2022 Year-End Tax Planning for Businesses

The tax picture for 2022 looks a little different than in 2021. On top of several of the COVID-related tax provisions having expired, The Inflation Reduction Act of 2022 has also made a variety of changes that impact 2022 taxes. 

2022 Inflation Reduction Act

A major piece of legislation passed in 2022 was the Inflation Reduction Act which extends and creates many green energy and energy-efficient tax benefits. The 2022 Inflation Reduction Act also imposes several new requirements to obtain the largest possible deduction or credit, such as additional requirements to pay prevailing wages and offer apprenticeship programs, requirements to use domestic content, and requirements to operate in low-income or otherwise distressed communities. Many of the new requirements are not effective until 2023 or later. Therefore, taxpayers may have an opportunity to take advantage of some of these tax breaks before the new requirements come into play.

Extended Green Provisions in the Inflation Reduction Act

The following provisions related to green energy that had expired at the end of 2021 or were due to be phased out have been extended under the 2022 Inflation Reduction Act:

• • The Plug-in Electric Vehicle Credit, renamed the Clean Vehicle Credit, contains several new requirements starting in 2023 or later. One new provision starting on the enactment date, August 16, 2022, requires that the vehicle be assembled in North America. However, a vehicle purchased before August 16, 2022, may be treated as placed in service on August 15, 2022.
  • The Alternative Fuel Refueling Property Credit has been extended retroactively for 2022 and through 2032. However, it appears that starting in 2023, the credit is limited to properties located in rural or low-income census tracts.
  • For commercial building owners or lessees, the Energy Efficient Commercial Building Tax Deduction remains in effect for 2022, with new requirements and higher deduction limits for tax years beginning after 2022.
  • For home builders, the Credit for Energy Efficient Homes is also extended for 2022 and beyond, again with new requirements and higher potential credit limits effective for 2023 and beyond.
  • Several existing credits for the energy industry are also extended for 2022. These include the Biodiesel, Renewable Diesel, and Alternative Fuel Credits; the Second-Generation Biofuel Producer Credit; the Production Tax Credit; the Investment Tax Credit; and the Credit for Carbon Oxide Sequestration.

Corporate Alternative Minimum Tax

The 2022 Inflation Reduction Act also enacts a Corporate Alternative Minimum Tax (AMT) on applicable corporations. For tax years beginning after 2022, a 15-percent corporate AMT is imposed on the adjusted financial statement income of corporations with a three-year average annual income in excess of $1 billion, or in excess of $100 million for a US subsidiary of a foreign corporation. The IRS is expected to release guidance on average annual adjusted financial statement income and other matters related to corporate AMT.

Other 2022 Tax Planning Considerations

Regularly Expiring Provisions

Several regularly expiring provisions have yet to be extended for 2022. There may still be an end-of-year effort to retroactively extend some or all of them. For businesses, these include the Fuel Cell Motor Vehicle Credit, the Two-wheeled Plug-in Vehicle Credit, and COVID credits for sick and family leave for the self-employed. Expired business tax breaks also include those for racehorses and the mine rescue team credit.

Research and Development Costs

Beginning in 2022, taxpayers may no longer currently deduct research and experimental expenditures. Instead, amounts paid or incurred for specified research expenditures must be amortized ratably over five years (or 15 years for foreign expenditures).

Form 1099-K

The requirements for issuing a Form 1099-K have been greatly expanded for 2022. The form is now required for third-party settlement networks if over $600 has been paid in business transactions during the year. This is expected to significantly expand the number of 1099-Ks being issued and received. Taxpayers may receive 1099-Ks for personal transactions where the issuer has not been able to distinguish personal from business transactions. Taxpayers may also receive 1099 forms from both the seller and the third-party payment processor for the same transaction. Taxpayers may need to explain on the tax return the 1099-Ks that have been received that have not been reflected on the tax return.

Standard Mileage Rates

For 2022, there has been a mid-year adjustment to the standard mileage rate to address the increased inflation during the year. Therefore, business miles will have to be separated into two periods to apply the two rates.

Dependent Care Flexible Spending Accounts

The enhanced contributions to Dependent Care Flexible Spending Accounts have expired for 2022, leaving the normal $5,000 limit available.

In addition to these year-end planning issues unique to 2022, the usual year-end planning strategies also still apply: managing gains and losses from taxable investments and considering postponing income and accelerating deductions. There is no one size fits all for tax planning, to discuss your unique business tax situation schedule your complimentary 10-minute guidance call today!