Another year, another tax season. So, what’s new and/or different for your 2022 tax return? Unfortunately, this is a year when many people are likely to be disappointed with their refunds or owe tax because several of the more generous provisions enacted during the pandemic were allowed to expire. Here are a few items that may be relevant to Seabrookers:
For many of us, Itemized Deductions are a thing of the past, but if you are still able to itemize, you should be aware that:
1. Medical deductions remain deductible in excess of 7.5% of AGI (adjusted gross income) for everyone.
2. The deduction for state and local taxes remains capped at $10,000.
3. The deduction for mortgage interest is limited to $750,000 of indebtedness.
4. Miscellaneous itemized deductions are no longer allowed.
What about Charitable Contributions?
For 2020 and 2021 there was a small “above the line” deduction, available to everyone, but regretfully that has gone away. For 2022, there are only two ways to get a deduction for Charitable Contributions. Firstly, it is still available for those who itemize, and secondly, it is available as a Qualified Charitable Distribution (QCD) from your IRA if you are of the age where you are required to take a RMD (Required Minimum Distribution). Click here to see a previous post on RMD and Qualified Charitable Distributions. Talking of RMDs……
Mandatory Required Minimum Distributions (RMDs)
For 2022 you were required to begin taking distributions before the end of the year you turn 72. Looking ahead, in 2023 the age when you begin taking distributions will be 73 and will rise to 75 for 2032.
Contributions to Retirement Savings Accounts and Health Savings Accounts are largely the same this year.
Really bad news for those with children is that the Child Tax Credit, which was $3,600 for children up to 17 for 2021, is back down to $2,000 for children under 17 for 2022. That means that the credit for your 17 or 18 year old senior in high school is only $500 for 2022 and is classified as a Credit for Other Dependents.
Did you buy an electric vehicle in 2022? If you did, I’m sure you know that there are generous tax credits available. The rules for which vehicles qualify have recently changed, but if you think they may benefit you, be sure to check out the most recent updates.
There are some changes to South Carolina taxes and, as always, I’m going to warn our new neighbors to be careful if they are still using a tax preparer from another state. They need to be aware that tax software won’t automatically pick up some of the South Carolina differences and a preparer based in a different part of the country may not know about them.
So, if you moved here in 2022, it is important to know that South Carolina does not have a Part-Year Resident Tax Return. You may choose to be taxed either as a Resident or as a Non-Resident, even if you only lived in South Carolina for a couple of days. It is definitely worth working your state returns both ways, because it may be beneficial to opt for South Carolina residency for the whole year, particularly if you previously lived in a high tax state.
You probably know that South Carolina is generous to retirees because you can exempt taxing Social Security and depending on age, exempt up to $15,000 per person of retirement income. Are you a veteran? If so, none of your military pension is taxable for 2022 in South Carolina!
South Carolina offers some interesting tax credits. The one I hope everyone is aware of is the Excess Insurance Premium Credit if you’ve been hit with a big wind and hail insurance bill. Don’t forget to include your homeowners, flood and earthquake insurance in the calculation.
Other credits include Nursing Home Credit, Classroom Teacher Expenses Credit (this is in addition to the federal deduction), Plug-In Hybrid Vehicle Credit and Two-Wage Earner Credit. The Motor Fuel Income Tax Credit increased again this year, but requires a lot of record-keeping for a small credit. Your call! If you do decide it’s worthwhile, you will need to keep records of the number of gallons of gas used for each vehicle (2 vehicles per taxpayer allowed) and any maintenance expenses. The credit is for the “lesser of the two amounts” so if you only have one set of figures the credit is zero.
The South Carolina College Investment Program (529 Plan) is worth researching if you’re saving money for your grandchildren’s education, or anyone else’s education, including your own. Money invested in South Carolina Future Scholars Program is deductible from your South Carolina Income and the money doesn’t have to be spent at a South Carolina educational institution. It is worth noting that the amount you are allowed to deduct from your South Carolina taxable income is significantly higher than most other states.
One more thing. Have you lived in South Carolina for more than a year now and are over 65? If so, be sure to check out the Homestead Exemption on the property tax for your primary residence. You have to apply for it – it doesn’t come automatically.
Here’s hoping this helps in making your 2022 Tax Filings stress free!
P.S. There has been some confusion about the taxability of those South Carolina Tax Rebates most of us received. SC Department of Revenue maintains that this rebate is to be treated exactly the same way as any other South Carolina refund or rebate which is never taxable in South Carolina. For federal tax purposes, if you didn’t itemize your deductions on your 2021 Federal Return, it won’t be taxable on your 2022 Federal Return. But if you did itemize last year, it may be taxable on your 2022 Federal Return. Check with your tax preparer!
-Submitted by Seabrook VITA Volunteer
(Image credit: Istax.com and myarmybenefits.us.army.mil)