I’ll complete my first draft of our tax plan for 2022 the first week of August, and I’ll finalize it by the end of November before I’ll sell securities to get cash for our spending in calendar 2023. I gather some information this time of year. The purpose of this post is to share three pieces of information than may be helpful in your tax planning for 2022. Keep them and follow along with my planning in early August.
== Tax rates for Ordinary Income ==
Here are the tax brackets for ordinary income for 2022. The tax brackets for 2022 adjusted 3% for inflation. That’s less than the ~7% inflation for 2021 year because the IRS calculates its inflation-adjustment in August and it uses a different measure, set by congress, than CPI. (It’s called Chained CPI. I’m clearly not understanding the calculation since I calculate 5% as the change in C-CPI-U from July ’20-July ’21). If you were right below the start of a bracket in 2021, that means inflation could push some of your income – a portion of your Social Security income as an example – in the next bracket. You’d be paying marginally greater tax on inflation, not on the real change in your income.
The standard deduction increased by 3%. The standard deduction for 2022 is $12,950 per person and $1,400 more for those over age 65.
= Medicare Tripwires ==
Tripwires of income can trigger Medicare Part B and D premium surcharges. Surcharges are deducted from your Social Security benefits. Medicare will publish the amount of premium surcharges and the income tripwires for calendar 2023 this November. MAGI used will be from your 2021 tax return, the one you will file shortly.
MAGI on your 2022 tax return will determine your Medicare premium surcharges in calendar 2024. (You’ll file your 2022 return in early 2023; the IRS will provide your MAGI on that return to Social Security; Medicare will announce premiums and tripwires for 2024 in November; Social Security will use those two pieces of informaton and send your statement of your gross and net benefits that they will pay in 2024.)
A key part of the game is to plan our 2022 taxable income to make sure we don’t inadvertently stumble across a tripwire that affects our Medicare premiums in 2024. $1 of too much income can trigger about $1,000 in added premium surcharge per taxpayer. $1 too much for Patti and me can cost us about $2,000.
The best information we have for our tax planning now is last year’s table of Medicare Part B and D premiums and the income tripwires – the table they published this past November. Here’s that table.
Note: If you submit your 2021 return late this year or if the IRS does not close out your return for some reason, Social Security would use MAGI from your 2020 return to calculate premium surcharges. (You can ask for a revision if using your 2020 return would result in too great of premium surcharge.)
== Sheet I will use to estimate 2022 taxes =
I provide a PDF of spreadsheet that I will use the first week of August. I’ll provide the actual spreadsheet you can download then. I find this sheet helpful.
Conclusion. Tax planning for 2022 seems very far away, and it is. I do my first draft in the first week of August and finalize it toward the end of November. I gather some of the basic information I’ll need now. This post shows the 2022 tax brackets revised for inflation and the most recent information we have for the MAGI tripwires than can trigger Medicare Part B and D surcharges from income we report on our 2022 tax return.
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