Now is time to start 2022 tax, wealth planning

We tend to be most aware of our specific income, charitable contributions, family gifts, and retirement savings or withdrawals as we gather our information for last year’s tax return preparation. This awareness, perhaps accompanied by an upcoming meeting with our tax professionals, provides a great opportunity for strategic planning for the year ahead.

Here are highlights of the 2022 key financial figures that may impact your planning this year:

•No significant income tax reform was passed last year although the seven income and three capital gains tax brackets have been slightly expanded to adjust for inflation.

•Some retirement plan contribution limits have increased, notably, the new limit for elective deferral plans such as 401(k)s, has increased to $20,500 ($27,000 for those age 50 and older). Traditional and Roth individual retirement account funding limits remain unchanged at $6,000 ($7,000 for those age 50 and older).

•The annual gift tax exclusion increased to $16,000 for individuals and $32,000 for couples.

•The federal transfer—gift, estate, and generation-skipping—tax exclusion has increased to $12.06 million per person. This exemption is scheduled to be reduced by 50% in 2026.

•The standard deduction increased to $25,900 for married couples filing jointly and $12,950 for individuals. Taxpayers aged 65 or older and those with vision loss are eligible for an additional $1,400 deduction for married couples or $1,750 deduction for sin–gles.

•The Social Security wage base increased to $147,000 and the Social Security benefits have a cost-of-living adjustment of 5.9% for 2022.

•The qualified charitable distribution remains in place, allowing IRA owners who are 70.5 years old or older to donate up to $100,000 annually directly from their IRAs to qualifying public charities.

In addition to changes at the federal level, Washingtonians have been preparing for two new taxes to take effect in 2022: the capital gains tax and the long-term care tax, also known as the WA Cares Fund. While both were scheduled to take effect Jan. 1, their start dates are now uncertain.

In 2021, the Washington state Legislature approved a 7% tax on long-term capital gains over $250,000 for individuals and married couples. The tax provides for several exemptions, including real estate, retirement accounts, and certain small family businesses, among others. Although the tax was presented as an excise tax, several lawsuits were filed contending it is an income tax and thereby unconstitutional. On March 1, Douglas County Superior Court Judge Brian Huber agreed and overturned the new tax, ruling that it violates the state constitution because it is not a uniform taxation on property. Following the ruling, state Attorney General Bob Ferguson said he plans to file an appeal. The issue is likely to be decided by the state Supreme Court.

The WA Cares Fund is a first-of-its-kind, state-operated insurance program for long-term care insurance. The program is funded by a new payroll tax of 0.58% of a worker’s total wages, with no salary cap. Washington residents who pay into the program become eligible for up to $36,500 in long-term care benefits over their lifetime, including professional in-home care, an assisted-living facility, or nursing home. The tax received opposition, primarily for forcing many to pay into the program for benefits they will be ineligible to receive. On Jan. 27, Gov. Jay Inslee signed two bills passed by the Legislature to make improvements to the program. In addition to improving coverage gaps and providing additional exemptions, the tax is delayed until July 1, 2023.

The likelihood of meaningful tax reform passing in the near term appears to have declined but remains worth monitoring. It is important to stay in contact with your team of advisers for updates on how any changes might affect your specific financial circumstances.

Charissa Anderson is a certified financial planner and senior vice president of wealth management for West Bearing Services, a division of Ferguson Wellman Capital Management. The company has offices in Bellevue, Washington, and Portland Oregon, and currently manages $100 million in the Spokane area.

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Article Source: Spokane Journal