As the COVID-19 era comes to an end, so do the tax breaks that have been in place for the past year. This means that taxpayers will need to file differently this tax season, and they will likely end up owing more money in taxes or receiving smaller refunds. For entrepreneurs and those in alternative industries, this may mean a bigger tax bill than expected. Adult professionals should also be aware of the changes so that they can plan accordingly.
As professionals in alternative industries across the nation consider their finances, including building wealth, the end of COVID-19 era tax breaks will have a major impact on how they file this upcoming tax season. Considering that Americans are likely to face either bigger tax balances due or way smaller refunds, such changes could affect long-term financial health if taxpayers do not take proactive steps to adjust accordingly. To ensure professionals and businesses are well equipped with the tools and necessary information to adjust their finances and plan for potential losses or lesser gains, tax coaching may prove beneficial.
Professionals and alternative industries may see major changes as a result of the COVID-19 tax filing for 2022.
Taxpayers may experience reduced refunds: Many business owners who qualified for a $3,600 credit per dependent in 2021 will only receive $2,000 for each qualifying child this year – or less depending on income. Additionally, those claiming the Earned Income Tax Credit (EITC) may only get $500 this year versus the $1,500 earned in 2021. As such, lower credits and deductions may mean a significant reduction in expected refunds.
Maximum Child and Dependent Care Credit – has been diminished to $2,100 instead of its high of $8,000 during 2021 – which could certainly be felt by those with eligible dependents on their taxes.
Charitable donations have not been extended – taxpayers that claimed these deductions last year must itemize them if they want to deduct them this tax season.
Net operating losses from 2018-2020: Business owners who experienced net operating losses during 2018-2020 will not be able to offset more than 80% percent against their other taxable income for that period instead of 100%.
Employee Retention Credit (ERC) adjustments: The ERC was previously available when businesses were completely shut down due to governmental orders or had significant revenue losses during 2020; however, the criteria have changed with it now being determined by quarter rather than calendar month which could be beneficial or detrimental depending on each individual business’s situation.
Pandemic-related withdrawals from IRAs and workplace retirement plans: Taxes are no longer waived on early with-draws made between January 1st, 2020 through December 31st, 2020 up to $100,000; however, SEPs can still be used without early withdrawal penalties until December 31st, 2022 - provided certain conditions are met like repayment within three years after receiving funds and other requirements based upon individual cases..
Tax provisions related to forgiven Paycheck Protection Program (PPP) loans: Forgiven PPP loan debts from 2020 no longer qualify as deductible expenses although any accrued interest related to PPP loans is still deductible according to IRS regulations.
Payroll Tax Credits: Payroll Tax Credits have been reduced back down to pre-pandemic levels with less impactful credits applicable this tax season compared to previous ones..
Social Security benefits waiting period & Medicare coverage changes: Individuals who receive Social Security Retirement benefits must wait five months before applying for Medicare coverage prompting further adjustments going forward compared to what was seen in 2021.
Delayed filing deadline: The main filing deadline has been pushed back to April 18th, 2023 so entrepreneurs can take advantage of additional time to complete their returns or ask for a tax extension if necessary.
Clearly, the tax filing for 2022 is going to be a completely different experience from 2021. With reduced refunds and credits, delayed deadlines, new rules for deductions and more - it’s essential that professionals and alternative industries understand how these changes will affect their finances this year.
Tax coaching can provide invaluable guidance when navigating through complex federal regulations while also helping businesses find ways to plan accordingly so they are ready no matter what surprises await them come April 18th 2023. Taking proactive steps now could mean long term financial health down the road!