The Inflation Reduction Act (IRA) was recently passed by the U.S. Congress to combat rising inflation. The act includes several provisions that affect tax items, including changes to the standard deduction, the alternative minimum tax (AMT), and the estate tax. Let’s take a closer look at these changes and how they could you.
Standard Deduction
The IRA increased the standard deduction for tax year 2022. For single and married taxpayers filing separately, the standard deduction increased from $12,550 to $13,450. For married taxpayers filing jointly, the standard deduction increased from $25,100 to $26,900. For heads of households, the standard deduction increased from $18,800 to $20,650.
These boosts are intended to provide relief for those who have seen expenses rise due to inflation. Taxpayers who choose to take the standard deduction instead of itemizing their deductions will benefit from these higher amounts.
Alternative Minimum Tax (AMT)
The IRA also changed the Alternative Minimum Tax (AMT), which is a parallel tax system that was designed to ensure that wealthy taxpayers pay a minimum amount of tax regardless of deductions and other tax benefits they may have claimed. The AMT has been criticized for affecting middle-class taxpayers, and the IRA addressed this issue.
Under the IRA, the AMT exemption amount increased from $73,600 to $81,900 for single taxpayers and from $114,600 to $127,100 for married taxpayers filing jointly. The phase-out thresholds for the AMT exemption were also increased.
These changes mean that fewer taxpayers are subject to the AMT, and those who are will pay less in taxes. This is good news for those who have been burdened by the AMT in the past.
Estate Tax
Finally, the IRA changed the estate tax which is charged on the transfer of property after a person’s death. Estate tax has long been a contentious issue with some arguing that it unfairly punishes those who have worked hard to accumulate wealth.
Under the IRA, the estate tax exemption increased from $11.7 million to $12.06 million per person. This means that fewer estates will be subject to the tax, and those that are will pay less in taxes.
Conclusion
The Inflation Reduction Act included several provisions that affected tax items, including changes to the standard deduction, the alternative minimum tax, and the estate tax. These changes were intended to provide relief to taxpayers who had been affected by rising inflation and to make the tax code more fair and equitable.
Be sure to consult with a qualified tax professional to determine how these changes will impact your individual tax situations. It’s important to stay informed about changes to the tax code so that you can make informed decisions about your finances and avoid any unpleasant surprises. Although you may have already filed, many submitted an extension, and you have time to discuss the impact with your CPA.
https://www.journalofaccountancy.com/podcast/cpa-news-inflation-reduction-act-tax-items.html
