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    J.K. Lasser's Your Income Tax 2023: Professional Edition
    J.K. Lasser's Your Income Tax 2023: Professional Edition
    J.K. Lasser's Your Income Tax 2023: Professional Edition
    Ebook4,152 pages41 hours

    J.K. Lasser's Your Income Tax 2023: Professional Edition

    By J.K. Lasser Institute

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    About this ebook

    The gold standard resource for professional tax preparers in the US – fully updated for the 2022 tax year

    The newly revised J.K. Lasser's Your Income Tax Professional Edition 2023 delivers easy-to-follow, authoritative, and step-by-step instructions to help you guide your clients through the tax filing process. This popular guide offers tax-saving advice on every available credit and deduction, so you can be sure your clients are keeping as much of their money as possible.

    You'll discover special features included throughout the guide, including legislative alerts, tax planning tips, and filing reminders. You’ll also find:

    • Important information about the latest tax legislation from Congress and how it impacts your clients
    • Discussions and guidance relating to practice before the Internal Revenue Service
    • A complete set of the most used 2022 tax forms
    • Accurate citations of tax law authority

    The leading resource in tax preparation guides for Certified Public Accountants, tax preparers, and other financial professionals, J.K. Lasser's Your Income Tax Professional Edition 2023 is a detailed, one-stop blueprint for providing unmatched service to your taxpayer clients.

    LanguageEnglish
    PublisherWiley
    Release dateJan 26, 2023
    ISBN9781394157730
    J.K. Lasser's Your Income Tax 2023: Professional Edition

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      J.K. Lasser's Your Income Tax 2023 - J.K. Lasser Institute

      What's New for 2022

      Some of the tax changes for 2022 noted below were provided by the Inflation Reduction Act, such as new rules for the credit for certain home energy improvements. For an update on tax developments and a free download of the e‐Supplement to this book, visit us online at jklasser.com.

      Tax News for 2022

      Key Tax Numbers for 2022

      Tax-Saving Opportunities for 2022 and Beyond

      Pending Tax Rule Changes

      At the time this book was prepared, Congress was still considering a number of tax rule changes that may affect 2022 returns and tax planning for 2023, with other changes to go into effect after 2023. In additional to possible extensions (see next page), the EARN Act as proposed would make significant changes to retirement plans. Pending budgetary measures may also contain tax law changes. The following are some of the top tax changes under consideration; check the e‐Supplement at jklasser.com for an explanation of any changes enacted that will impact 2022 returns and affect tax planning for 2023.

      Child tax credit. There are several proposals to reinstate the child tax credit rules that had applied in 2021. This would mean a higher credit limit and a fully refundable credit. There is another proposal to extend the child tax credit to expectant mothers.

      SALT cap. It is possible that Congress will revisit proposals to increase the annual cap on the itemized deduction for state and local taxes (SALT) from $10,000 to as much as $80,000 for 2022 through 2025.

      Retirement plan changes in the proposed EARN Act. Below is a partial list of changes that would take effect at or shortly after the date of enactment. Other changes have delayed effective dates, such as increasing limits on employer plan catch‐up contributions (after 2024), reforming the saver's credit (after 2026), and increasing the age for beginning required minimum distributions from 72 to 75 (after 2031). The e‐Supplement at jklasser.com will have an update.

      Special treatment for disaster‐related distributions (retroactive for distributions with respect to major disasters declared by the President after December 27, 2020, and which began on or after January 26, 2021).

      401(k) plan participation for long‐term, part‐time employees after two years (effective for plan years beginning after 2022).

      Small financial incentives by employers for employees who make elective deferral contributions (e.g., to a 401(k) plan) (effective for plan years beginning after the date of enactment of the EARN Act).

      Indexing of the $1,000 IRA catch‐up contribution limit (effective for tax years beginning after date of enactment of the EARN Act)

      Penalty‐free withdrawals from qualified retirement plans and IRAs for individuals who are victims of domestic abuse or who have terminal illness (effective for distributions after the date of enactment of the EARN Act)

      Retroactive first year elective deferrals for sole proprietors (effective for plan years beginning after the date of enactment of the EARN Act)

      Changes the contribution limit for a qualified longevity annuity contract (QLAC) (effective for contracts purchased after the date of enactment of the EARN Act)

      Reduction in the 50% penalty to 25% for failing to take required minimum distributions; the penalty would drop to 10% if taken by the end of the second year following the year it should have been taken (effective for tax years beginning after the date of enactment of the EARN Act)

      Clarification of substantially equal periodic payment rule to avoid the 10% early distribution penalty upon plan rollover or exchange of annuity contract (effective for transfers on or after the date of enactment of the proposed EARN Act)

      Form 1099‐K Reporting. Congressional momentum has been building over restoration of the $20,000 threshold for reporting transactions from payment cards and third‐party networks. The American Rescue Plan Act dropped the threshold to $600 starting with Form 1099‐K reporting for tax‐year 2022. Some compromise amount, between the $20,000 and $600 levels, may be possible before 2022 Forms 1099‐K are required to be sent in January.

      Research and development costs. Some influential business groups are lobbying Congress to retroactively restore for 2022 and later years an immediate deduction of R&D expenses instead of having to amortize them over five years (or 15 years for research outside the U.S.).

      IRS funding. The Inflation Reduction Act gives the IRS about $80 billion in new funding. Directions for the allocation of these funds to upgrades in technology, taxpayer services and enforcement are still being sorted out, with some particular concern voiced over possible IRS overreach in audits of certain taxpayer groups.

      Expiring Provisions

      The following is a list of tax breaks that expired at the end of 2021 and will not apply to 2022 returns unless Congress extends them. If there is legislation extending some or all of these provision, it will be included in the e‐Supplement at jklasser.com.

      Itemized deduction for mortgage insurance premiums

      Credit for health insurance costs for trade adjustment assistance recipients and other eligible individuals

      Charitable contribution deduction by nonitemizers

      Higher percentage limit on cash contributions by itemizers

      Fully refundable child tax credit

      Refundable dependent care credit

      Enhanced earned income credit for those with no qualifying child

      PART 1

      Filing Basics

      In this part, you will learn these income tax basics:

      Whether you must file a return

      When and where to file your return

      Which tax form to file

      What filing status you qualify for

      When filing separately is an advantage for married persons

      How to qualify as head of household

      How filing rules for resident aliens and nonresident aliens differ

      Do You Have to File a 2022 Tax Return?

      Age 65. Whether you are age 65 or older is generally determined as of the end of the year, but if your 65th birthday is on January 1, 2023, you are treated as being age 65 at the end of 2022.

      Marital status. For 2022 returns, marital status is generally determined as of December 31, 2022. Thus, if you were divorced or legally separated during 2022, you are not considered married for 2022 tax purposes, and you must use the filing threshold for single persons unless you qualify as a head of household (1.12), or you remarried in 2022 and are filing a joint return with your new spouse. If you remarry in 2022 and file separately from your new spouse, you must file a 2022 return if you have gross income of at least $5.

      If your spouse died in 2022 and you were living together on the date of death, use the filing threshold shown above for married persons living together at the end of 2022. If you were not living together on the date of death, you must file a 2022 return if you have gross income of at least $5, unless you remarried during 2022 and are filing jointly with your new spouse.

      Same‐sex marriages. Lawfully married same‐sex couples are treated as married for all federal tax purposes. The IRS recognizes your marriage to a same‐sex spouse if the marriage was legally entered into in one of the 50 States, the District of Columbia, Puerto Rico, U.S. territory or possession, or foreign country (1.1).

      Gross income. Gross income is generally all the income that you received in 2022, except for items specifically exempt from tax.

      Include wages and tips (Chapter 2), self‐employment income (Chapter 45), taxable scholarships (Chapter 33), taxable interest and dividends (Chapter 4), capital gains (Chapter 5), taxable pensions and annuities (Chapter 7), rents (Chapter 9), and taxable alimony (Chapter 37), trust distributions (Chapter 11). For purposes of the filing test, you must include as gross income sales home sale proceeds even if they are partly or completely excludable from income (Chapter 29) and you also must include tax‐free foreign earned income (Chapter 36).

      Exclude tax‐exempt interest (Chapter 4), tax‐free fringe benefits (Chapter 3), qualifying scholarships (Chapter 33), tax‐free alimony (Chapter 37), and life insurance (Chapter 11). For purposes of the filing thresholds above, exclude Social Security benefits unless (1) you are married filing separately and you lived with your spouse at any time during 2022, or (2) 50% of net Social Security benefits plus other gross income and any tax‐exempt interest exceeds $25,000 ($32,000 if married filing jointly). If (1) or (2) applies, the taxable part of Social Security benefits (as determined in 34.3) is included in your gross income.

      Other situations when you must file. Even if you are not required to file under the gross income tests, you must file a 2022 return if:

      You are self‐employed and you owe self‐employment tax because your net self‐employment earnings for 2022 are $400 or more (Chapter 45), or

      You (or your spouse if filing jointly) received HSA or Archer MSA distributions (Chapter 41), or

      You are entitled to a refund of taxes withheld from your wages (Chapter 26) or a refund based on any of these credits: the additional child tax credit, the premium tax credit, the earned income credit for working families, (Chapter 25), or the American opportunity credit (Chapter 33), or

      You received advance payments of the premium tax credit (25.12), or

      You owe any special tax such as alternative minimum tax (Chapter 23), the Additional Medicare Tax or the Net Investment Income Tax (Chapter 28), IRA penalties (Chapter 8), household employment taxes (Chapter 38), and FICA on tips (Chapter 26).

      Filing Tests for Dependents: 2022 Returns

      The income threshold for filing a tax return is generally lower for an individual who may be claimed as a dependent than for a nondependent. You are a dependent if you are the qualifying child or qualifying relative of another taxpayer, and the other tests for dependents at 21.2 are met. If you are the parent of a dependent child who had only investment income subject to the kiddie tax (24.3), you may elect to report the child's income on your own return for 2022 instead of filing a separate return for the child; see 24.4 for the election rules.

      If, under the tests at 21.2, you may be claimed as a dependent by someone else, use the chart below to determine if you must file a 2022 return. Generally, a married person who files a joint return may not be claimed as a dependent by a third party, but see the exception at 21.2. Include as unearned income taxable interest and dividends, capital gains, pensions, annuities, unemployment compensation, taxable Social Security benefits, and distributions of unearned income from a trust. Earned income includes wages, tips, self‐employment income, and taxable scholarships or fellowships (Chapter 33). Gross income is the total of unearned and earned income.

      Filing Instruction

      File for Refund of Withholdings

      Even if you are not required to file a return under the income tests on this page, you should file to obtain a refund of federal tax withholdings.

      For married dependents, the filing requirements in the chart assume that the dependent is filing a separate return and not a joint return (Chapter 1). Generally, a married person who files a joint return may not be claimed as a dependent by a third party who provides support.

      For purposes of the following chart, a person is treated as being age 65 (or older) if his or her 65th birthday is on or before January 1, 2023. Blindness is determined as of December 31, 2022.

      File a Return for 2022 If You Are a—

      Single dependent. Were you either age 65 or older or blind?

      □ No. You must file a return if any of the following apply.

      Your unearned income was over $1,150.

      Your earned income was over $12,950.

      Your gross income was more than the larger of—

      $1,150, or

      Your earned income (up to $12,550) plus $400.

      □ Yes. You must file a return if any of the following apply.

      Your unearned income was over $2,900 ($4,650 if 65 or older and blind).

      Your earned income was over $14,700 ($16,450 if 65 or older and blind).

      Your gross income was more than the larger of—

      $2,900 ($4,650 if 65 or older and blind), or

      Your earned income (up to $12,550) plus $2,150 ($3,900 if 65 or older and blind).

      Married dependent. Were you either age 65 or older or blind?

      □ No. You must file a return if any of the following apply.

      Your unearned income was over $1,150.

      Your earned income was over $12,950.

      Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.

      Your gross income was more than the larger of—

      $1,150, or

      Your earned income (up to $12,550) plus $400.

      □ Yes. You must file a return if any of the following apply.

      Your unearned income was over $2,550 ($3,950 if 65 or older and blind).

      Your earned income was over $14,350 ($15,750 if 65 or older and blind).

      Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.

      Your gross income was more than the larger of—

      $2,550 ($3,950 if 65 or older and blind), or

      Your earned income (up to $12,550) plus $1,800 ($3,200 if 65 or older and blind).

      Where to File Your 2022 Form 1040 or 1040‐SR

      If you filed a paper Form 1040 or 1040‐SR for 2020 and are filing a paper return for 2022, check the table below to see if the IRS filing address for your residence has changed. If the IRS makes late changes to the table below, the changes will be in the e‐Supplement at jklasser.com.

      When you file, include your complete return address and if you are enclosing numerous attachments with your return, make sure that you include enough postage.

      You can use a private delivery service designated by the IRS to meet the timely mailing is timely filing/paying rule (46.2). Only the specific services from FedEx, DHL Express, and UPS that the IRS has designated qualify; the instructions to the return has a list of these services.

      Where Do You File Form 1040 or 1040‐SR?

      Filing Deadlines (on or before)

      January 17, 2023 — Pay the balance of your 2022 estimated tax. If you do not meet this date, you may avoid an estimated tax penalty for the last quarter by filing your 2022 return and paying the balance due by January 31, 2023.

      Farmers and fishermen: File your single 2022 estimated tax payment by January 17, 2023. If you do not, you may still avoid an estimated tax penalty by filing a final tax return and paying the full tax by March 1, 2023.

      January 31, 2023 — Make sure you have received a Form W‐2 from each employer for whom you worked in 2022 and Form 1099‐NEC from each business for whom you worked and received at least $600 in payment.

      April 18, 2023 — You have until Tuesday, April 18, 2023, to file your 2022 return and pay the balance of your 2022 tax liability. April 15 falls on a Saturday, and since Emancipation Day falls on Sunday, April 16, it is celebrated in the District of Columbia on Monday, April 17, and this moves the due date to Tuesday, April 18.

      If you cannot meet the April 18, 2023, deadline for your 2022 return, you may obtain an automatic six‐month filing extension to October 16, 2023, by filing Form 4868 (electronically or on paper). However, even if you get an extension, interest will still be charged for taxes not paid by the original April 18 deadline and late payment penalties will be imposed unless at least 90% of your tax liability is paid by the original deadline or you otherwise show reasonable cause. If you cannot pay the full amount of tax you owe when you file your return, you can file Form 9465 to request an installment payment arrangement.

      If on the April 18 deadline you are a U.S. citizen or resident alien living and working outside the U.S. or Puerto Rico, or in military service outside the U.S. or Puerto Rico, you have an automatic two‐month extension (you don't have to request an extension), until June 15, 2023, for filing your 2022 return and paying any balance due. However, despite the extension to June 15, interest is still charged on payments made after the original due date.

      Pay the first installment of your 2023 estimated tax on or before April 18, 2023.

      June 15, 2023 — Pay the second installment of your 2023 estimated tax. You may amend an earlier estimate at this time.

      You have until this date to file your 2022 return and pay any balance due if on April 18 you were a U.S. citizen or resident living and working outside the U.S. or Puerto Rico, or in military service outside the U.S. or Puerto Rico; however, interest will be charged on payments made after April 18. If you qualify for this out‐ of‐ the‐country extension but cannot file by June 15, you may obtain an additional four‐month filing extension until October 16, 2023, by filing Form 4868; this additional extension to October 16, 2023, is for filing but not for payment, so interest will be charged for taxes not paid by June 15 and late payment penalties could be imposed.

      If you are a nonresident alien who did not have tax withheld from your wages, file Form 1040‐NR by this date and pay the balance due.

      September 15, 2023 — Pay the third installment of your 2023 estimated tax. You may amend an earlier estimate at this time.

      October 16, 2023 — File your 2022 return if you received an automatic six‐month filing extension using Form 4868. Also file your 2022 return and pay the balance due if on April 18 you were a U.S. citizen or resident living and working outside the U.S. or Puerto Rico, or in military service outside the U.S. or Puerto Rico, and by June 15 you obtained an additional four‐month filing extension by filing Form 4868.

      January 16, 2024 — Pay the balance of your 2023 estimated tax.

      April 15, 2024 (April 17 for residents of Maine or Massachusetts) — File your 2023 return and pay the balance of your tax. Pay the first installment of your 2024 estimated tax by this date.

      15th day of the 4th month after the fiscal year ends — File your fiscal year return and pay the balance of the tax due. If you cannot meet the filing deadline, apply for an automatic four‐month filing extension on Form 4868.

      What Forms Do You Need to File?

      All taxpayers who are required to file a return for 2022 (pages 2— 4) must file Form 1040 or 1040‐SR, and in many cases, one or more schedules and supplemental forms. Anyone can file Form 1040. If you are age 65 or older on January 1, 2023, you can use Form 1040‐SR, which mirrors Form 1040 and can be used to report any type of income, deduction, credit, payment, or tax liability, the same as on Form 1040.

      You likely need to complete Schedules 1, 2, and/or 3 to report various types of income or loss, above‐the‐line deductions, certain nonrefundable credits, certain refundable credits, tax payments, and tax liabilities for which there is no unique line on the return. In many cases, you need to complete one or more of the lettered schedules (such as Schedules A, B, C, D, E, or SE) or numbered forms (such as Forms 2106, 4797, 8812, 8863, or 8962) and then transfer that result to the applicable Schedule 1—3; see the description of Schedules 1—3 below. Totals from Schedules 1—3 are then entered on Form 1040 or 1040‐SR.

      Schedules 1‐3

      The following table shows many, but not all, of the items that must be reported on Schedules 1— 3. See the instructions for the schedules for further details.

      CHAPTER 1

      Filing Status

      Your filing status determines the tax rates that will apply (1.2) to your taxable income when you file your return. Filing status also determines the standard deduction you may claim (13.1) if you do not itemize deductions and your ability to claim certain other deductions, credits, and exclusions.

      This chapter explains the five different filing statuses: single, married filing jointly, married filing separately, head of household, and qualifying widow/widower. If you are married, filing a joint return is generally advantageous, but there are exceptions discussed in (1.3). If you are unmarried and are supporting a child who lives with you, you may qualify as a head of household (1.12), which will enable you to use more favorable tax rates than those allowed for single taxpayers. If you were widowed in either 2021 or 2020 and in 2022 a dependent child lived with you, you may be able to file as a qualifying widow/widower for 2022, which allows you to use joint return rates (1.11).

      Special filing situations, such as for children, nonresident aliens, and deceased individuals, are also discussed in this chapter.

      1.1 Which Filing Status Should You Use?

      Your filing status generally depends on whether you are married at the end of the year, and, if unmarried, whether you maintain a household for a qualifying dependent. The five filing statuses are: single, married filing jointly, married filing separately, head of household, and qualifying widow or widower. The filing status you use determines the tax rates that apply to your taxable income (1.2), as well as the standard deduction you may claim (13.1) if you do not itemize deductions. Certain other deductions, credits, or exclusions are also affected by filing status. For example, if you are married, certain tax benefits are only allowed if you file jointly, but in certain cases, more deductions overall may be allowed if you file separately (1.3).

      Planning Reminder

      Getting Married Can Raise Your Taxes

      The so‐called marriage penalty is faced by couples whose joint return tax liability exceeds the combined tax they would pay if they had remained single. This is generally the case where each spouse earns a substantial share of the total income. Legislation has substantially reduced the marriage penalty by allowing married couples filing jointly a standard deduction (13.1) that is double the amount allowed to a single person, and by making the first five tax brackets (up to 32%) (1.2) twice as wide as the brackets for a single person.

      On the other hand, if one spouse has little or no income, there generally is a marriage bonus or singles penalty, as the couple's tax on a joint return is less than the sum of the tax liabilities that would be owed if they were single.

      If you are married at the end of the year, you may file jointly (1.4) or separately (1.3). If you lived apart from your spouse for the last half of 2022 and your child lived with you, you may qualify as an unmarried head of household (1.12) for 2022, which allows you to apply more favorable tax rates than you could as a married person filing separately.

      If you are unmarried at the end of the year, your filing status is single unless you meet the tests for a head of household or qualifying widow/widower. Generally, you are a head of household (1.12) if you pay more than 50% of the household costs for a dependent child or relative who lives with you, or for a dependent parent, whether or not he or she lives with you. For 2022, you generally are a qualifying widow/widower (1.11) if you were widowed in 2021 or 2020 and in 2022 you paid more than 50% of the household costs for you and your dependent child. The tax rates for heads of household and for qualifying widows/widowers are more favorable than those for single taxpayers (1.2).

      Marital status determined at the end of the year. If you are divorced or legally separated during the year under a final decree of divorce or separate maintenance, you are treated as unmarried for that whole year, assuming you have not remarried before the end of the year. For the year of the divorce or legal separation, file as a single person unless you care for a child or parent and qualify as a head of household (1.12).

      If at the end of the year you are living apart from your spouse, or you are separated under a provisional decree that has not yet been finalized, you are not considered divorced. If you care for a child and meet the other head of household tests (1.12), you may file as an unmarried head of household. Otherwise, you must file a joint return or as a married person filing separately.

      If at the end of the year you live together in a common law marriage that is recognized by the law of the state in which you live or the state where the marriage began, you are treated as married.

      If your spouse dies during the year, you are treated as married for that entire year and may file a joint return for you and your deceased spouse, assuming you have not remarried before year's end (1.10).

      Same‐sex marriage. Lawfully married same‐sex couples are treated as married for all federal tax purposes. The IRS recognizes your marriage to a same‐sex spouse if the marriage was legally entered into in one of the 50 states, the District of Columbia, Puerto Rico, U.S. territory or possession, or foreign country. However, registered domestic partnerships, civil unions, and similar relationships that are recognized by state law (or foreign law) but that are not treated as marriages under state law are not treated as marriages for federal tax purposes.

      As a married couple, you and your spouse must file your federal return using a filing status of married filing jointly (1.4) or married filing separately (1.3). However, if you lived apart for the last six months of 2022 and one of you maintained a home for a child or other qualifying relative, that spouse may be able to file as a head of household (1.12).

      1.2 Tax Rates Based on Filing Status

      The most favorable tax brackets apply to married persons filing jointly and qualifying widows/ widowers (1.11), who also use the joint return rates. The least favorable brackets are those for married persons filing separately, but filing separately is still advisable for married couples in certain situations (1.3). See Table 1‐1 for a comparison of the 2022 tax rate brackets that apply to ordinary income (such as salary, interest income, or short‐term capital gains).

      If you have children and are unmarried at the end of the year, do not assume that your filing status is single. If your child lives with you in a home you maintain, you generally may file as a head of household (1.12), which allows you to use more favorable tax rates than a single person. If you were widowed in either of the two prior years and maintain a household for your dependent child, you generally may file as a qualified widow/widower, which allows you to use favorable joint return rates (1.11).

      If you are married at the end of the year but for the second half of the year you lived with your child apart from your spouse, and you and your spouse agree not to file jointly, you may use head of household tax rates, which are more favorable than those for married persons filing separately.

      What is your top tax bracket and effective tax rate? Depending on your taxable income (22.1), ordinary income such as salary, interest income, short‐term capital gains, or retirement plan distributions (IRA, 401(k), etc.) can be subject to one or more of the following tax rates: 10%, 12%, 22%, 24%, 32%, 35% or 37%. Rates on qualified dividends (4.2) and net capital gain (5.3) can be either 0%, 15%, 20%, 25%, or 28%, depending on the amount of your other income and type of asset sold; see below.

      The 2022 rate brackets that apply to income other than net capital gain or qualified dividends are shown below in Table 1-1. If your top bracket is 22%, for example, this means that each additional dollar of ordinary income will be taxed at 22% for regular income tax purposes; 22% is your marginal tax rate. However, because the rate brackets are graduated, your effective tax rate may be significantly lower than your top (marginal) rate. For example, if in 2022 you are single with taxable income of $45,205, all of which is ordinary income, your marginal rate is 22%, but the first $10,275 is taxed at 10% (tax of $1,027.50), the next $31,500 ($45,205 ‐ $10,275) is taxed at 12% (tax of $3,780), and only the last $3,430 ($45,205 ‐ $40,525) is taxed at 22% (tax of $754.60). The total tax on the taxable income of $45,205 is $5,562, which represents an effective rate of 12.30% ($5,562/$45,205 taxable income), reflecting the fact that most of your taxable income is taxed in the 10% and (especially) the 12% brackets, and only a small amount at your top (marginal) rate of 22%.

      If you have substantial employee compensation and/or self‐employment net earnings in excess of the applicable threshold for your filing status (28.2), you are subject to an additional 0.9% Medicare tax on the excess earnings.

      The tax rate on qualified dividends (4.2) and net capital gain (5.3) is generally lower than your top bracket rate on ordinary income. Depending on your top rate bracket for ordinary income (Table 1-1), the rate applied to your net capital gain (5.3) and to most qualified dividends is either 0%, 15%, or 20% (5.3). This does not include 28% rate gains or unrecaptured Section 1250 gains (5.3), which are not eligible for the 0%, 15% and 20% rates. For unrecaptured Section 1250 gains, the rate cannot exceed 25%; for 28% rate gains the maximum rate is 28%.

      If your taxable income (22.1) does not exceed the endpoint for the 10% bracket shown in Table 1-1 and you do not have 28% or unrecaptured Section 1250 gains, you do not owe any tax on any of your net capital gain (5.3) or on your qualified dividends (4.2); the rate is zero (0%). For the most part, this is also true if your taxable income is within the 12% bracket (Table 1-1), except that a small amount of income that would otherwise be taxed near the top of the 12% bracket does not qualify for the 0% rate. Specifically, the 0% rate on net capital gain and qualified dividends applies for 2022 if taxable income is no more than $83,350 if you are married filing jointly or a qualifying widow or widower, $41,675 if you are single or married filing separately, or $55,800 if you are a head of household (5.3). Note that the $83,350, $41,675, and $55,800 endpoints for the 0% rate are $100 less for heads of household and singles, and $200 less for joint returns and qualifying widows or widowers, than the endpoints for the 12% ordinary income bracket as shown in Table 1-1. For taxpayers whose taxable income exceeds the above ceiling for the 0% rate ($83,350, $41,675, or $55,800), some net capital gains (except for 28%/unrecaptured Section 1250 gains) and qualified dividends may still escape tax under the 0% rate, with the remainder subject to the 15% or 20% rate (5.3).

      If you are subject to the additional Medicare tax on net investment income because your modified adjusted gross income exceeds the threshold for your filing status, you will have to pay an additional 3.8% tax on some or all of the net investment income (28.3).

      Use the proper table or worksheet to compute regular income tax liability. To actually compute your 2022 regular income tax, look up your tax in the Tax Table (22.2) or use the Tax Computation Worksheet (22.3) only if you do not have net capital gains or qualified dividends. If you have 2022 net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet (5.3). Depending on your income, you may also be liable for the additional 0.9% Medicare tax or the 3.8% net investment income tax (22.8).

      AMT. If you are subject to alternative minimum tax (AMT) on Form 6251, you generally apply either a 26% or 28% rate to your AMT taxable income (reduced by the applicable AMT exemption), but the favorable regular tax rates for net capital gains and qualified dividends also apply for AMT purposes (23.1).

      Table 1-1 Taxable Income Brackets for 2022 Assuming You Have Only Ordinary Income*

      *If you have qualified dividends and/or net capital gain, you must use the Qualified Dividends and Capital Gain Tax Worksheet, or the Schedule D Tax Worksheet to figure your tax liability; see 5.3.

      1.3 Filing Separately Instead of Jointly

      Filing a joint return saves taxes for a married couple where one spouse earns all, or substantially all, of the taxable income. If both you and your spouse earn taxable income, you should figure your tax on joint and separate returns to determine which method provides the lower tax.

      Planning Reminder

      Changing From Separate to Joint Return

      If you and your spouse file separate returns (including a return as a head of household if eligible; see 1.12), you can file an amended return (Form 1040‐X) to change to a joint return. You generally have three years from the original due date (without extensions) of the separate returns to file the amended return.

      However, if you file separate returns and either of you has received a notice of deficiency from the IRS, you cannot file a Tax Court petition in order to switch from separate returns to a joint return. The IRS and Tax Court have held that this rule applies not just to spouses who filed as married filing separately, but also where one of the spouses mistakenly files as head of household. The Eighth Circuit Court of Appeals, as well as the Fifth and Eleventh Circuits take a more favorable view. For example, the Eighth Circuit in 2015 reversed the Tax Court and held that the prohibition against changing to a joint return after a notice of deficiency and Tax Court petition applies to married persons filing separately, but not to a spouse who has filed as head of household.

      Although your tax rate (1.2) will generally be higher on a separate return, filing separately may provide an overall tax savings (for both of you together) where filing separately allows you to claim more deductions. On separate returns, larger amounts of medical expenses or casualty losses may be deductible because lower adjusted gross income floors apply. Unless one spouse earns substantially more than the other, separate and joint tax rates are likely to be the same, regardless of the type of returns filed. The Mike & Fran Palmer Example below illustrates how filing separately can save a married couple taxes in some cases.

      EXAMPLE

      Mike and Fran Palmer are both under age 65. For 2022, Mike's adjusted gross income (AGI) is $84,775, and Fran's AGI is $60,000. All of their income is ordinary income (no qualified dividends or net capital gain; 1.2). Fran has unreimbursed medical expenses of $16,605 (17.2) before taking into account the 7.5% of AGI floor (17.1); Mike's unreimbursed medical expenses are $1,000. Personal property that Mike owned in his own name was damaged in a storm that was designated as a federal disaster (18.1), and he has a disaster loss of $20,078 prior to taking into account the $100 floor and the 10% of AGI floor (18.13). Mike has deductible mortgage interest expenses of $5,000 and Fran has $1,900. Mike's deductible state and local taxes are $2,399; Fran's are $1,000. Mike and Fran both made deductible charitable contributions of $3,000.

      As the example worksheet below shows, filing separate returns for 2022 saves Mike and Fran an overall $2,502, because together they can deduct more on separate returns than on a joint return. They can each itemize deductions on a separate return because their deductions (see Line 7 below) exceed the $12,950 basic standard deduction allowed to a married person filing separately (13.2). If they filed jointly, their deductible medical expenses and casualty loss would be substantially lower than the total they can claim on separate returns.

      Suspicious of your spouse's tax reporting? If you suspect that your spouse is evading taxes and may be liable on a joint return, you may want to file a separate return. By filing separately, you avoid liability for unpaid taxes due on a joint return,

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