Tax season is here. And before we know it, the big day (hint: April 18) will be upon us. But doing your taxes can feel like taking a test after missing a day (or semester) of class. So this year, we tapped an expert to help fill in some common gaps.
Tax season is here. And before we know it, the big day (hint: April 18) will be upon us. But doing your taxes can feel like taking a test after missing a day (or semester) of class. So this year, we tapped an expert to help fill in some common gaps. And make doing our taxes a little less…taxing. |
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Is there any income I don’t need to pay taxes on? |
Taxable income is gross income minus deductions. That includes earned income from wages and unearned income from investments. Even gambling jackpots and prize winnings are taxable. But there are a few income sources that aren’t taxable. For example: |
📚 Up to $5,250 of qualified employer-provided educational assistance can be excluded from your taxable income. |
🍼 If your company helps you cover the cost ofadopting a child, that assistance is usually tax-exempt. |
👩👦 Child support payments are not taxable. |
🌪️ Victims of natural disasters don’t typically pay taxes on government assistance they receive. |
🎁 Financial gifts — either money or other assets — are not taxable. Only the gift giver would possibly owe taxes on that money. |
💵 Life insurance proceeds are typically not taxable. And there’s no federal inheritance tax unless you inherited an item that produces income. |
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What’s the difference between a tax deduction and a tax credit? |
A tax deduction lowers your taxable income and the rate at which you’re taxed. So if you’re in the 22% tax bracket, a $1,000 deduction actually saves you $220. |
Atax credit, on the other hand, reduces the amount of tax you owe dollar-for-dollar. Meaning a $1,000 tax credit would reduce your tax bill by $1,000. |
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How do I know which deduction(s) I qualify for? |
| There are two different ways to claim deductions: You can take the standard deduction or itemize (aka list each one individually). |
If the standard deduction for 2022 is less than your total itemized deductions, you should itemize to save money. Otherwise, the standard deduction is probably the way to go. (PS: When youfile with TaxAct, they’ll figure out which would be better for you and use it to maximize your tax benefit.) |
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Are there any tax code changes for this year I should know about? |
The standard deduction increased slightly to... |
👩 $12,950 for single filers. 💍 $25,900 for married folks filing jointly. 🏠 $19,400 for heads of household or married folks filing separately. |
For 2020 and 2021, single filers could claim a special deduction for up to $300 for cash donations to charity (Married filers filing jointly could deduct $600.) That’s expired, so you’ll have to itemize to claim charitable deductions this year. |
Lastly,the Child Tax Credithas decreased after being bumped up in 2021. For 2022 returns, parents may be eligible to claim a tax credit of up to $2,000 for each of their kids under age 17. |
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