Tax Laws & Changes FAQ

1. What is the Inflation Reduction Act of 2022?

The Inflation Reduction Act of 2022 is a major piece of legislation that includes a number of tax law changes, including:

Electric vehicle tax credit: The electric vehicle tax credit has been extended and expanded. Previously, the credit was capped at 200,000 vehicles per manufacturer, but this cap has been removed. Taxpayers can now claim a credit of up to $7,500 for the purchase of a new electric vehicle, and the credit is also available for used electric vehicles.

Clean energy tax credits: The Inflation Reduction Act includes a number of tax credits for clean energy projects, such as solar and wind power. These credits are designed to encourage investment in renewable energy and help reduce greenhouse gas emissions.

Business tax credits: The Inflation Reduction Act includes a number of tax credits for businesses, such as a research and development tax credit and a tax credit for hiring apprentices. These credits are designed to help businesses grow and create jobs.

2. What are the tax implications of the American Rescue Plan Act of 2021?

The American Rescue Plan Act of 2021 made a number of changes to the tax code, including:

Child tax credit: The child tax credit was increased to $3,600 per child under the age of 6 and $3,000 per child between the ages of 6 and 17. The credit was also made fully refundable, meaning that taxpayers with no income tax liability could still receive the credit.

Earned income tax credit (EITC): The EITC was increased for workers without children. Taxpayers can now claim a credit of up to $1,502, up from $529.

Student loan forgiveness: The American Rescue Plan Act made student loan forgiveness tax-free through 2025. This means that taxpayers who have student loan debt forgiven will not have to pay taxes on the forgiven amount.

3. What are the tax implications of the Bipartisan Safer Communities Act?

The Bipartisan Safer Communities Act of 2022 made a number of changes to the tax code, including:

Mental health tax credit: The Bipartisan Safer Communities Act created a new tax credit for mental health expenses. Taxpayers can now claim a credit of up to $1,000 per year for qualified mental health expenses, such as therapy and medication.

School safety tax credit: The Bipartisan Safer Communities Act also created a new tax credit for school safety expenses. Taxpayers can now claim a credit of up to $500 per year for qualified school safety expenses, such as security cameras and mental health training for teachers.

4. How will the Inflation Reduction Act of 2022 impact taxpayers?

The Inflation Reduction Act of 2022 will benefit many taxpayers, especially those who are purchasing electric vehicles or investing in clean energy projects. The Act also includes a number of tax credits for businesses, which could help to create jobs and grow the economy.

Key tax concepts and terminology:

5. What is the difference between a tax deduction and a tax credit?

A tax deduction reduces the amount of income that is subject to taxation. A tax credit reduces the amount of tax that is owed. For example, if you have a $10,000 tax deduction, your taxable income would be reduced by $10,000. If you have a $10,000 tax credit, your tax bill would be reduced by $10,000.

6. What is the difference between a tax year and a tax filing deadline?

A tax year is the period of time for which you calculate your tax liability. The tax year is typically from January 1 to December 31. The tax filing deadline is the date by which you must file your tax return and pay any taxes that are owed. The tax filing deadline for most taxpayers is April 15.

7. What is the difference between a taxable income and an adjusted gross income (AGI)?

Taxable income is the amount of income that is subject to taxation after all deductions have been taken. Adjusted gross income (AGI) is the amount of income that is subject to taxation before certain deductions are taken, such as the standard deduction and the child tax credit.

8. What is a tax bracket?

A tax bracket is a range of income that is taxed at a specific rate. For example, the first $9,950 of taxable income for a single taxpayer in 2023 is taxed at a rate of 10%. The next $30,500 of taxable income is taxed at a rate of 12%. And so on.

9. What is an itemized deduction?

An itemized deduction is a deduction that taxpayers can claim on their tax returns for certain expenses, such as medical expenses, charitable donations, and state and local taxes. Taxpayers can only itemize their deductions if the total amount of their itemized deductions exceeds the standard deduction.

10. Can I claim a tax deduction for medical expenses, and has there been any change to the medical expense deduction threshold?

You can deduct qualified medical expenses that exceed a certain percentage of your adjusted gross income (AGI). Recent changes have temporarily lowered the threshold.