The Tax Landscape for 2022
The Tax Landscape for 2022
Now that filing season is over, or at least extended farther into 2022, we can talk about the status of several of the small businesses most used tax breaks and their status for 2022.
Potential Legislation for 2022: Most of President Biden’s focus, from a tax perspective, was embedded in the Build Back Better legislation which, for the most part, left intact the 2017 Trump tax breaks. That legislation stalled in Congress.
For 2022, things have been relatively quiet on the tax front. The Administration has published an outline of President Biden’s budget proposals which include several high-earner tax tweaks. At this point, it is difficult to see any tax legislation that would create additional unrest to the small business community.
What About the Status of 2022 Tax Breaks?
We have received numerous membership inquiries regarding the 2022 status of existing tax breaks, mainly those coming from the Trump-era tax cuts. More specifically, many have questioned whether the Trump-era tax breaks are still in effect in 2022.
The general rule on the life-span of Trump-era tax breaks is that, for the most part, all are still in full effect through 2025. Below are a few items of particular interest to most small businesses and owners.
100% bonus depreciation: The 100% bonus depreciation write-off for business equipment purchases (new and used) is still in full effect in 2022, as well as, the traditional “Sec. 179” equipment deduction. However, after 2022, 100% bonus depreciation is scheduled for phase-out thereafter by 20% per year.
Bonus Depreciation on Heavy Trucks and SUVs: According to the IRS, one of the great benefits of bonus depreciation is that is can be taken in its entirety on heavy pick-up trucks and SUV purchases, unlike purchases of luxury or passenger vehicles which have annual deduction limitations. This provision is also still in effect for 2022.
20% Small Business Pass-Through Deduction: Arguably one of the two most important (along with bonus depreciation) tax breaks for small businesses, this one is specifically targeted towards pass–through small businesses such as LLCs, S-corps, and sole-proprietors.
While this tax break was debated numerous times in the 2021 Build-Back-Better negotiations, it has not been altered and is in full effect through 2025.
What about regular C-corporations? While it is true that regular C-corporations don’t qualify for the small business deduction, it is also true that the tax rate was dropped to a flat 21% (35% prior to TCJA) AND it is permanent. There is no scheduled phase-out or sunset of this rate.
Long-term capital gains: The 2022 favorable long-term capital gains rates still has three tiers (based on taxable income):
0% capital gain rate up to $83,350.
15% capital gain rate up to $517,200.
20% capital gain rate over $517,200.
State and Local Tax Deduction (SALT): Despite attempts at increasing the limit during the Build-Back-Better debates, the individual itemized deduction for state and local tax (SALT) write-off is still capped in 2022 at $10,000 for those that itemize on individual return.
Another Reminder! Employee Retention Credit (ERC): According to the IRS, many small business owners completely overlooked this employee payroll tax credit. The credit is available to businesses that experienced significant quarterly declines in gross receipts in 2021(20%) and/or 2020 (50%) compared to 2019. It also applies to businesses that experienced a full or partial shutdown of operations as a result of a government order limiting commerce due to COVID-19 during 2020 or 2021.
As a reminder, even though the wage period ended on September 30, 2021, if you think you met the criteria for this credit you can still file amended payroll tax returns up to three years after original due date.
Employee Retention Credit (ERC) and New Start-Ups: New start-up businesses that begin operations after February 15, 2020 and have less than $1 million in average revenue are still eligible to apply for the credit.
These calculations can carry a degree of complexity so consider consulting your tax advisor if you need to revisit the Employee Retention Credit.
