J.K. Lasser's 1001 Deductions and Tax Breaks 2022. Barbara Weltman
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on your tax return and what records you must retain to support your tax position.
You'll find dozens of examples to show you how other taxpayers have successfully taken advantage of the benefit. Over the years, taxpayers have been able to write off literally thousands of items; not every one is listed here because space does not allow it. And you'll learn what isn't allowed even though you might otherwise think so. There are references to free IRS publications on a variety of tax topics that you can download from the IRS website (www.irs.gov) or obtain free of charge by calling 800‐829‐1040.
You'll also see key dates for various actions, such as filing returns, contributing to retirement plans, and reporting foreign financial accounts to the U.S. Treasury. For example, the deadline for filing 2021 federal income tax returns is April 18, 2022.
In the appendices, you'll find a listing of items that can be adjusted each year to reflect cost‐of‐living changes so you can plan ahead, as well as a checklist of items that are tax free, and a checklist of items that are not deductible.
Throughout the book you will find alerts to possible changes to come. For a free update on tax developments, look for the Supplement to this book in February 2022, by going to www.jklasser.com, as well as to my website, www.BigIdeasForSmallBusiness.com.
CHAPTER 1 You and Your Family
11 Alimony
The nature of families is changing, and taxes have specific rules for them. Do the old clichés still ring true? Can two still live as cheaply as one? Are things really cheaper by the dozen? For tax purposes, there may be a penalty or bonus for being married versus single. And there are certain tax breaks for having a family.
This chapter explains family‐related tax benefits, such as tax credits related to your children and the consequences of marital dissolutions. Economic impact payments (EIPs) in 2021 to individuals and dependents are explained in Chapter 12. For more information on these topics, see IRS Publication 501, Dependents, Standard Deduction, and Filing Information; IRS Publication 503, Child and Dependent Care Expenses; IRS Publication 504, Divorced or Separated Individuals; IRS Publication 596, Earned Income Credit; and IRS Publication 972, Child Tax Credit.
Marital Status
Whether you are married or single has a significant impact on your taxes. In some cases, being married results in a “marriage bonus,” which means effectively averaging taxes when one spouse works and the other does not. In other cases, being married results in a “marriage penalty,” which means that two working spouses earning about the same likely will pay higher total tax than if they were single. For some tax rules, a married couple has the identical tax break as a single individual, such as the $3,000 capital loss deduction against ordinary income and the $10,000 limit on itemizing state and local taxes, which is a distinct disadvantage for those who are married. For some tax rules, a married couple has double the tax break for singles, such as the ordinary loss deduction for so‐called Section 1244 stock, so marital status makes no difference here.
Technically, there are a number of filing statuses that determine eligibility for various tax breaks:
Married filing jointly
Married filing separately
Head of household
Unmarried (single)
Qualifying widow(er) with a dependent child. This filing status is also referred to as a surviving spouse.
You need to know which term applies to you. The terms are not further defined here and often cause confusion, so check IRS Publication 501 if you are unsure. Note that under federal tax law, the terms “husband,” “wife,” and “spouse” are gender neutral. The term “husband and wife” means two individuals lawfully married to each other. However, those in a civil union or domestic partnership are not married for federal income tax purposes.
Dependents
No personal or dependency exemptions can be claimed in 2018 through 2025. So if you had 4 exemptions in 2017 and deducted $16,200 ($4,050 × 4) in that year, your deduction in 2021 is zero. The suspension of exemptions seriously reduces write‐offs for many taxpayers. Of course, because high‐income taxpayers were subject to a phaseout of exemptions, they are not greatly affected by the suspension in the deduction for exemptions.
However, the concept of dependents has not been eliminated and continues to apply for various purposes. For example, for purposes of a child tax credit that may be claimed for a qualifying child or a dependent who is not a qualifying child, the concept of dependents continues to apply. The definition of dependent varies for certain purposes and is explained in each relevant tax break in this book. For example, the amount of income for a qualifying relative taken into account in determining dependent status in 2021 is $4,300.
Qualifying Child
The following is a brief explanation of a qualifying child and a qualifying relative (someone who is not a qualifying child):
A qualifying child must meet all of the following conditions:
Relationship test: The child must be your son or daughter (natural, adopted, step, and in some cases foster) or a descendant of your sibling (e.g., niece or nephew).
Age test: The child must be younger than you and either younger than 19 years old, be a “student” younger than 24 years old as of the end of the calendar year, or any age but permanently and totally disabled.
Residency test: The child must live with you in the United States for more than half the year (special rules for noncustodial parents are explained later).
Joint return test: The child cannot file a joint return unless doing so to claim a tax refund.
Support test: The child does not provide more than half of his or her own support.
Multiple