Tax year 2022 changes, planning for businesses to consider
A proactive approach to tax preparation can help minimize your tax bill and allow for more flexibility in planning
Although only a few areas of tax law had significant changes for 2022, many companies experienced operational and economic changes that could change their tax strategies. Here are a few considerations to keep in mind and action items to address for your business as you plan for the remainder of the 2022 tax year.
Asset purchase considerations
This year (2022) is the last tax year for which businesses can depreciate 100% of the basis of qualified property during the first year of ownership. This expanded federal bonus depreciation will drop to 80% in 2023.
Qualified property includes personal property such as computers or equipment, land improvements, and qualified improvement property (interior, non-structural parts of a building). This includes used assets that are purchased used but are new to the taxpayer.
If you expect to need any of the above during 2023, consider purchasing them and putting them into service as quickly as possible before the end of 2022. Take into account how any net operating losses and your expectation of potential changes to tax rates in 2023 may affect this.
Even if bonus depreciation isn’t a consideration, discuss any assets acquired during this year with your tax professional. Asset purchases may have a variety of effects on your tax reporting. Also discuss any asset purchases that may be in progress or contemplated for 2023; it may make sense for you to speed up acquisitions into 2022 or hold them for 2023.
Changes to claiming research and development expenses
As of the 2022 tax year, research and development expenses can no longer be expensed immediately. U.S.-based R&D expenses now must be capitalized and amortized over five years; international expenses must be capitalized over 15 years. Amortization begins with the midpoint of the taxable year in which the expenditure was paid or incurred. In addition, software development expenses, previously treated differently, must now be capitalized and amortized in the same fashion. This is a major departure from previous Internal Revenue Code Section 174 Research & Experimentation Expenditure rules, which allowed immediate deduction of such expenditures.
In addition, as of January 10, 2022, taxpayers using amended tax returns to file a refund claim based on the R&D tax credit have new, more onerous documentation requirements. If you are considering claiming R&D tax credits for prior tax years through amended returns, or if you planned to claim your 2022 tax credit on an amended return, consult with your tax advisor. It may make more sense to file on an original return.
If your business has been impacted by Hurricane Ian or other natural disasters, consider whether it makes sense to accelerate disaster losses under IRC Section 165(i). This may give you faster access to much-needed cash. If you accelerate losses, you may be able to request a “quick refund” by filing Form 4466.
Transfer Pricing Studies
If you haven’t recently updated your Transfer Pricing Study, consider whether it’s time to do so. For companies that make transactions between entities they control, the study must be updated regularly to demonstrate these transactions are priced “at arm’s length.” While companies generally only need to provide the study to the IRS during an audit, they should still have and use a current study.
State and local tax impacts
States continue to expand their rules regarding collection of state sales taxes when doing business across state borders. Multi-state businesses may need to increase emphasis on planning for state taxes.
In addition, more states are seeking to apply economic nexus for income tax purposes. Businesses with employees who worked from home in other states, even for part of the year, may have nexus in that state. This means you may have taxable income that must be apportioned to that state and need to file state tax returns, possibly where you haven’t done so in the past. You may also not have paid required estimated state taxes in those states.
Even if this isn’t a new tax filing state for your business, work-from-home employees may increase the apportioned income in those existing states, increasing your income tax attributed to those states.
Speak with your tax advisor about whether conducting a nexus study may make sense for your business.
IRS backlogs mean many situations have been unresolved for years to months; discuss with your tax team any plans you can make to minimize the ramifications of these delays. And follow up on refunds expected to cover required estimated payments, as these may not have been processed yet.
- Consult with your tax advisor to maximize owners’ and partners’ qualified business income (QBI) deductions. For example, it may make sense to pay bonus wages to employees during the current calendar year, or to otherwise change timing and distribution of income.
- Consider retirement plan enhancements. Employers have until the company’s income tax return deadline to adopt or modify a plan that can be treated as if adopted on December 31 of the tax year.
- If the company has had any ownership or tax-status changes, note this and gather documentation for your tax professional.
- Confirm tax information from contractors or companies that require 1099s or other tax reporting; 1099s and W-2s must be sent out by January 31.
- Your internal accounting and/or bookkeeping team should begin to gather documentation, including depreciation schedules for equipment and assets, employment tax documentation (such as W-9s and I-9s), and payroll reports.
Contact your Kaufman Rossin tax advisor to learn more about what you can do now to avoid tax surprises, optimize your 2022 tax bill and start preparing for 2023.