It’s Time to Start Planning for 2022 Tax Returns

I know it feels as though the 2021 tax filing season just ended (or hasn’t ended for many of you with extensions and nervous taxpayers inquiring about their delayed refunds). Fortunately, or unfortunately, it’s time to start planning for 2022 returns.

Let’s Begin with What’s Different:

1. Assuming no action by Congress in the coming months, we have expiration of several of the American Rescue Plan (ARPA) Provisions which applied to 2020 and/or 2021.

• • In 2022, the child tax credit is back to $2,000; children must be under age 17 as of the end of the year and the credit reverts back to being non-refundable (IRC §24). Furthermore, there is no Advanced Child Tax Credit for clients to receive or you to reconcile.
  • There are no EIP 3 payments in 2021 (Recovery Rebates when calculated on a tax return). For those clients who did not receive 2020 or 2021 EIP payments, you will be amending those returns (or by filing a Form 3911 to track what happened to the payment) to gain the taxpayer those credits. The IRS has also announced face-to-face help beginning May 14 on Saturdays at their Tax Assistance Centers (TACs).
  • The expansion of the dependent care credit was for 2021 only so taxpayers will be back to the maximum expense of $3,000 for one child and $6,000 for two and more and the return of the credit being non-refundable. (IRC §21). Flex spending accounts for child and dependent care also reverted to $5,000 per family. You may want to check in with your taxpayers who elected the maximum $10,500 as allowed under ARPA to make certain they did not elect more than $5,000 for tax year 2022 although I would think most plan administrators were aware the ARPA change was for one year only.

2. What’s new (for 2021) and still with us. The provision for taxpayers who purchase their health insurance through the marketplace where their contribution is not to exceed 8.5% of their household income versus the 401% “trip-wire” in effect for years prior to 2020. This provision remains in effect for 2022. (PL 117-2, §§9661, 9662, 9663). Also see our blog of December 20, 2021 for an in-depth illustration of the rules in effect for 2021 and 2022

Estimated Tax Payments

With this backdrop in place, remember that second quarter 2022 estimated tax payments are due on Wednesday June 15.  You might need to also remind your pass-through entity (PTE) clients such as partnerships and subchapter-S corporations who are paying PTE tax on behalf of their partners or shareholders to get those payments in as well since this may the first year these entities may have been subject to estimated tax payment rules.

Mid-Year Check-In Time

For those clients either disappointed with their 2021 results or wanting to ready themselves in advance of filing their 2022 returns, now is the time to have them send you their paystubs or income statements so you can begin to project their 2022 income and prepare them for how 2022 might be shaping up. Let’s get this done while there is sufficient time to make adjustments to avoid Spring 2023 surprises.

What About Those Capital Gains?

Most of our clients saw a dramatic increase in capital gain income during 2021. For 2022, it’s hard to predict the outcome given the recent market volatility so here’s a suggestion which I’ve been using.  I’m averaging results for 2019 and 2021 to predict 2022 income. Why 2019? Because in my mind, that’s the last “normal” year we had pre-pandemic. There were more predictable capital gains during 2019 but if you want to error on the side of caution, use the 2021 capital gains in your 2022 projections.

Stay in Touch with Your Clients

My office brought on two new clients just this past week. Why? They said they could not get in touch with their previous tax pro. I understand you have a right to downtime just like anyone else, but communication is key. Use out-of-office auto replies which include your off-season office hours and manage the client’s expectations as to when you will get back to them. Even a quick email or text response letting them know that you are aware they are trying to contact you and when you might have time to get back to them will satisfy your client in the short run and keep them from leaving. You know it’s easier to satisfy current clients then to seek out new ones (except the Needy-Nellies)!

By Tom O’Saben, EA