Review of Latest tax developments
For many small businesses, tax planning doesn’t begin until the last quarter of the year. It can be especially true in a year that has experienced wild swings in the economy. This issue will focus on a hodge-podge of recent developments that may be of significance to small business owners.
Bonus Depreciation for 2022
We’ve written on this extensively, mainly because this is one of the more powerful tax planning tools available to equipment-intensive small business owners.
As you know, bonus depreciation allows for equipment purchases to be completely expensed in the year used in your business. There is a misconception that bonus depreciation either has diminished for 2022 or has outright gone away. For clarity, 100% bonus depreciation is still in full force and effect for 2022. It is, however, scheduled to scale back by 20% each year after 2022 making bonus depreciation equal to 80%, 60%, 40%, and 20%.
Note: it is widely speculated that the 100% deduction will either be made permanent or extended, but we anticipate those issues to be addressed with year-end extenders.
Expiring Extenders
Speaking of extenders, Congress goes through this every year with expired or expiring tax provisions. With most of the Trump-era tax cuts still active through 2025, the majority of business-related tax savers have not expired. And, yes, that includes the 20% small business tax deduction.
2022 capital gains rates
We address this issue often because we receive questions about it often. The lower capital gains rates have not been changed and are not scheduled to expire.
IRS penalty relief for 2019 and 2020
Were you assessed a late-filing penalty for one of these years? If so, you will be pleased to know that the IRS announced it is abating (refunding) these penalties. This is in recognition of the great hardship on taxpayers during the worst of the Covid pandemic as well as the IRS processing problems that caused quite the backlog in processed returns.
Do I need to do anything?
No. It is automatic and the refunds began in late September.
Are the penalties for late payment of taxes also abated?
No.
Business mileage rate
In case you missed it, the mileage rate for business use of company vehicles increased to 62.5 cents per mile from July to December of 2022. It was 58.5 cents per mile for the 1st six months of 2022.
Student Loan Forgiveness
Without rehashing the particulars of this controversial new program, we do need to address several issues that you need to be aware of.
Will I be taxed on the forgiven loan?
Not at the federal income tax level (Form 1040). However, while it is true that there will be no federal income tax consequence to loan forgiveness (emphasis on federal), be careful to make sure that your particular state will not tax the forgiveness. At this early point in the process, some states are on record acknowledging that the loan forgiveness amount will be taxable. We will provide a list of these states as they become final.
Can I opt out of the federal loan forgiveness program?
Yes. In response to a recent lawsuit contesting the legality of this program, the federal government will offer an opt-out provision available to those who do not wish to use loan forgiveness. The Department of Education will provide the application to be used should this interest you.
