Tax Planning as Year-End Approaches
By Paul Impellicceiri, CPA, Partner
A.F. McGervey & Co., LLC
The recently passed Inflation Reduction Act has some targeted tax provisions—related to alternative energy—but for the most part, from a tax legislation
perspective, 2022 has been a relatively stable year with few major changes. This provides for a more certain tax planning environment, as year-end approaches.
And with the results of the November elections, it doesn’t appear that either side will have the ability to pass any significant tax legislation in the near future. But, with slim margins in the House and Senate, it is possible that changes could still occur in the lame-duck session before year-end.
For Business Owners
- The timing of income and deductions is always an important part of tax planning. It appears the corporate tax rates will not change for 2022, and with the change in the majority in the House of Representatives the rates are not likely to change in 2023. This could influence decisions regarding accelerating income or deductions.
- The 100% bonus depreciation provision begins to sunset at the end of 2022. Unless Congress extends it, it will be reduced by 20% each succeeding year until 2027, when it goes away completely.
- Many companies are receiving unsolicited offers to assist them in applying for the employee retention credit, a program that was expanded in 2021. Under its provisions, if a company experiences a 20% (down from 50% in 2020) decrease in revenues in a given quarter in 2021—when compared to the same quarter in 2019—it may be entitled to a credit for wages paid to retain employees. The deadlines for retroactively claiming these credits are April 15, 2024, for all 2020 quarters, and April 15, 2025, for all 2021 quarters.
- The Payroll Protection Program—started in 2020 and continued into 2021—provided liquidity to a number of businesses. Companies continue to have the ability to claim forgiveness from repayment of these loans, if the requirements were met. If the loan was not wholly forgiven, then repayment terms have most likely begun.
For Individual Taxpayers
- Tax brackets and standard deductions have been indexed for inflation, however there were no major legislative changes made to the reporting of income and deductions.
- The Child Tax Credit and Dependent Care Credit were expanded in 2021, and some of those provisions have continued into 2022. (No advance checks were issued in 2022.)
- With most of the major market indexes declining in 2022, individuals may consider opportunities for tax loss harvesting. Some of the losses may be available to offset other income.
- Individuals with Required Minimum distributions need to make sure they have taken them before year-end. In addition, they may consider making qualified charitable contributions directly from their IRA’s. This can reduce taxable income and be more tax efficient than making contributions from other assets. Other charitable contribution opportunities include bunching contributions into one year, possibly through a Donor Advised Fund, or gifting appreciated securities.
- Taxpayers who received an early distribution from an IRA or retirement account—related to the corona virus—may need to continue to follow the reporting guidelines to avoid the penalties on these withdrawals.
- With the value of many retirement accounts down, it may be a good year to consider a Roth conversion. Converting to a Roth creates current ordinary income; however it reduces future Require Minimum Distributions and allows future growth to potentially happen in a tax favored account when markets rebound.
Paul Impellicceiri is a partner at Pittsburgh-based accounting/auditing firm, A. F. McGervey & Company, LLC, and can be reached for comment at email@example.com or 412.653.6101.