As we approach the fourth quarter of 2022, and with most 2021 tax returns having been filed, many taxpayers and their advisors are reviewing tax laws, expenditures and credits to ensure efficient tax planning for 2022 filings and beyond.
Multiple laws passed over the last few years may provide benefits to businesses. Starting with the Consolidated Appropriations Act (“CAA”), which was signed into law on December 27, 2020. Additionally, The Consolidated Appropriation Act of 2022 (“CAA 2”), the Infrastructure Investment and Job Act (“IIJA”), and the Inflation Reduction Act (“IRA”)provide spending and tax benefits which should be considered.
Deduction of Business Meals CAA provided several benefits from the Paycheck Protection Program (PPP), the Employee Retention Credit and the increase in the deductibility of business meals. Food and beverages will be 100% deductible if purchased from a restaurant in 2021 and 2022.
Financing and Tax Enforcement CAA 2 provided multiple tax and nontax provisions. From a nontax perspective, CAA2 provides a basic framework for addressing the discontinuation of USD LIBOR under federal law. It provides automatic fallbacks to Board of Governors of the Federal Reserve System-recommended SOFR-based benchmarks under certain circumstances. From a tax perspective, CAA 2 provided increased funding for tax administration and enforcement. Much of this will take years to implement but will likely result in an increase to tax return reviews and quicker responses/refund payments.
U.S. Manufacturing Grants IIJA, provided funding allocation to the U.S. Department of Energy which will provide up to $750 million in potentially nontaxable cash grants for U.S. manufacturing operations expenses.
Increased Government Spending to Drive Contractor Revenues The IIJA also allocated spending across the federal and state level agencies tasked with maintaining public infrastructure. These spending measures should provide additional revenues for contractors across the country engaged in aspects of building and maintaining roads, bridges, and other necessary public facilities.
Tax Credit Increases The Inflation Reduction Act provides several new and increased federal tax credits for investments in renewable energy production equipment, electric vehicles, emissions reduction equipment and many other areas aimed at spurring spend to reduce emissions. In addition, there is an increase in the small business Research and Development (R&D) Tax Credit from $250,000 to $500,000. Further starting in 2023, those businesses may use the credit to reduce payroll taxes and other business expense by up to $500,000 annually.
In addition to the above federal items, it is worth noting that many states, including Ohio, have passed laws which allow Pass-Through Entities (“PTEs”) to elect into an entity-level tax, creating a pathway that eliminates the impact of the federal itemized deduction cap for state and local taxes, which is currently set at $10,000. Ensure you and your CPA are reviewing the applicability of the above.
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