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Retirement Contributions Limits Announced for 2022
Cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for 2022 are as follows:
401(k), 403(b), 457 plans, and Thrift Savings Plan. Contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, up from $19,500. The catch-up contribution limit for employees aged 50 and over remains unchanged at $6,500.
SIMPLE retirement accounts. Contribution limits for SIMPLE retirement accounts for self-employed persons increases from $13,500 to $14,000. The catch-up contribution limit for employees aged 50 and over remains at $3,000.
Traditional IRAs. The limit on annual contributions to an IRA remains at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions; however, if during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If a retirement plan at work covers neither the taxpayer nor their spouse, the phase-out amounts of the deduction do not apply.
The phase-out ranges for 2022 are as follows:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $68,000 and $78,000, up from $66,000 and $76,000.
- For married couples filing jointly, where a workplace retirement plan covers the spouse making the IRA contribution, the phase-out range is $109,000 and $129,000, up from $105,000 and $125,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $204,000 and $214,000, up from $198,000 and $208,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Roth IRAs. The income phase-out range for taxpayers making contributions to a Roth IRA is $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Saver’s Credit. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000.
If you have any questions about retirement plan contributions, don’t hesitate to call.
Small Business: Deducting Startup Costs
If you’ve recently started a business – or are thinking about starting a business – you should know that as an owner, all eligible costs incurred before beginning to operate the business are treated as capital expenditures. As such, they are part of the cost basis for the business.
Generally, the business can recover costs for assets through depreciation deductions. Businesses with costs paid or incurred after September 8, 2008, can deduct a limited amount of start-up and organizational costs. This enables business owners to recover the costs they cannot deduct currently over a 180-month period. This recovery period starts with the month the business begins to operate active trade or as a business.
Business Start-up Costs
Start-up costs are amounts the business paid or incurred for creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business.
Examples of start-up costs include amounts paid for the following:
- An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
- Advertisements for the opening of the business.
- Salaries and wages for employees who are being trained and their instructors.
- Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
- Salaries and fees for executives and consultants, or for similar professional services.
A start-up cost is recoverable if it meets both of the following requirements:
- It’s a cost a business could deduct if they paid or incurred it to operate an existing active trade or business, in the same field as the one the business entered into.
- It’s a cost a business pays or incurs before the day their active trade or business begins.
Start-up costs don’t include deductible interest, taxes, or research and experimental costs.
Purchasing an Active Trade or Business.
Recoverable start-up costs for purchasing an active trade or business include only investigative costs incurred during a general search for or preliminary investigation of the business. These are costs that help in deciding whether to purchase a business. Costs incurred to purchase a specific business are capital expenses that can’t be amortized.
Disposition of business.
If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business.
Questions about deducting startup costs for your small business? Help is just a phone call away.
Reminder: Deferred Payroll Taxes Due in December
If you’re a household employer or self-employed and chose to defer paying some Social Security taxes under the CARES Act the deferred Social Security taxes are due by December 31, 2021 and December 31, 2022. If you also deferred the employee share of Social Security taxes the balance is included in the installment amount due by December 31, 2021.
You should have received a CP256V Notice in the mail. The notice is for informational purposes only and there is no need to respond.
You’ll need to pay your current installment amount by the due date shown on the notice. The notice may not reflect recent payments, but they will still be recorded correctly on your account.
Review your tax return for the tax period in which you deferred Social Security taxes and subtract any payments you’ve made. Compare that figure with the amounts shown on your notice. If you discover an error, please contact the IRS at the telephone number shown on the notice.
The first installment amount, due December 31, 2021, is half the employer’s share of Social Security taxes you could have deferred. It includes any amount of the employee’s share of Social Security taxes that were deferred minus all deposits and payments the IRS has already received. The second installment, due December 31, 2022, is the remaining unpaid deferred taxes.
If you cannot pay, you may be eligible for a payment plan or other payment options. However, taxpayers should be aware that if the IRS does not receive your payment by the applicable due dates, the deferred taxes may be subject to Failure to Deposit penalties and the full amount of your net tax liability may become due immediately.
Deferral payments can be made through the Electronic Federal Tax Payment System (EFTPS), by credit or debit card, or with a check or money order. These payments must be paid separately from other tax payments to ensure they’re applied to the deferred payroll tax balance. If you include a payment of deferred taxes with other tax payments (or send it as a deposit), the IRS systems won’t recognize the payment.
Questions? Don’t hesitate to call the office for assistance.
Important Information About Charitable Giving This Year
For many nonprofits and taxpayers alike, Giving Tuesday is the start of the charitable giving season. While most organizations are legitimate, taxpayers should always research charities before donating. It is also a good idea to understand the expanded tax benefits of giving to causes that mean something to you personally. Taxpayers should also know that they may be able to deduct donations to tax-exempt organizations on their tax returns.
The first step when deciding where to make donations is to visit IRS.gov and use the Tax Exempt Organization Search tool to search for information about an organization’s federal tax status and filings. Here are several facts about this valuable tool that taxpayers should be aware of:
- Donors can use it to confirm an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
- Users can find out if an organization had its tax-exempt status revoked. A common reason for revocation is when an organization does not file its Form 990-series return for three consecutive years.
- TEOS does not list certain organizations that may be eligible to receive tax-deductible donations, including churches, organizations in a group ruling, and governmental entities.
- Organizations are listed under the legal name or a “doing business as” name on file with the IRS. No separate listing of common or popular names is searchable.
Taxpayers can also use the interactive tax assistant, Can I Deduct my Charitable Contributions? to help them determine whether a charitable contribution is deductible. As a reminder, taxpayers should get a written acknowledgment for any charitable contributions of $250 or more.
Expanded Tax Benefits in 2021
Tax law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don’t itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.
Qualified Charitable Distributions
Taxpayers age 70 1/2 or older can make a qualified charitable distribution, up to $100,000, directly from their IRA, other than a SEP or SIMPLE IRA, to a qualified charitable organization. It’s generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. It is important to note that a qualifying deduction may also count toward the taxpayer’s required minimum distribution requirement for the year. Please call for more information.
Most cash donations made to charity qualify for the deduction. Cash contributions include those made by check, credit card, or debit card, as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items, or other property.
There are some exceptions (they also apply to taxpayers who itemize their deductions), however. Cash contributions that are not tax-deductible include those:
- Made to a supporting organization
- Intended to help establish or maintain a donor-advised fund
- Carried forward from prior years
- Made to most private foundations
- Made to charitable remainder trusts
Questions about charitable giving this tear? Don’t hesitate to contact the office.
Tax Credit for Hiring Long-Term Unemployed Workers
With many businesses facing a tight job market, employers should know about a valuable tax credit available to them for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment. If your business is hiring right now, the Work Opportunity Tax Credit (WOTC) may help.
Legislation enacted in December extended the WOTC through the end of 2025. This long-standing tax benefit encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment. Millions of Americans have been out of work at one time or another since the pandemic began, but one of these targeted groups is long-term unemployment recipients who have been unemployed for at least 27 consecutive weeks and have received state or federal unemployment benefits during part or all of that time.
The other groups include certain veterans and recipients of various kinds of public assistance, among others. Specifically, the 10 groups are:
- Temporary Assistance for Needy Families (TANF) recipients,
- Unemployed veterans, including disabled veterans,
- Formerly incarcerated individuals,
- Designated community residents living in Empowerment Zones or Rural Renewal Counties,
- Vocational rehabilitation referrals,
- Summer youth employees living in Empowerment Zones,
- Supplemental Nutrition Assistance Program (SNAP) recipients,
- Supplemental Security Income (SSI) recipients,
- Long-term family assistance recipients,
- Long-term unemployment recipients.
Qualifying for the Credit
To qualify for the credit, an employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA). Do not submit this form to the IRS.
Form 8850 must be submitted to the SWA within 28 days after the eligible worker begins work. Eligible businesses claim the WOTC on their federal income tax return. It is generally based on wages paid to eligible workers during the first year of employment. The credit is first figured on Form 5884, Work Opportunity Credit, and then is claimed on Form 3800, General Business Credit.
Though the credit is not available to tax-exempt organizations for most groups of new hires, a special rule allows them to claim the WOTC for hiring qualified veterans. These organizations claim the credit against payroll taxes on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations.
If you’re a small business owner who wants to take advantage of this tax saving credit, but aren’t sure you qualify, help is just a phone call away.