2022 Tax Planning: What to Know Heading into 2023

Along with pumpkin pie and turkey, Q4 is the time to cook up an End of Year and 2023 Plan for your business. Let’s dive into Year-End Planning, 2022 Tax Planning, and getting ready for the 2023 year.

Time to start shifting into year-end tax planning and getting into the mindset of tackling next year’s season. A constantly changing tax environment creates an abundance of issues to track. Here are key issues to track for your 2022 tax planning and 2023 financial planning:

EV Tax Deductions and Other ‘Going Green’ Opportunities

Your 2022 tax planning (and beyond) cannot move forward without knowing your various ‘green deductions’. From electric vehicles to solar panels, “going green” can offer both environmental and financial benefits. With global conflicts and increased gas prices, now may be the time to explore reducing your carbon footprint to better the Earth and save you money. In addition, with more emphasis on environmental, social and governance (ESG) standards, you’re likely more cognizant of organizational social practices and the impacts on your community.

Overview of EV Tax Credits

While no broad stroke tax changes, still important tax changes to know about:

Clean Vehicle Tax Credits:

Max amount of credit continues to be $7,500
In order to claim the credit, your income must fall below a certain threshold

$150,000 for single filers and $300,000 for joint filers

For vehicles sold after 8/16/22, final assembly will need to be in north America.
Beginning in 2023, purchasers may transfer credit to dealer to lower your cash outlay
New 30% credit up to $4k max to buy a qualifying used vehicle but income must fall under a threshold

$75k single and $150k MFJ

Clean vehicle price thresholds:

SUVs, Cars: $55,000
Pickups: $80,000,
Used vehicles: $25,000

Solar Panel Tax Benefits and Other Ways to Make Your House Environmentally Friendly

Installing equipment such as solar panels, solar hot water heaters, certain wind turbines and fuel cells may be an effective way for you to lower your utility bill and potentially save on your taxes. The Inflation Reduction Act of 2022 expanded on the tax incentives already in place
Projects placed in service after 2021 and construction began before 2025 are eligible for 30% credit (previously 26%).

Green Energy Tax Provisions for Businesses in 2022

There are also many incentives to encourage businesses to decrease their carbon footprint and become more environmentally sustainable. When certain criteria are met, businesses may be able to claim tax credits for items such as:

Electricity produced from certain renewable sources (including geothermal, solar and wind facilities)

Energy-efficient home improvements (for eligible contractors and manufactured home manufacturers). While there are no broad-stroke tax changes, these are still important tax changes to know about. As you review your portfolio, you may reach out to us to discuss how these tax incentives work.

Employee Retention Tax Credit

The Employee Retention Credit under the CARES Act encourages businesses to keep employees on their payroll. Businesses can no longer pay wages to claim the Employee Retention Tax Credit, but they have until 2024 to do a look back on their payroll during the pandemic and retroactively claim the credit by filing an amended tax return.
In fact, businesses have up to three years from the end of the program to conduct a lookback to determine if wages paid after March 12, 2020 through the end of the program are eligible.

Employee retention tax credit eligibility overview:

Have their operations fully or partially suspended due to orders from a government authority OR suffer a significant decline in quarterly gross revenue measured against 2019?

50% decline for 2020
20% decline for 2021
For 2021, there is a maximum credit of $7,000 per eligible employee, per quarter

While there is nothing new here, it’s important to remember that the ERC can be a potentially lucrative credit for your business.

Tax Implications of Student Loan Forgiveness

In August, President Biden announced a three-part plan for student loan forgiveness. The forgiveness will not be taxable for Federal tax purposes but state taxability is variable and changing. 2022 tax clarity and guidance are still needed but the basics are:

Dept of Ed will provide debt cancellation for Federally owned student loans of up to $20k for Pell Grant recipients and up to $10k for non-Pell Grant recipients.

Borrowers are eligible for forgiveness if their income is less than $125k single and $250k MFJ).
It’s important to note that California does not conform to this latest change to student debt cancellation, except under limited circumstances, best to check with a professional to understand the latest guidelines and how you can use this for your business.

Virtual Currency and Your Taxes in 2022 (e.g. Bitcoin, Etherium)

With the growing popularity of virtual currency and the need to ensure accurate tax reporting, the IRS has made the topic one of its top compliance priorities.

IRS Notice 2014-21 provides guidance for individuals and businesses on the tax treatment of transactions using convertible virtual currencies.

The IRS treats cryptocurrency as property, meaning that when you buy, sell or exchange it, this counts as a taxable event and typically results in either a capital gain or loss. When you earn income from cryptocurrency activities, this is taxed as ordinary income. You report these taxable events on your tax return using various tax forms. Keep records of your transactions so that you can inform the IRS of all your crypto activity during the year.

As this area continues to evolve and more taxpayers are impacted, we expect more guidance and clarity on various tax matters.

Pass-Through Entity Elective Tax (PEET)

A pass-through entity tax (“PEET”) tax is meant to be a workaround for the federal $10,000 state tax limitation. It imposes an income tax directly on the PEET that is available as a non-refundable credit on the individual’s state tax return.

PEET – SALT Cap Workaround:

. . . enables pass-through entities to deduct entity-level SALT payments as a business expense and allows owners to claim a state tax credit.

In November 2020 the IRS issued Notice 2020-75, which announced the IRS’ intent to allow the PEET deduction in future regulations, validating the PEET strategy to avoid the federal $10,000 state tax limitation.

Which Entities Qualify for the PEET workaround for 2022 tax planning?

Partnership
S-Corporation

These entities cannot:

Have partners/shareholders that are partnerships
Be permitted/allowed to be in a combined return
Be a publicly traded partnership
Election is made annually by each partner/shareholder, on an originally filed entity return, including extensions

The entity will pay tax equal to 9.3% on its qualified income
Sum of qualified taxpayers’ California taxable income
Tax paid is allocated to qualified taxpayers
Tax paid reduces Federal income and taxpayer receives credit for taxes paid on the personal return

Other things to note:

PEET Credit Carryforward is only 5 years
Election does not have to be made every year
Doesn’t replace quarterly estimates
Year of Deduction
Tentative Minimum Tax – benefits may be limited
Tax credit allowed limited to spread between regular and tentative minimum tax

Let RBTK Help With Your 2022 Tax Planning [h2]

Planning now for next year means taking advantage of the time to make the right financial decisions for your business.
RBTK can help you understand the different tax guidelines and provide you with recommendations that will help your business plan. Call us today at 858.430.0300.