2022 deadlines are approaching for many tax strategies and for making contributions to tax-advantaged accounts such as IRAs and 401k retirement accounts. Meet with your financial, estate planning, and tax advisors to discuss the following:
Having these discussions before year end may help you make tax-smart moves.
For simplicity and ease of comprehension, this guide focuses on federal tax law; it does not discuss state or municipal laws in the 50 states, District of Columbia, or U.S. territories. Nevertheless, the impact of state and municipal laws can be significant. We recommend discussing state and municipal laws with your legal and tax advisors to determine the impact before taking any action. Information in this guide is updated as of publication date; any future legislative changes may impact its accuracy.
These are the tax tables in effect for 2022 as of publication. Legislative changes could alter these amounts later in the year. Keep in contact with your advisors throughout the year to stay current with any changes.
| Taxable income* | |
|---|---|
| Over | But not over |
| $0 | $20,550 |
| $20,550 | $83,550 |
| $83,550 | $178,150 |
| $178,150 | $340,100 |
| $340,100 | $431,900 |
| $431,900 | $647,850 |
| $647,850+ | |
| Tax | ||
|---|---|---|
| Pay | + % on excess | Of the amount over |
| $0 | 10% | $0 |
| $2,055.00 | 12% | $20,550 |
| $9,615.00 | 22% | $83,550 |
| $30,427.00 | 24% | $178,150 |
| $69,295.00 | 32% | $340,100 |
| $98,671.00 | 35% | $431,900 |
| $174,253.50 | 37% | $647,850 |
| Taxable income* | |
|---|---|
| Over | But not over |
| $0 | $10,275 |
| $10,275 | $41,775 |
| $41,775 | $89,075 |
| $89,075 | $170,050 |
| $170,050 | $215,950 |
| $215,950 | $539,900 |
| $539,900+ | |
| Tax | ||
|---|---|---|
| Pay | + % on excess | Of the amount over |
| $0 | 10% | $0 |
| $1,027.50 | 12% | $10,275 |
| $4,807.50 | 22% | $41,775 |
| $15,213.50 | 24% | $89,075 |
| $34,647.50 | 32% | $170,050 |
| $49,335.50 | 35% | $215,950 |
| $162,718.00 | 37% | $539,900 |
| Taxable income* | |
|---|---|
| Over | But not over |
| $0 | $14,650 |
| $14,650 | $55,900 |
| $55,900 | $89,050 |
| $89,050 | $170,050 |
| $170,050 | $215,950 |
| $215,950 | $539,900 |
| $539,900+ | |
| Tax | ||
|---|---|---|
| Pay | + % on excess | Of the amount over |
| $0 | 10% | $0 |
| $1,465.00 | 12% | $14,650 |
| $6,415.00 | 22% | $55,900 |
| $13,708.00 | 24% | $89,050 |
| $33,148.00 | 32% | $170,050 |
| $47,836.00 | 35% | $215,950 |
| $161,218.50 | 37% | $539,900 |
| Taxable income* | |
|---|---|
| Over | But not over |
| $0 | $10,275 |
| $10,275 | $41,775 |
| $41,775 | $89,075 |
| $89,075 | $170,050 |
| $170,050 | $215,950 |
| $215,950 | $323,925 |
| $323,925+ | |
| Tax | ||
|---|---|---|
| Pay | + % on excess | Of the amount over |
| $0 | 10% | $0 |
| $1,027.50 | 12% | $10,275 |
| $4,807.50 | 22% | $41,775 |
| $15,213.50 | 24% | $89,075 |
| $34,647.50 | 32% | $170,050 |
| $49,335.50 | 35% | $215,950 |
| $87,126.75 | 37% | $323,925 |
* Taxable income is income after all deductions (including either itemized or standard deduction).
| Married/joint | $25,900 |
| Single | $12,950 |
| Head of household | $19,400 |
| Married/separate | $12,950 |
| Dependents | $1,150 |
For dependents with earned income, the deduction is the greater of $1,150 or earned income +$400 (up to the applicable standard deduction amount of $12,950).
| Married, age 65 or older or blind | $1,400* |
| Married, age 65 or older and blind | $2,800* |
| Single, age 65 or older or blind | $1,750 |
| Single, age 65 or older and blind | $3,500 |
* Per person
Short-term capital gains (gains on the sale of capital assets held one year or less) are taxed at the ordinary income tax rate for individuals and trusts regardless of filing status. Long-term capital gains tax rates are not tied to the tax brackets.
The table below shows long-term capital gains tax rates. Qualified dividends are taxed at long-term capital gains rates, while nonqualified dividends are taxed at ordinary income tax rates.
| Tax | |||
|---|---|---|---|
| 0% | 15% | 20% | |
| Single | $0 – $41,675 | $41,676 – $459,750 | $459,751+ |
| Married filing jointly/surviving spouse | $0 – $83,350 | $83,351 – $517,200 | $517,201+ |
| Head of Household | $0 – $55,800 | $55,801 – $488,500 | $488,501+ |
| Married filing separately | $0 – $41,675 | $41,676 – $258,600 | $258,601+ |
| Estates and trusts | $0 – $2,800 | $2,801 – $13,700 | $13,701+ |
Higher rates apply to collectibles and unrecaptured Section 1250 gains. Consult your tax advisor about how this applies to your situation.
Consult with your investment professional on whether realizing portions of your portfolio’s gains (and losses) can help manage the tax impact of activity in your investment portfolio. In some cases, it may be advantageous to realize larger gains sooner depending on the near-term outlook for your portfolio.
If you sell a security within one year of its purchase date, you will be subject to short-term capital gains. Short-term gains are taxed based on ordinary income tax rates that can be as high as 40.8%, adding the 3.8% Medicare surtax to the top tax bracket of 37.0%. Note that these rates do not include state and local tax rates, which can be significant in some locations. As such, short-term gains are taxed at nearly twice the rate of long-term gains.
You cannot avoid some short-term gains, and others may be economically justifiable even with the higher rate. However, if you can afford to wait until you have held the asset for more than a full calendar year, you may realize tax savings.
Capital loss harvesting can be used to reduce taxes on other reportable capital gains. This requires selling securities at a value less than their cost basis to create a loss, which is generally used to offset other recognized capital gains. With the potential for volatility in the market, harvesting capital losses should not be limited to the end of the year. Instead, consider reviewing this strategy with your advisor throughout the year to take advantage of market swings.
Prior to using this strategy, you should consider the following:
Remember, when executing transactions intended to affect your tax bill, the trade date — not the settlement date — determines the holding period for most transactions. This will in turn determine whether an asset is held long-term or not.
With volatility oftentimes a risk in the market, it is important to review your investment portfolio to determine if rebalancing is necessary to maintain your desired asset allocation. You may have some or all of your accounts set up to automatically rebalance. However, if you do not have automatic rebalancing, it is important to review your entire portfolio, including both taxable accounts and assets held in tax-advantaged accounts (such as your IRAs and 401(k) accounts).
Your tax-advantaged accounts may have limitations. For example, many 401(k) plans may not provide fund selections to allow allocations to international fixed income, real assets, or complementary strategies. When rebalancing, pay attention to the wash sale rules discussed below, as they can still be triggered if you sell a security at a loss and repurchase a substantially identical security within your IRA or tax-advantaged account.
Like other types of securities, you realize capital gains on your mutual fund holdings when you sell them. However, a unique feature of mutual funds is their potential annual distribution of capital gains (and losses) to shareholders. Companies that manage mutual funds announce the amount of capital gains to be distributed to shareholders near the end of the year.
The announcement includes a record date (the date of record for shareholders to receive a distribution) and an ex-date (the date the security trades without the distribution) and is typically expressed as a percentage of a shareholder’s position. For example, a 10% distribution on a $100 investment would equal a $10 distribution.
For investors looking to rebalance their portfolios, mutual fund distributions can be problematic. A rule of thumb is that you typically don’t want to buy into capital gains distributions. For example, if you sell an asset in your portfolio that has performed well, you expect to realize capital gains. You could exacerbate your capital gains issue by reallocating your rebalanced proceeds to a new mutual fund near the date of its annual capital gains distribution.
There are risks associated with investing in mutual funds. Investment returns fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.
A wash sale occurs when a security is sold at a loss and the same security, or a substantially identical security, is purchased within 30 days before or 30 days after the sale date. When a wash sale occurs, the loss recognized from the transaction is disallowed and is unable to be used to offset other gains. Instead, the amount of the disallowed loss will be added to the basis of the repurchased securities. The rule was developed to prevent investors from creating a deductible loss without any market risk.
A wash sale can be avoided by purchasing the identical security more than 30 days before the loss sale or more than 30 days after the loss sale. A security within the same sector but that is not substantially identical may be purchased at any time before or after the loss sale and will not trigger the wash sale rules.
| Employee maximum deferral contributions | $20,500 |
| Catch-up contribution (if age 50 or older) | $6,500 |
Combined limit for Roth 401(k) or Roth 403(b) and before-tax traditional 401(k) or before-tax 403(b) deferral contributions is $20,500 for those younger than age 50.
| Maximum contribution | $6,000 |
| Catch-up contribution (if age 50 or older) | $1,000 |
2022 IRA contributions must be made no later than the tax-filing deadline, regardless of tax extensions.
Traditional IRAs offer tax-deferred growth potential; your contribution may be tax-deductible and taxation would not occur until and to the extent of distributions. Roth IRAs offer tax-free growth potential; contributions are made on an after-tax basis and investment earnings are distributed tax-free (if conditions are met).
There are a few factors in determining whether or not a Traditional IRA, Roth IRA, or both make sense for your particular situation:
If neither the individual nor the spouse are covered by a workplace retirement plan (WRP1), they can obtain a full deduction for contributions to a Traditional IRA ($6,000 if under age 50 and $7,000 if over ago 50), regardless of income. If the individual and spouse are covered by a WRP, deductions are phased out based upon MAGI:
| Married/joint MAGI | Single MAGI | Deduction |
|---|---|---|
| Up to $109,000 | Up to $68,000 | Full1, 2 |
| $109,001 – $129,000 | $68,001 – $78,000 | Phased out |
| Over $129,000 | Over $78,000 | None |
If your spouse is covered by a WRP but you are not, deductions are phased out based upon MAGI:
| Married/joint MAGI | Married/separate MAGI2 | Deduction |
|---|---|---|
| Up to $204,000 | N/A | Full |
| $204,001 – $214,000 | Up to $10,000 | Phased out |
| Over $214,000 | Over $10,000 | None |
1. The “Retirement Plan” box in Box 13 of your W-2 tax form should be checked if you were covered by a WRP.
2. Your filing status is considered single for IRA contribution purposes if you did not live with your spouse during the tax year.
Contributions can be made if you, or your spouse if married filing jointly, have earned income, subject to the following MAGI limits:
| Married/joint MAGI | Married/separate MAGI3 | Single MAGI | Contribution |
|---|---|---|---|
| Up to $204,000 | N/A | Up to $129,000 | Full |
| $204,001 – $214,000 | Up to $10,000 | $129,001 – $144,000 | Phased out |
| Over $214,000 | Over $10,000 | Over $144,000 | None |
3. Your filing status is considered single for IRA contribution purposes if you did not live with your spouse during the tax year.
| Maximum elective deferral to SIMPLE IRA and SIMPLE 401(k) plans | $14,000 |
| Catch-up contribution for SIMPLE IRA and SIMPLE 401(k) plans (if age 50 or older) | $3,000 |
| Maximum annual defined contribution plan limit | $61,000 |
| Maximum compensation for calculating qualified plan contributions | $305,000 |
| Maximum annual defined benefit limit | $245,000 |
| Threshold for highly compensated employee | $135,000 |
| Threshold for key employee in top-heavy plans | $200,000 |
| Maximum SEP contribution is lesser of limit or 25% of eligible compensation | $61,000 |
Conversion is not an all-or-nothing proposition, as you can convert a portion or all of your eligible retirement accounts. Note that a Roth IRA conversion will trigger ordinary income in the year of conversion and potentially the Medicare surtax, as the conversion counts toward the calculation of MAGI and may bump you into a higher tax bracket.
If you have significant income resources to sustain your lifestyle for the rest of your life without using your Traditional IRA, consider a Roth IRA conversion. RMDs begin by April 1 following the year you turn age 72 from a Traditional IRA, whereas a Roth IRA has no RMDs for the owner. In this way, taxpayers can leave the full balance of the Roth IRA to their beneficiaries, undiminished both by income taxes (income tax is paid when completing the conversion) and RMDs during the taxpayer’s lifetime.
Keep in mind that with the passage of the SECURE Act, funds in an inherited Roth IRA will have to be distributed to beneficiaries either using the 10-year rule or the life expectancy option depending on their beneficiary category. Although a qualified distribution is not taxable, the impact of this change should be taken into consideration.
We recommend working with your tax advisor to determine all potential federal and state income tax and estate tax implications.
QCDs can be made from an Inherited IRA as well. You must be 70½ or older to make a QCD, even if it is from an inherited IRA where the original owner was over 70½.
The most tax-efficient beneficiaries of qualified plan assets (which receive no income tax basis step-up at death) are charities because they are tax-exempt for income tax purposes.
QCDs are a unique tax strategy that allow individuals who are at least age 70½ and have Traditional and/or Inherited IRAs to distribute up to $100,000 per year directly from their IRA to a 501(c)(3) nonprofit with no federal income tax consequences. Gifts made to grant-making foundations, donor-advised funds, or charitable gift annuities are excluded from these rules. Making a QCD will reduce the value of your IRA, thereby potentially reducing your RMDs. This is an option for you even if you do not itemize your deductions. Currently, QCDs are limited to $100,000 per year. If you file a joint return, the $100,000 limit applies to each spouse.
As a result of the SECURE Act, deductible Traditional IRA contributions made beginning at age 70½ may reduce your QCD amount. Additionally, if you wish to take an RMD and make a QCD, consider making the QCD first if an RMD is required for the year ("first money out" rule).
Please consult with your tax advisor.
If you and your advisors have determined that a Roth conversion is the right fit for you due to current market conditions and potentially higher future income tax rates, this year may be a good time to facilitate the conversion. It is important you understand the taxes you will need to pay on your investments in order to convert an IRA to a Roth IRA and you have assets outside of the IRA to pay the taxes.
Taxes are imposed on transfers, by gift or at death, above an applicable exclusion amount, which is indexed to inflation (currently $12.06 million for an individual). With proper planning, it is possible for a married couple to use two exclusion amounts. For example, an executor can make a “portability” election to transfer any unused exclusion from a deceased spouse to a surviving spouse. Consult your tax and legal advisors to determine the appropriate strategy for applying the portability rules.
The estate tax rate is 40% for any amount exceeding $12.06 million (or exceeding $24.12 million for married U.S. residents or citizens).
Each individual may transfer up to $16,000 per person per year to any number of beneficiaries (family or nonfamily) without paying gift tax or using up any available applicable exclusion during one’s lifetime.
There are actions you can take to potentially reduce your future estate tax liability and to maximize your lifetime gifting. However, make these decisions in conjunction with other financial planning decisions to make sure assets pass effectively and efficiently and fulfill your wishes and the needs of your beneficiaries.
The $12.06 million lifetime exclusion amount is approximately double the prior figure of $5 million (adjusted for inflation). Because this higher exclusion expires on December 31, 2025 (or perhaps earlier depending on legislative changes), you should consider your options before this window of opportunity closes. If you do not use it before expiration, you will lose it. The exclusions are used by either making lifetime gifts or passing away before the exclusion decreases. For example, a married couple that fails to lock in the increased exclusion with lifetime gifts may effectively add roughly $4 million to their estate tax liability.
For individuals who have already engaged in gifting, the additional lifetime exclusion amount allows taxpayers to consider new gifting strategies or use previously created entities. For married individuals with estate planning documents, the technical language within wills or trusts may need to be revisited and reevaluated considering the existing exclusion amount. You should contact your estate planning attorney as early as possible to discuss your estate’s value and existing estate planning documents.
Typically, families with significant taxable estates are strategic about how best to use the annual exclusion and their lifetime exclusion gifting by utilizing advanced strategies such as irrevocable trusts (for example, irrevocable life insurance trusts, spousal lifetime access trusts, intentionally defective grantor trusts, grantor retained annuity trusts, and charitable split interest trusts), transfers of interests in entities (such as family limited partnerships and limited liability companies), and other planning techniques.
Modern planning techniques are increasingly flexible, and some may provide mechanisms to protect your beneficiaries while also allowing you options for maintaining your own desired lifestyle. Given the market volatility and interest rates at time of publication, some of these strategies may be that much more impactful at this time. As with any strategy, there are risks to consider and potential costs involved. Discussions with your advisors can help in the education of how these strategies work and the role that depressed valuations of certain assets and low rates can play.
A modern wealth planning approach goes beyond minimizing transfer taxes and should incorporate income tax planning, asset protection, business succession planning, and family dynamics considerations such as education of heirs and beneficiaries to be financially fluent and knowledgeable about wealth stewardship expectations and/or opportunities. Before implementing any wealth transfer option, you should consider the trade-offs between lifetime transfers and transfers at death:
Many taxpayers reside in states that have their own death, estate, or inheritance taxes. This topic should also be reviewed with your attorney to see if additional planning can minimize or eliminate state estate taxes or if any adjustments need to be made to existing planning as a result of the discrepancy between state and federal estate taxes.
| Taxable income | |
|---|---|
| Over | But not over |
| $0 | $2,750 |
| $2,750 | $9,850 |
| $9,850 | $13,450 |
| $13,450+ | |
| Tax | ||
|---|---|---|
| Pay | + % on excess | Of the amount over |
| $0 | 10% | $0 |
| $275.00 | 24% | $2,750 |
| $1,979.00 | 35% | $9,850 |
| $3,239.00 | 37% | $13,450 |
*See “Capital gains, losses, and dividends” section for
corresponding capital gain and qualified dividend rates.
The Medicare 3.8% surtax is imposed on certain types of unearned income of individuals, trusts, and estates with income above specific thresholds. For individuals, the surtax is imposed on the lesser of the following:
| Single filers | Married filing jointly | Married filing separately |
|---|---|---|
| $200,000 | $250,000 | $125,000 |
For trusts and estates, the surtax is imposed on the lesser of the following:
Note: The surtax does not apply to nonresident aliens.
In the case of the sale of an interest in a partnership or an S corporation, the surtax is imposed only on the portion of a transferor’s net gain that would have been net investment income if the entity had sold all of its property for fair market value immediately before the stock or partnership was sold.
Congress recognized that the doubling of the standard deduction under the Tax Cuts and Jobs Act of 2017 would effectively eliminate the ability of many taxpayers to obtain a benefit for their charitable contributions, potentially causing many taxpayers to give less. To counteract this, a change was made to increase the adjusted gross income (AGI) limitation for cash contributions to a public charity from 50% to 60%.
When deciding to make a direct gift of stock or cash, remember that your deduction may be limited by your income as shown in the following chart. The limitation is based on the type of organization and the type of gift.
| Type of organization | Cash gifts | Long-term capital gain property1 | Tangible personal property2 |
|---|---|---|---|
| Public charity | 60% | 30% using fair market value of the asset contributed | 30% using fair market value of the asset contributed |
| Private foundation | 30% | 20% using fair market value if the asset contributed is publicly traded stock | 20% using tax/cost basis of the asset contributed3 |
1. Long-term property is property held more than one year. Short-term property, held one year or less, is subject to different limits.
2. This applies if it will be used by the charity in conducting its exempt functions (for example, art in a museum). Different limits apply for tangible personal property that will not be used by the charity in conducting its exempt functions.
3. If the fair market value of unrelated use property is lower than the tax/cost basis (depreciated asset), the allowed deduction will be limited to the fair market value.
Source: irs.gov, unless otherwise specified
Although the AGI limitation for cash contributions was increased, it is important to consider donating appreciated property. If you donate appreciated property that has been held for over one year, you are eligible to deduct the fair market value without paying income tax on the unrealized gain. However, you can only deduct up to 30% of your AGI when making these gifts of long-term capital gains property (to a public charity). Being able to avoid the payment of taxes on the unrealized gain combined with the charitable contribution deduction may produce a better tax result than donating cash. A common example would be donating stock held long term that has increased in value since its purchase.
Donating the stock will allow for a deduction of the full fair market value without paying tax on capital gains. Contrast this with the alternative of selling the stock, paying capital gains tax, and then donating the net amount.
| Gift | Income Tax Savings† | Capital Gain Tax Savings | Medicare Tax on Investment Income Savings† |
|---|---|---|---|
| $10,000 Cash | $10,000 x 37%= $3,700 | n/a | n/a |
| $10,000 Stock | $10,000 x 37%= $3,700 | $8,000 x 20%= $1,600 | $8,000 x 3.8%= $304 |
†The amount of income tax saved may be subject to rules that limit charitable deductions as a percentage of AGI. Medicare surtaxes apply to certain higher income taxpayers.
When considering charitable gifting and capturing potential tax deductions, review your tax situation and carefully determine which assets to give. Gifts made to qualified, tax-exempt organizations are generally deductible, but as noted in the AGI limitations table above, are subject to limitations based on the type of organization (public or private), the asset being gifted, and your AGI. Charitable contributions that are not deductible in the current year due to AGI limitations can be carried forward for up to five years.
Naming a qualified charity as the beneficiary of your 401(k) or Traditional IRA upon your death can keep your estate and your heirs from having to pay income taxes on the distributions from those retirement assets. The full amount of your retirement assets will benefit the named charity because charities do not pay income taxes. The retirement assets will remain as part of your estate, but your estate will receive a charitable tax deduction. Alternatively, you can divide your retirement assets between your loved ones and charity, naming both as beneficiaries.
Depending on your circumstances, there are some additional planning options to consider:
The higher standard deduction combined with limits on other deductions means fewer people will be able to deduct their charitable contributions. An option to get a deduction is to bunch your donations together into one year and take the standard deduction in an alternate year if eligible.
For example, instead of making contributions in December 2022, you can make your 2022 contributions in January 2023. Making your 2023 contributions later during the year might give you enough to itemize in one calendar year. You could then take the standard deduction in 2022 and again in 2024, when you don’t make contributions. If you are looking to maximize your charitable contributions, your tax advisor can assist with determining whether AGI limitations will apply and the timing of the gifts to fully utilize your deduction.
A Donor Advised Fund (DAF) is a charitable giving vehicle which can assist with “bunching” of charitable contributions into a given year. This can be useful when you are able to make a donation but have yet to determine the timing of the distributions out of the donor-advised fund or what charities will receive the gift.
Children with investment and other unearned income, such as dividends and capital gains, exceeding $2,300 may be subject to the kiddie tax rules. These rules apply to children that are:
Parents can elect to report this unearned income on their own return using Form 8814 for amounts less than $11,000. While doing so may be simpler, it may not necessarily be more tax-efficient. For example, the kiddie tax applicable to a child’s unearned income of $10,000 may be less than when claimed by a parent already subject to top tax rates.
Unearned income of children is taxed at the higher of the parents’ marginal tax rate or the child’s tax rate.
| Unearned income | Tax treatment |
|---|---|
| Less than $1,150 | No tax |
| $1,150 – $2,300 | Taxed at child’s rate |
| More than $2,300 | Taxed at the higher of the parents’ top marginal rate or the child’s tax rate |
Have you discussed the basics of money management with your children? What other conversations might be needed so that they’re ready to steward their investments, cash flow, budgeting, and savings when they are older?
Donors can also elect to make five years’ worth of annual exclusion amounts in a single year’s contribution, up to $80,000 (single) and $160,000 (married). For example, a couple with twins could fund $160,000 for each child after birth and let those funds grow tax-free until needed. You should consult with your tax advisor about filing a gift tax return to make this election.
While the benefits under 529 plans for early education may sound exciting, taxpayers may find it more advantageous to leave the 529 plan account untouched to grow tax-free during the primary education years and instead use it for college and post-graduate studies.
Please consider the investment objectives, risks, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your advisor. Read it carefully before you invest.
Maximum credit: $2,500 per student per year, for first four years of qualified expenses paid
| MAGI phase-outs | |
|---|---|
| Married filing jointly | $160,000 – $180,000 |
| Single filer | $80,000 – $90,000 |
Up to 40% ($1,000) of the American Opportunity Credit is refundable. This means that even if your tax bill is zero, you can receive a refund of up to $1,000.
Maximum credit: 20% of the first $10,000 (per tax return) of qualified expenses paid in the current tax year
| MAGI phase-outs | |
|---|---|
| Married filing jointly | $160,000 – 180,000 |
| Single filer | $80,000 – 90,000 |
| MAGI phase-outs | |
|---|---|
| Married filing jointly | $128,650 – 158,650 |
| Others | $85,800 – 100,800 |
Bonds must be titled in name(s) of taxpayer(s) only. Owner must be age 24 or older at time of issue. Must be Series EE issued after 1989 or any Series I bonds. Proceeds must be used for qualified post-secondary education expenses of the taxpayer, spouse, or dependent.
Maximum deduction: $2,500
| MAGI phase-outs | |
|---|---|
| Married filing jointly | $145,000 – $175,000 |
| Others | $70,000 – $85,000 |
As a real estate investor, you may expense 100% of new and used qualified tangible business property acquired and placed in service during 2022. In addition, the expense limitations (that is, Section 179 election) relating to the cost of certain depreciable tangible personal property used in a rental business, as well as certain nonresidential real property improvements, is $1.080 million. The maximum amount that may be spent on such property before the Section 179 deduction begins to phase out is $2.7 million.
Real estate investors may utilize Section 1031 exchanges to defer any gain realized on the sale of real estate used in a trade or business by purchasing replacement like-kind real estate. Section 1031 cannot be used for personal property or real property held primarily for sale.
The deduction for real estate taxes for personal use real estate is now limited to $10,000. The amount of this limitation also includes state and local income taxes. The mortgage interest deduction is limited to interest paid on the first $750,000 of mortgage indebtedness secured by a primary or secondary residence. However, for mortgages originating before December 16, 2017, a deduction is available for interest paid on the first $1 million of mortgage indebtedness. Interest on home equity loans and home equity lines of credit that are not used to either buy, build, or substantially improve a primary or secondary residence is not deductible. The debt must also be secured by the home the loan pertains to.
Generally, income from real estate activities is considered a passive activity. As such, if a property operates at a loss, the loss is only deductible against other passive income or may be used if you dispose of your entire interest in the activity during the year. Only real estate professionals who provide greater than 750 hours of personal services in real property trades and spend more than half of their time in real estate trade or business can fully deduct losses from real property activities. As the rules often are based on specific facts and circumstances, you should consult your tax advisor to confirm the proper deductibility of these activities.
Taxpayers should consider whether certain real estate properties should be used as personal assets. If the taxpayer uses the property in a real estate trade or business (for example, renting the property), the real estate tax and mortgage interest deduction limitations no longer apply.
These deductions, while limited for personal assets, are still fully deductible for real estate assets used in a trade or business. If property is being used for both personal and business, consult your tax advisor to see how the rules may apply to you.
Owners of real estate entities established as pass-through businesses, such as sole proprietorships, LLCs taxed as partnerships, partnerships, or S corporations, may be able to take advantage of the 20% qualified business income deduction against the owner’s share of taxable rental income, subject to certain limitations. Regulations indicate that real estate operated in a trade or business could qualify for the deduction.
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced the Qualified Opportunity Zone (QOZ) program, providing a tax incentive for private, long-term investments in economically distressed communities. You may elect to defer tax on any capital gains invested in a Qualified Opportunity Fund (QOF), defined as an entity that is organized as a corporation or partnership and that subsequently makes investments in QOZ property. You must invest in the QOF within 180 days of the realization event. If you make the investment, you could potentially receive three valuable tax benefits:
These tax savings opportunities are only available if you retain your investment in the QOF for the noted time frames. A sale of the QOF before the noted dates will accelerate any deferred capital gains to that date and you may lose some of the benefits. Keep in mind that capital gains rates at the time of sale or in 2026 could be at a higher rate than in 2022.
In order to provide these substantial tax benefits, money must remain in the QOF for at least 10 years. As such, discuss with your advisor how these vehicles impact other areas of your overall financial strategy including, but not limited to, cash flow planning, potential liquidity issues, and your investment risk tolerance.
The alternative minimum tax (AMT) calculates income tax under different rules for income and deductions. If the AMT calculation results in a higher tax, the taxpayer will be subject to AMT and pay the higher tax. Generally, a taxpayer with a high proportion of capital gains income in relation to total income may trigger the AMT, as might exercising incentive stock options.
| AMT income |
|---|
| Up to $206,100* |
| Over $206,100* |
| Tax |
|---|
| 26% |
| 28% |
*$103,050 if married filing separately
| Exemption | Phased out on excess over | |
|---|---|---|
| Married taxpayer filing jointly/surviving spouse | $118,100 | $1,079,800 |
| Single taxpayer | $75,900 | $539,900 |
| Married taxpayer filing separately | $59,050 | $539,900 |
| Estates and trusts | $26,500 | $88,300 |
For specific qualified long-term care policies, the premiums are considered to be a personal medical expense and deductible by the IRS. The amount of qualified long-term premiums that will be considered a medical expense are shown in the table below.* The medical expense deduction is limited to qualified medical expenses over 7.5% of adjusted gross income.
| Age before the close of the taxable year |
Limit on premiums eligible for deduction |
|---|---|
| 40 or less | $450 |
| Over 40 but not over 50 | $850 |
| Over 50 but not over 60 | $1,690 |
| Over 60 but not over 70 | $4,510 |
| Over 70 | $5,640 |
*Limitations apply based on the type of taxpayer. You should consult your
tax advisor regarding your situation.
Health Savings Accounts (HSAs) are available to participants enrolled in a high-deductible health insurance plan. At the federal level, contributions to HSAs are not subject to income tax. Distributions are tax-free as long as they are used for qualified medical expenses.
In most states, contributions to HSAs are not subject to state taxes and income earned in HSAs is tax-deferred. Similar to federal law, qualified distributions are tax-free in most states. Please consult with your tax advisor for state-specific guidance on the tax deductibility of contributions and state taxes due on earnings.
If a distribution occurs from an HSA prior to age 65 for reasons other than qualified medical expenses, ordinary income taxes along with a 20% penalty are due on the distribution amount. Distributions from HSAs after age 65 are not subject to the 20% penalty but are subject to ordinary income taxes. Contributions to HSAs can no longer be made after enrolling in Medicare (eligibility for Medicare begins at age 65).
| Maximum contribution | |
|---|---|
| Single | $3,650 |
| Family | $7,300 |
$1,000 catch-up contribution allowed per individual age 55 or older.
| Minimum health insurance plan deductible | |
|---|---|
| Single | $1,400 |
| Family | $2,800 |
| Maximum out-of-pocket expenses | |
|---|---|
| Single | $7,050 |
| Family | $14,100 |
Based on various federal income tax brackets (does not account for state taxes)
Example: A taxpayer in the 35% federal income tax bracket would have to purchase a taxable investment yielding more than 3.1% to outperform a 2.0% tax-free investment.
| Tax-free yield (%) | |||||||
|---|---|---|---|---|---|---|---|
| 1.0 | 1.5 | 2.0 | 2.5 | 3.0 | 3.5 | 4.0 | |
| Tax bracket (%) | Taxable equivalent yield (%) | ||||||
|---|---|---|---|---|---|---|---|
| 10 | 1.1 | 1.7 | 2.2 | 2.8 | 3.3 | 3.9 | 4.4 |
| 12 | 1.1 | 1.7 | 2.3 | 2.8 | 3.4 | 4.0 | 4.5 |
| 22 | 1.3 | 1.9 | 2.6 | 3.2 | 3.8 | 4.5 | 5.1 |
| 24 | 1.3 | 2.0 | 2.6 | 3.3 | 3.9 | 4.6 | 5.3 |
| 32 | 1.5 | 2.2 | 2.9 | 3.7 | 4.4 | 5.1 | 5.9 |
| 35 | 1.5 | 2.3 | 3.1 | 3.8 | 4.6 | 5.4 | 6.2 |
| 37 | 1.6 | 2.4 | 3.2 | 4.0 | 4.8 | 5.6 | 6.3 |
Note: Interest income from municipal bonds is not subject to the Medicare surtax. The taxable-equivalent yield does not include the impact of the net investment income tax of 3.8%.
C corporations currently are subject to a flat 21% tax. There are no special federal capital gains rates for corporations, and capital losses for corporations are deductible only against capital gains. Also, AMT at the corporate level has been eliminated.
With the passing of the Inflation Reduction Act of 2022, a new 15% Alternative Minimum Tax is effective for taxable years beginning after December 31, 2022 for corporations with an average adjusted financial statement income of $1 billion over a three-year period.
While the strategies in this guide can be effective in helping manage your tax burden, they are not all-inclusive or a destination in and of themselves. A better starting point is a strategic plan tailored for your specific needs and goals. That’s where LifeSync℠ can help.
LifeSync is an ongoing advice and planning experience that creates a personal path for every individual, helping you make more informed financial decisions that more closely align with your aspirations. Whether you’re just starting out on your journey, comfortably on the way, or ensuring things are in place for the next generation, LifeSync helps your values and financial priorities stay in sync over time, answering the questions you need answered and providing the clarity you need to make the right decisions — at the right moments.
Connect with your advisor to get started. Finally, connect with your legal and tax advisors before taking any action that may have tax or legal consequences to determine how the information in this guide may apply to your specific situation at the time your tax return is filed.
Watch the webinar replay for “Ten tax-smart strategies to consider before year end”.
The fourth quarter is a good time of year to review your wealth plan and your tax position. An increased rate of inflation and rising interest rates make a review more important in 2022.
In this replay of our October 18, 2022 webinar, our panel of senior Wealth and Investment Management Advice specialists provided their top ten list of actionable tax-smart moves to consider before year end. The discussion included:
This guide has been created for informational purposes only and is subject to change. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed.
The implementation and maintenance of certain strategies and techniques in this brochure may require the advice of consultants or professional advisors other than Wells Fargo or its affiliates.
Wells Fargo Wealth and Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries. Wells Fargo Bank, N.A., is a bank affiliate of Wells Fargo & Company.
Brokerage services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.
Wells Fargo Bank, N.A. offers various advisory and fiduciary products and services including discretionary portfolio management. Wells Fargo affiliates, including Financial Advisors of Wells Fargo Advisors, a separate non-bank affiliate, may be paid an ongoing or one-time referral fee in relation to clients referred to the bank. The bank is responsible for the day-to-day management of the account and for providing investment advice, investment management services and wealth management services to clients. The role of the Financial Advisor with respect to the Bank products and services is limited to referral and relationship management services.
Wells Fargo & Company and its affiliates do not provide legal or tax advice. In limited circumstances, tax advice may be provided by Wells Fargo Bank, N.A. Please consult your legal and/or tax advisors to determine how this information, and any planned tax results may apply to your situation at the time your tax return is filed.
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Disclosures
Social Security
Social Security and Medicare taxes
In 2022, individuals will be taxed 6.2% in Social Security taxes, up to $147,000 of earnings, at which point there are no additional taxes. Medicare taxes are applied to 1.45% of earnings and there is no maximum wage cap. An extra 0.9% may be applied on the earnings over $200,000 for single filers and for joint filers earning over $250,000. Contact your tax advisor for current Social Security and Medicare tax information.
Earnings test
The earnings test indicates the level of earnings permissible for Social Security recipients without incurring a deduction from benefits. These limits are indexed to increases in national earnings.
Maximum monthly benefit: $3,345
This benefit is for an individual who reaches full retirement age in 2022 and earns at least the maximum wage base for 35 years.
Information provided by the Social Security Administration.
Taxation thresholds
A certain percentage of an individual’s Social Security benefits may be subject to taxation when his or her provisional income¹ exceeds certain threshold amounts:
1. Provisional income generally includes MAGI plus nontaxable interest and one-half of Social Security benefits.
2. There is an exception to this rule if you lived apart from your spouse for the entire year. Consult your tax advisor for more information.