The inflation adjustments to various provisions of the tax code increase significantly in 2022 due, in part, to rising consumer prices and inflation over the past 12 months. It is important to consider these changes as you engage in estate planning and preparing for tax efficiency this year and in the years ahead. However, it also bears repeating that these rates may change again over the next 12 months as Congress continues to debate a package of proposed tax changes to offset the costs of the administrations Build Back Better infrastructure and social services bill.
The top income tax rate of 37 percent will apply to individuals with 2022 income above $539,900, or $647,850 for married couples filing jointly. A 35 percent tax rate will apply to individual income above $215,950, or $431,900 for married couples filing jointly. For trusts and estates, the 2022 income tax brackets break down as follows:
The estate-tax exemption in 2022 increases to $12,060,000, up from $11,700,000 for estates of decedents who died in 2021. Married couples filing joint tax returns may exclude $24,120,000 from their taxable estates in 2022. Depending on where you reside, you may also be subject to estate and inheritance taxes at the state level.
The maximum amount you may gift tax-free to people other than your spouse without using up any of your lifetime gift and estate tax exemptions increases for the first time in four years to $16,000 per recipients (previously $15,000). For married couples, the annual gift-tax exclusion in 2022 is $32,000 per recipient.
Married spouses who are both U.S. citizens, however, can continue to make an unlimited number of tax-free gifts to each other. When one spouse is not a U.S. citizen, only the first $164,000 of spousal gifts may be excluded from the total amount of taxable gifts for 2022. With the annual gift-tax exclusion, you may transfer substantial assets out of your taxable estate and avoid gift and estate taxes on future appreciation, which is of critical importance when considering the possibility that the annual estate tax exemption will be reduced by half before 2026.
For individual taxpayers, the AMT exemption in 2022 is $75,900 and begins to phase out when income reaches $539,900. For married coupled filing jointly, the AMT exemption in 2022 is $118,100, which begins to phase out when income is $1,079,800.
Deductions for Pass-Through Business Owners
The Section 199A deduction of up to 20 percent of qualified business income (QBI) that is available to eligible sole proprietors and owners of pass-through businesses, such as S corporations and partnerships, is subject to income limitations. For 2022, the deduction is reduced when taxable income exceeds $170,050 for individuals, or $340,100 for married couples filing jointly. It phases out completely when individual income reaches $220,050, or $440,100 for married couples filing jointly.
The maximum amount individuals may contribute in 2022 to employer-sponsored 401(k), 403(b), and most 457 plans via salary deferral increases to $20,500, up for $19,500 in 2021. Catch-up contributions for employees age 50 and older remain unchanged at $6,500, allowing those individuals to contribute as much as $27,000 to their qualifying plans in 2022. The maximum amount you may contribute to an IRA or Roth IRA remains at $6,000, plus an additional $1,000 for qualifying savers age 50 and older. You can read more about the 2022 cost of living adjustments to retirement plan contribution limits HERE.
About the Author: Scott Montgomery is a director with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors +
CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email info@provweath.com.
Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Scott Montgomery is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily
those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor
about your individual situation. Investments mentioned may not be suitable for all investors.
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Posted on January 13, 2022