Ask the Experts: Tax Planning for the Last Half of 2022
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Q: What should I be thinking about now to protect my business from a big tax bill at the end of the year?
A: Tax planning discussions often revolve around the following two questions:
1. Are you prepared for changes that are taking effect in the near future?
2. Are you fully utilizing existing tax-saving opportunities that are available to you?
Here are a few examples of changes you may need to prepare for and tax-saving opportunities that you may have overlooked.
A: Tax planning discussions often revolve around the following two questions:
1. Are you prepared for changes that are taking effect in the near future?
2. Are you fully utilizing existing tax-saving opportunities that are available to you?
Here are a few examples of changes you may need to prepare for and tax-saving opportunities that you may have overlooked.
Changes on the way
Many tax provisions have scheduled expiration dates or planned phaseouts that reduce their benefits over time. Three such provisions subject to changes in 2022 and 2023 that could affect your tax bill are:
Many tax provisions have scheduled expiration dates or planned phaseouts that reduce their benefits over time. Three such provisions subject to changes in 2022 and 2023 that could affect your tax bill are:
- Bonus depreciation phaseout -- A 2017 tax law significantly accelerated depreciation deductions for asset purchases, allowing 100 percent bonus depreciation for new and used assets placed in service before January 1, 2023. The bonus percentage decreases 20 percent for each year after 2022, disappearing completely after December 31, 2026. If your business is considering a significant asset purchase, your analysis should consider the tax impact of placing the new asset in service before the end of 2022.
- Expiration of increased meal deductibility -- To support restaurants affected by COVID-19, the deductibility of certain business meals was increased from 50 percent to 100 percent in calendar years 2021 and 2022. The deductibility of these meals is expected to return to 50 percent in 2023 and beyond. MRLA members planning events with business meals may want to schedule those events before the end of 2022 in order to qualify for the larger deduction. Members who rely on customers that purchase business meals should be aware that the reduced deductibility after January 1 could result in a reduction in business meal clients.
- Changes to interest expense limitations -- A 2017 law imposed limits on the interest that businesses could deduct. To lessen the impact of the provision in its early years, the calculation of adjusted taxable income (ATI) included a variety of add-backs including depreciation, amortization, and depletion deductions. Those benefits are no longer available in 2022 and beyond. If your business has relied on them to claim higher interest deductions, you should consult with your tax advisor to determine if your current-year estimates are sufficient.
Old standbys
Some provisions have been around for a while, but it never hurts to review your returns and make sure you’re utilizing tax benefits like:
These are just a few items to consider as you begin to plan for the end of 2022, but they are no substitute for a discussion with your tax advisor about the specific facts and circumstances of your business.
Some provisions have been around for a while, but it never hurts to review your returns and make sure you’re utilizing tax benefits like:
- The FICA tip credit — Restaurants can claim a credit against their federal income tax based on the share of FICA and Medicare taxes they pay on tip income that employees report. The credit provides a dollar-for-dollar reduction of the employer’s federal income tax.
- The Work Opportunity Tax Credit (WOTC) -- This credit rewards employers who hire individuals from certain groups that have consistently faced barriers to employment. The program provides a credit against income taxes for a percentage of qualifying wages paid to members of a targeted group. At a time when many employers are struggling to fill jobs, the WOTC hiring process can help you tap into an underutilized pool of workers. Most employers rely on their payroll providers to manage the documentation necessary to certify qualified employees and calculate the credit. The payroll providers then share this information with the tax return preparers to include on their income tax return.
These are just a few items to consider as you begin to plan for the end of 2022, but they are no substitute for a discussion with your tax advisor about the specific facts and circumstances of your business.