Top 10 personal tax stories of 2022

Our top 10 tax stories of 2022

December 6, 2022 9:17 AM

FP sheds light on the details of the biggest tax stories of the year.

Offsetting investment profits with losses is more complicated than may appear, especially in a down market, when many investors may not have gains. So is inheriting a retirement plan, thanks to a major recent change in the law.

Add in the pitfalls of intra-family loans, epic fraud with the employee retention tax credit and how the Internal Revenue Service will know that you Venmo'd your housekeeper extra to organize your gift closet, and 2022 brought forth a welter of tax challenges and lesser-known opportunities.

Here's a look at Financial Planning's 10 most-read tax stories of the year. Read them again — you'll likely learn something you overlooked or forgot.

Venmo your way to the IRS

The new year is right around the corner, but come the tax filing deadline next April, many advisors with affluent clients will have a new headache: a 2022 law that requires cash apps and online marketplaces, such as Venmo, to send tax documents to millions of Americans if they receive $600 or more in a calendar year. The previous threshold was $20,000 earned through at least 200 transactions.

Read more: What the wealthy can fear from a new IRS rule on $600 payments

ETFs on a roll

Wall Street is having a lousy year, but exchange-traded funds continue to attract robust dollars. Over the first 11 months of 2022, U.S. ETFs garnered $557 billion in net new dollars, pushing the industry's total assets under management to more than $6 trillion, according to Morningstar. Barring extreme outflows this month, the funds will close out the year with the second-highest annual inflows ever, behind 2020's nearly $902 billion.

ETFs lock in broad exposure to the market or specific industries, disclose their holdings daily and trade like regular stocks, all while typically mirroring a broad market index. But a new breed of "active" ETF whose managers keep their trading strategies secret and don't lift the veil daily on fund holdings is shaking up the industry.

Read more: The future of ETFs: What you need to know

The tax-loss harvesting puzzle

Selling losing stocks to generate losses that can offset winners, known as tax-loss harvesting, is marketed as a daily ritual by robo-advisors from Schwab to Wealthfront and as a year-end must-do by advisors. The strategy is increasingly popular amid the rise of low-cost ETFs and direct indexing, which allows investors to create personalized benchmarks. But there's a distinct threshold at which the strategy actually pays off, along with specific time frames that work better than others.

Read more: Selling losing stocks for a tax boost? A new paper says beware these tripwires

When money is a family affair

This year's uptick in interest rates directly impacts the economics of many estate planning techniques involving trusts and loans. The reason: The Internal Revenue Service sets its own rates for cash and other assets that trusts and family members lend to other family members or donate. While intra-family transactions are already delicate affairs, they're likely to get more complicated.

Read more: Nasty family drama with Bank of America board member exposes tax risk of gifts

Fraudville, and how to avoid it

The employee retention credit, a multibillion-dollar federal program that's part of roughly $1.7 trillion in pandemic relief for small businesses since 2020, has been used by many business owners. Like any government largesse, the ERC is prone to fraud — in this case, potentially $2 trillion worth. Here's what advisors with business clients need to know.

Read more: A $2 trillion fraud with employee retention credits puts financial advisors on edge

McMansions and mega deductions

IRS rules limit the mortgage interest deduction to $750,000 (half that for married couples filing separate returns) of all debt on a primary residence and vacation home. Here's how you can get around that cap.

Read more: How wealthy clients can turn a mortgage into a big tax deduction

Inherit and bear it

The rules on what non-spousal beneficiaries must do with inherited retirement plans changed dramatically starting in 2020. Here's what advisors need to be aware of, along with lingering questions and pitfalls.

Read more: Inheriting a retirement plan has gotten complicated. How advisors can keep up

Open the tap

A 2019 law put an end to the "stretch" IRA, in which non-spousal beneficiaries could extend their withdrawals from inherited accounts over their lifetimes. Now they have to drain the accounts within 10 years, a timeframe that leaves less time for money to accumulate. But for some heirs, the 10-year window may actually be five years.

Read more: Why some heirs may face a tighter deadline to drain inherited IRAs