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January 23, 2023 - Official start of filing Season for 2022 Taxes

Recent Tax Legislation -Inflation Reduction Act of 2022 and The SECURE ACT 2.0

For the first time since the COVID-19 pandemic began, we had a relatively calm tax environment. A few highlights of the changes are below. You can review important dates on our Tax Calendar.

SMALL BUSINESSES

Research and Development Credit: The Inflation Reduction Act, starting in 2023, doubles the R&D credit from $250,000 to $500,000 for small businesses.

Clean Energy:

Energy-efficient commercial buildings - Starting in 2023, the IRA offers building owners and lessees that bring commercial buildings up to a specific energy-efficient standard a tax deduction of $5 per square foot. The deduction applies to constructing commercial buildings and the costs of retrofitting older buildings.

Electric Vehicles - see below in All Taxpayers section

Other tax matters to note

  • Business meals –– There is a 100% deduction (rather than the prior 50%) for expenses paid for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020 and expires at the end of 2022.

  • Purchases of property and equipment –– With tax-favorable options available to businesses, many purchases can be completely written off in the year they are placed in service. Plus, there are tax-favorable rules that permit qualified improvement property to qualify for 15-year depreciation and, therefore, also be eligible for 100% first-year bonus depreciation. Let us help you receive the best tax treatment.

  • Net operating losses –– If you have significant losses from 2018 to 2020, you may be able to carry those losses back up to five years, which can significantly impact a prior year where there was a tax liability.

  • Methods of accounting –– More businesses can use the cash method of accounting. This can be helpful for cashflow purposes and is generally easier to apply than the accrual method of accounting. There are qualifications that must be met, but we can help you understand if your business would benefit. 

  • Preparing for disasters –– Do you have a disaster recovery plan in place for your business and, if so, have you updated it recently? We can help you review your plan, especially as it relates to financial information.

  • Sales and use tax considerations –– States are continuing to make changes to their sales and use tax laws and filing requirements following the U.S. Supreme Court ruling in the case South Dakota v. Wayfair, Inc. Please ask us how this case impacts your business.

  • Retirement plans –– Have you revisited your company’s retirement plan lately? Take a look at the many retirement savings options to make sure that you are taking advantage of tax deductions as well as providing opportunities for owners and employees to save for retirement.

INDIVIDUAL CLIENTS

The child tax credit is returning to the 2019 level, down to $2,000 from the $3,600 you may have received in 2021.

Charitable contribution deductions: Individuals who do not itemize their deductions can no longer take a deduction for charitable contributions.

More people may be eligible for the Premium Tax Credit: For tax year 2022, taxpayers may qualify for temporarily expanded eligibility for the premium tax credit. Remember that simply meeting the income requirements does not mean you're eligible for the premium tax credit. You must also meet the other eligibility criteria.

Eligibility rules changed to claim a tax credit for clean vehicles: Review the changes under the Inflation Reduction Act of 2022 to qualify for a Clean Vehicle Credit.

Required minimum distributions (RMDs): RMDs are the minimum amount you must annually withdraw from your retirement accounts (e.g., 401(k) or IRA) if you meet certain criteria. For 2021, you must take a distribution if you are age 72 by the end of the year (or age 70½ if you reach that age before Jan. 1, 2020). This increases to age 73 in 2023 and 75 in 2033.

Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans. Planning ahead to determine the tax consequences of RMDs is important, especially for those who are in their first year of RMDs. 

Additional tax and retirement planning considerations

We recommend you review your retirement situation at least annually. That includes making the most of tax-advantaged retirement saving options, such as traditional IRAs, Roth IRAs and company retirement plans. It’s also advisable to take advantage of health savings accounts (HSAs) that can help you reduce your taxes and save for your future. We can help you determine whether you’re on target to reach your retirement goals.

Here are a few more tax and financial planning items to discuss with us:

  • Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, starting a business and significant expenditures (real estate purchases, college tuition payments, etc.).

  • Consider tax benefits related to using capital losses to offset realized gains –– and move any gains to the lowest tax brackets, if possible.

  • Make sure you’re appropriately planning for estate and gift tax purposes. There is an annual exclusion for gifts ($15,000 per donee, $30,000 for married couples) to help save on potential future estate taxes.

  • Consider Sec. 529 plans to help save for education; there can be income tax benefits to do so, and we can help you with any questions.

  • Consider any updates needed to insurance policies or beneficiary designations.

  • Discuss tax consequences of converting traditional IRAs to Roth IRAs.

  • Let’s review withholding and estimated tax payments and assess any liquidity needs.

ALL TAXPAYERS

Healthcare: For those using the federal Health Insurance Marketplace to insure their employees and themselves, the Inflation Reduction Act extends the Affordable Care Act (ACA) premium subsidies through 2025 and expands eligibility for the program. Furthermore, the act allows Medicare to negotiate drug prices and caps Medicare recipients' drug expenditures to $2,000 annually.

Electric vehicles: The IRA includes a $7,500 tax credit for new electric vehicles that will go into effect for cars in service after December 31, 2022, and run through 2032. The IRA also extends a 30% (or up to $1,000) federal tax credit on charging equipment for individual or residential use through 2032. To be eligible for the IRA credit, new EVs that are vans, SUVs or trucks can not exceed $80,000, sedans and other vehicles can not cost more than $55,000 and used EVs can’t be more than $25,000. The credit will apply to EV vehicles made in the United States. The tax credit for commercial electric vehicles is up to $7,500 for those weighing under 14,000 pounds and $40,000 for those weighing 14,000 pounds or more.

 

Fraudulent activity remains a significant threat:

Our firm takes data security seriously and we think you should as well. Fraudsters continue to refine their techniques and tax identity theft remains a significant concern. Beware if you:  

  • Receive a notice or letter from the IRS regarding a tax return, tax bill or income that doesn’t apply to you

  • Get an unsolicited email or another form of communication asking for your bank account number, other financial details or personal information

  • Receive a robocall insisting you must call back and settle your tax bill

Make sure you’re taking steps to keep your personal financial information safe. Let us know if you have questions or concerns about how to go about this.  

Virtual currency/cryptocurrency: Virtual currency transactions are becoming more common. There are many different types of virtual currencies, such as Bitcoin, Ethereum and non-fungible tokens (NFTs). The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services, or holding such currencies as an investment, generally has tax impacts. We can help you understand those consequences. 

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