The annual exclusion on the gift tax rises for the first time in several years. It rises to $16,000 in 2022, with returns filed in 2023. That’s up from 2018 to 2021, when $15,000 was the threshold before taxes applied on gifts, according to the IRS.
“Having a good handle on taxable income for 2022 and 2023 is very important. This drives decisions that should be made in 2021,” Hratch Karakachian, a financial advisor and CPA in Glendale, Calif., told Financial Advisor magazine.
Karakachian said he is telling pertinent clients who can, to consider reducing their tax bills by:
• Taking IRA distributions, including Roth conversions, to take advantage of lower tax brackets;
• Bunching deduction in 2021, including medical, charitable contributions;
• Maximizing per person annual gifts.
The IRS also increased the 2022 alternative minimum tax. “This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two,” Erica York, an economist with Tax Foundation said.
The AMT is levied at two rates: 26% and 28%. The AMT exemption amount for 2022 is $75,900 for singles and $118,100 for married couples filing jointly.
In 2022, the 28% AMT rate applies to excess alternative minimum taxable income of $206,100 for all taxpayers or $103,050 for married couples filing separate returns, York said.
AMT exemptions phase out at 25 cents per dollar earned once AMTI reaches $539,900 for single filers and $1,079,800 for married taxpayers filing jointly, York said.
The 2017 Tax Cuts and Jobs Act lowered the rates on most income tax brackets. But bear in mind that these rates, including the top rate, are due to revert to higher rates at the end of 2025, when certain provisions in the Tax Cuts and Jobs Act expire, the Tax Policy Center said.