What to Consider When Filing Your 2022 Tax Return

The IRS’s first Chief Taxpayer Experience Officer, Ken Corbin, recently wrote an article highlighting what’s new and what to consider when filing your 2022 tax return. Among other things, Corbin states that filing a 2022 tax return, even when not required, could give you access to certain tax credits available only when filing a return. In addition, some taxpayers may still be eligible for the Premium Tax Credit for enrolling in a qualified health plan. Corbin also notes that eligibility rules to claim a tax credit for clean vehicles, under the Inflation Reduction Act, have changed.

Read the article:

If you have questions regarding filing your return, contact us.


Child Tax Credit: The Rules Keep Changing but it’s Still Valuable

If you’re a parent, you may be confused about the rules for claiming the Child Tax Credit (CTC). The rules and credit amounts have changed significantly over the last six years. This tax break became more generous in 2018 than it was under prior law — and it became even better in 2021 for eligible parents. Even though the enhancements that were available for 2021 have expired, the CTC is still valuable for parents.

Here are the current rules.

For tax years 2022 and 2023: the CTC applies to taxpayers with children under the age of 17 (who meet CTC requirements to be ‘’qualifying children’’). A $500 credit for other dependents is available for dependents other than qualifying children.

CTC amount

The CTC is currently $2,000 for each qualifying child under the age of 17. (For tax years after 2025, the CTC will go down to $1,000 per qualifying child, unless Congress acts to extend the higher amount.) Refundable portion The refundable portion of the credit is a maximum $1,400 (adjusted annually for inflation) per qualifying child. The earned income threshold for determining the amount of the refundable portion for these years is $2,500. (With a refundable tax credit, you can receive a tax refund even if you don’t owe any tax for the year.) The $500 credit for dependents other than qualifying children is nonrefundable.

Credit for other dependents in terms of the $500 nonrefundable credit for each dependent who isn’t a qualifying child under the CTC rules, there’s no age limit for the credit. But certain tax tests for dependency must be met. This $500 credit can be used for dependents including:

Those age 17 and older.

Dependent parents or other qualifying relatives supported by you. Dependents living with you who aren’t related to the taxpayer.

AGI “phase-out” thresholds You qualify for the full amount of the 2022 CTC for each qualifying child if you meet all eligibility factors and your annual adjusted gross income isn’t more than $200,000 ($400,000 if married and filing jointly).

Parents with higher incomes may be eligible to claim a partial credit. Before 2018 and after 2025, the income threshold amounts for the total credit are lower: $110,000 for a joint return; $75,000 for an individual filing as single, head of household or a qualifying widow(er); and $55,000 for a married individual filing a separate return.

Claiming the CTC

To claim the CTC for a qualifying child, you must include the child’s Social Security number (SSN) on your return. The number must have been issued before the due date for filing the return, including extensions. If a qualifying child doesn’t have an SSN, you may claim the $500 credit for other dependents for that child. To claim the $500 credit for other dependents, you’ll need to provide a taxpayer identification number for each non-CTC-qualifying child or dependent, but it can be an Individual Taxpayer Identification Number, Adoption Taxpayer Identification Number or SSN.

If you expect the CTC to reduce your income tax, you may want to reduce your wage withholding. This is done by filing a new Form W-4, Employee’s Withholding Certificate, with your employer. These are the basics of the CTC. As you can see, it’s changed quite a bit and the credit is scheduled to change again in 2026. Contact us if you have any questions. © 2023


Answers To Your Questions About 2023 Limits On Individual Taxes

Many people are more concerned about their 2022 tax bills right now than they are about their 2023 tax situations. That’s understandable because your 2022 individual tax return is due to be filed in 10 weeks (unless you file an extension). However, it’s a good time to familiarize yourself with tax amounts that may have changed for 2023. Due to inflation, many amounts have been raised more than in past years. Below are some Q&As about tax limits for this year. Note: Not all tax figures are adjusted annually for inflation and some amounts only change when new laws are enacted. 


I didn’t qualify to itemize deductions on my last tax return. Will I qualify for 2023? 

In 2017, a law was enacted that eliminated the tax benefit of itemizing deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2023, the standard deduction amount is $27,700 for married couples filing jointly (up from $25,900). For single filers, the amount is $13,850 (up from $12,950) and for heads of households, it’s $20,800 (up from $19,400). If the amount of your itemized deductions (including mortgage interest) is less than the applicable standard deduction amount, you won’t itemize for 2023.

How much can I contribute to an IRA for 2023?

If you’re eligible you can contribute $6,500 a year to a traditional or Roth IRA, up to 100% of your earned income. (This is up from $6,000 for 2022.) If you’re 50 or older, you can make another $1,000 “catch up” contribution (for 2023 and 2022). 

I have a 401(k) plan through my job. How much can I contribute to it?

In 2023, you can contribute up to $22,500 to a 401(k) or 403(b) plan (up from $20,500 in 2022). You can make an additional $7,500 catch-up contribution if you’re age 50 or older (up from $6,500 in 2022). 

I periodically hire a cleaning person. Do I have to withhold and pay FICA tax on the amounts I pay them? 

In 2023, the threshold when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc., who are independent contractors is $2,600 (up from $2,400 in 2022). 

How much do I have to earn in 2023 before I can stop paying Social Security on my salary? 

The Social Security tax wage base is $160,200 for this year (up from $147,000 last year). That means you don’t owe Social Security tax on amounts earned above that. (You must pay Medicare tax on all amounts that you earn.) 

If I don’t itemize, can I claim charitable deductions on my 2023 return? 

Generally, taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations. For 2020 and 2021, non-itemizers could claim a limited charitable contribution deduction. Unfortunately, this tax break has expired and isn’t available for 2022 or 2023. 

How much can I give to one person without triggering a gift tax return in 2023? 

The annual gift exclusion for 2023 is $17,000 (up from $16,000 in 2022). 


These are only some of the tax amounts that may apply to you. If you have questions or need more information, contact us. © 2023



Planning to Deduct for Losses This Tax Season? Be Sure to Read the Fine Print.

Deducting losses is a high-priority item for taxpayers in the highest marginal income tax bracket. The topic will be especially relevant during the 2022 tax compliance season because of recent declines in the stock market and a challenging overall business environment.

With that said, you shouldn’t assume that every business operating loss or capital loss on investments will lead to a 1:1 deduction on your tax return. There are significant limitations and qualifications surrounding these losses, so it’s critical to understand the details.

In this article, we provide a primer on some of the loss limitations that are most likely to affect high income taxpayers during the upcoming tax filing season.

Not All Business Losses Are Tax Deductible

Rising interest rates and other effects of surging inflation have created a challenging environment across industries. As a result, many business owners, whether actively involved in the operations of the business or passive investors, have losses that they can use to reduce their tax bill. But the amount and timing of these deductions may be significantly limited.

Section 461(l) Limit

Even if a taxpayer’s business loss satisfies the basis limitations, the at-risk limitations, and the passive loss limitations, the deduction of that business loss may be significantly limited. That’s because Section 461(l), “Limitation on Excess Business Losses of Noncorporate Taxpayers,” was in effect for the 2022 tax year.  The Excess Business Loss (EBL) limitation applies to any non-corporate taxpayer—including individuals, estates, and trusts—and limits the amount of trade or business deductions that can offset non-business income, such as investment and wage income.

An EBL is defined as the excess of (i) taxpayer’s aggregate trade or business deductions over the sum of (ii) taxpayer’s aggregate gross trade or business income or gain plus the indexed limitation amount (the “threshold amount”). Net business losses in excess of the threshold amount are disallowed and carried forward as a net operating loss (NOL). For 2022, the threshold amounts were $540,000 for those married filing jointly and $270,000 for all other filers. For partnerships and S corporations, Section 461(l) applies at the partner or shareholder level.

Excess Business Loss (EBL) Calculation
EBL = aggregate trade or business deductions –
aggregate gross trade or business income or gain + indexed limitation amount

Net operating losses, Section 199A deductions, and capital loss deductions are excluded from a taxpayer’s EBL calculation when determining the aggregate trade or business deductions. Furthermore, employee compensation is excluded when determining the aggregate gross trade or business income. Capital gains will be limited (when determining aggregate gross trade or business income and gains) to the lesser of (i) the capital gain net income determined by taking into account only gains and losses attributable to a trade or business or (ii) the capital gain net income.

Excess Business Loss (EBL) Example

A married taxpayer has trade or business income from Business A of $5 million and trade or business losses from businesses B and C of $15 million in 2022. Instead of being able to deduct the entire $10 million loss against other income in 2022, the taxpayer is limited to deducting only $5.54 million of the losses in 2022 ($5 million of income from business A + $540,000 threshold amount). The excess ($9.46 million) is carried forward to 2023 as a net operating loss.

Net Operating Losses Carryforward

A net operating loss (NOL) may offset up to 80% of current year taxable income; this rule has been in place since 2021. Unused NOLs may be carried forward indefinitely. A disallowed EBL is treated as a NOL carryforward in the subsequent year, subject to the NOL rules. If a taxpayer has multiple NOLs, they are applied in the order incurred, beginning with the earliest.

Net Operating Loss (NOL) Example

Continuing the example above, the taxpayer has a 2023 NOL of $9.46 million and 2023 taxable income of $10 million. The NOL can offset only 80% of the taxable income, which is $8 million. The remaining unused NOL ($1.46 million) would be carried forward to 2024.

Deductions for Capital Losses Are Limited Too

Tax-loss harvesting can be an effective way to enhance an investor’s after-tax returns. After a year in which equity markets were down 15.0% and bond markets were down 11.2%[1], investors have plenty of opportunities for harvesting losses. Strategically applying tax-loss harvesting, however, requires understanding the rules related to wash sales and the limits on how much in capital losses can be deducted in any year.

Wash Sales

The wash sale rule disallows a loss on the sale of stock or securities if a taxpayer acquires substantially similar stock or securities or a contract or option to acquire substantially similar stock or securities within 30 days before or after the date of sale or disposition. Generally, the wash sale rule applies only when the same taxpayer repurchases substantially similar stock or securities, but the loss may be disallowed if the acquisition is made by a related party. If a taxpayer sells stock or securities for a loss and then repurchases the stock or securities in their or their spouse’s IRA within 30 days before or after the sale, that loss will be subject to the wash sale rule.

The disallowed amount can be claimed when the new stock is finally disposed of, other than in a wash sale. The rule does not apply to losses from transactions made in the ordinary course of a dealer’s business of dealing in stocks and securities. The wash sale rules apply per taxpayer and not per account, so it is critical to review each taxpayer’s total portfolio.

Excess Loss Carryforward

In addition to using capital losses to offset capital gains, taxpayers can deduct up to $3,000 of capital losses against ordinary income in any given year ($1,500 for married filing separately). Any excess capital losses are carried forward indefinitely and used to offset gains or ordinary income up to the aforementioned limits in future years.

Capital Loss Carryforward Example

In 2022, a taxpayer has long-term capital gains of $40,000, short-term capital gains of $80,000, long-term capital losses of $90,000, and short-term capital losses of $70,000. The taxpayer has a net long-term capital loss of $50,000 ($90,000 – $40,000) and a net short-term capital gain of $10,000 ($80,000 – $70,000). The excess of the long-term capital loss ($50,000) over the net short-term capital gain ($10,000) is $40,000. The taxpayer can only use $3,000 of the $40,000 capital loss to reduce 2022 ordinary income. The remaining $37,000 would be carried forward to 2023 (and perhaps beyond).

Know What to Expect This Tax Season

For many taxpayers, losses will be a greater area of focus for their 2022 tax preparation and 2023 tax planning. As you seek to estimate your 2022 tax liability (or refund), it will be imperative to understand how these limitations on losses affect your specific situation. We are available to help you analyze your unique fact pattern and identify planning opportunities that can lower your tax liability going forward.



Written  by Katherine A. Walter. Copyright © 2023 BDO USA, LLP. All rights reserved.


[1] Source: S&P Dow Jones Indices. “Equity markets” represented by total returns of the S&P 500 Index. “Bond markets” represented by total returns of the S&P U.S. Aggregate Bond Index. Data as of December 20, 2022