Top Tax Issues for 2022? Two Specialists Dissect the Trends – Kiplinger’s Personal Finance

Tax Day is approaching quicker than you might think, and if you haven’t started to get organized, now is the time – especially with potential legislative changes looming on the horizon.

I sat down with my colleague Jeremiah Barlow, Head of Family Wealth Services at Mercer Advisors, to discuss major tax trends for the 2021 tax season, and what unexpected hurdles to watch out for with the proposed Build Back Better Act in 2022.

Q: At a high level, what are the main tax issues you expect to be a major focus in 2022?

Jeremiah: From my perspective, there’s a lot of angst about whether the tax changes that were proposed in 2021 – in the Build Back Better Act – will ultimately carry forward into this year. If so, when do they go into effect, and will they be retroactive?

For example, recent interest has been about the timing of Roth conversions of traditional IRAs.  Roth IRAs are popular retirement savings tools, as the growth of the assets and future withdrawals from the account are tax-fee as long as certain criteria are met. There are income limitations on contributions to a Roth IRA, but a strategy known as a “backdoor” Roth conversion can be used if you are over the income limitations.  The Build Back Better Act, if it passes, would put an end to this backdoor option. Although you would normally wait until later in the year to do a conversion, there’s a lot of discussion, from a strategy perspective, about making backdoor Roth contributions early in the year in case the rules change. Individuals are looking to capitalize on their eligibility to do Roth conversions and reap the tax-free growth benefits of the Roth IRA while they still can.

Kara: There was also some discussion of ending 1031 property tax exchanges with the Build Back Better Act, though they aren’t in the version of the bill currently on the table. A 1031 exchange is the swap of one investment property for another that allows capital gains taxes to be deferred. For people who are interested in swapping out for another property and taking advantage of 1031, now is probably the time to do so. Legislators kicked around a number of tax code changes last year, and any number of them could come back into play.

Q: Thinking about families who are preparing to file their 2021 taxes, what do you think will be the major changes from the 2020 filing period?

Jeremiah: If they took advantage of the child tax credit, their refund is likely to be lower than they are used to. Essentially, they would have gotten an acceleration of that refund starting in …….


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