Five Tax Issues to Watch Out for in 2022

2022 tax season

We are now in the midst of the 2022 tax season, and it promises to be one of the most challenging seasons in recent memory for tax filers, preparers, and the IRS.

One reason for this is the many pandemic-related relief measures such as the advance child tax credit and direct economic impact payments, both of which have tax implications.  There are also some issues completely unrelated to the pandemic which, just by coincidence, are cropping up for the first time this year for Virginia taxpayers.

Whether you are preparing your own tax return or having a CPA prepare it for you (which we highly recommend), here are five areas to pay special attention to this year.

Make note of changes to the rules for tax deductions related to charitable contributions.

You likely already know that contributing to qualifying charitable organizations allows you to deduct from your taxable income if you itemize your deductions rather than taking the standard deduction.  However, after the standard deduction was doubled in 2017 for both individuals and married couples filing a joint tax return, few people itemized their deductions.

Now, thanks to a new rule, individuals can still deduct up to $300 worth of cash donations to charitable organizations, even if they take the standard deduction.  Married couples can deduct up to $600.

If you aren’t sure whether or not the organization you donated money to is one that qualifies as a charity for this purpose, you can find a comprehensive list of all applicable organizations by referring to the IRS’s Publication 78 Data online.

Check your advance child tax credit payments if you received them.

If you received any advance payments on child tax credit in 2021, you’ll need to compare the amount you received against the amount you can claim on your tax return.

If you’ve received less than what you’re eligible to claim credit for any remaining amount on your tax returns — even if you didn’t get monthly advance payments last year — you can still get a single payment this year if you claim the child tax credit on your federal income tax next year.

Don’t worry if this sounds too complicated; back in January, the IRS sent out Letter 6419 with the total amount of child tax credit payments American taxpayers received last year. If you received this letter, you should make a point to store it with your tax records for the year.

If you need a backup or did not receive this letter, you can also access your child tax payment accounts by setting up an account on the IRS website and logging in. You can claim the full amount of credit, even if you don’t normally file a tax return.

Know how economic impact payments impact your recovery rebate credit.

As part of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), the IRS has been allotting payments to American citizens to help manage their financial needs during the COVID-19 pandemic. If you didn’t qualify for the third of these payments (which went out around the beginning of 2021) or otherwise didn’t receive the full amount, you might be eligible for the recovery rebate on your tax return.

To claim the credit, you’ll need to file a tax return for 2021 (even if you wouldn’t otherwise be required to file one), so that you can report the amount of the third economic impact payment that you received.

Again, setting up an account on the IRS website might be helpful here, as it would allow you to see the amounts of all the economic impact payments you have received, in case you don’t have that information easily accessible. You can also go back to March or April 2021 bank statements to look for deposits from the IRS related to this payment.

Be sure to report any cryptocurrency transactions you made in 2021.

Cryptocurrency investing continued to grow in popularity in 2021, with many people purchasing Bitcoin or other cryptocurrencies for the first time.

Cryptocurrency (also known as virtual currency) is treated by the IRS as a form of property rather than currency, and just as you would need to pay taxes on income from the sale of stocks or bonds, you also need to pay taxes on income you received from the sale of cryptocurrency.

That’s not all, either. If you have taken time to “mine” virtual currency or other digital assets like NFTs, the fair market value of the cryptocurrency at the date of receipt is part of your gross income. This also includes the sale of digital assets and the use of digital assets as investments, so understand that acquisition of cryptocurrency is likely to result in a tax liability. The IRS has information available online in the form of IRS Notice 2014-21 and IRB 2014-16 that can provide you with guidance for reporting cryptocurrency and digital asset transactions.

Don’t forget about income from sports betting or other gambling.

On January 21st of last year, Virginia legalized sports betting—just in time for the 2021 Super Bowl and NCAA College Basketball tournament.  If you live in Virginia and watch sports on television, you certainly saw many commercials for sports betting websites like Fanduel and Draft Kings which promoted offers for first-time users which allowed you to make a very small bet and win a relatively large amount money—for example, betting $1 and winning a few hundred dollars.  These one-time offers were not “real” bets since they were not based on the actual odds; they were just promotions designed to get people signed up on the various websites.

Nonetheless, if you took advantage of one of these offers and did, in fact, win your bet, that income you received is taxable and must be reported on your return, along with any other gambling winnings that have contributed to your income in 2021.

While you can deduct gambling losses from your income, you can only do so if you itemize your deductions, which for most casual sports gamblers would not be beneficial.

If any of the five issues mentioned above seem confusing or complicated to you, you are not alone.  Many people get frustrated and confused when attempting to complete their tax return without the assistance of a CPA.  If you need help with your taxes, please reach out to our firm today so that we can help ensure that your 2021 tax return is accurate and complete.