The year is almost over, but there’s still time to take actions that can reduce your 2022 tax bill. The first thing is to meet with your CPA or other tax adviser.
Last-Minute Tax Actions for 2022
Consider discussing the following with your tax adviser:
Buy needed equipment
If your equipment is old, repairing it may not be the best option. Consider buying new equipment, which likely has better features and uses less energy—a cost savings and good for the planet.
If you buy and place in service qualified equipment by December 31, 2022, you can deduct 100% of the cost; no depreciation over a number of years is required. This 100% write-off is scheduled to decline starting in 2023 (e.g., it’s limited to 80% next year unless Congress extends the current rule), so take advantage of this tax break while you can.
Set up a retirement plan
If your business doesn’t have a qualified retirement plan, you have until the extended due date of your 2022 return to set up and fund the plan. The sooner you act, the quicker you…and your employees covered by the plan…will begin to accrued tax-deferred income for retirement. Two tax breaks to consider:
- Deduction for employer contributions. Amounts you contribute to employees’ accounts are tax deductible up to set limits for the year.
- Tax credit for setting up a plan. If you don’t yet have a plan and you set on up that covers at least one employee who isn’t an owner (or related to an owner), you may take a tax credit each year for three years. What’s more there’s another credit if you adopt an automatic enrollment 401(k) plan. These credits reduce your tax bill dollar for dollar.
For more information about the general rules retirement plans for small businesses, see IRS Publication 560, but not this does not reflect 2022 limitations.
Buy a new vehicle
If your business needs a new vehicle, now may be the time to act. If you do, consider by an electric vehicle (EV). You may be eligible for a tax credit of up to $7,500, even if you use the vehicle partly for personal driving. However, if you act now, the vehicle must meet a final assembly requirement. The Department of Energy has a list of EVs that may qualify for the credit.
If you delay your purchase until 2023, new rules for the EV credit take effect. These rules include a cap on income and the purchase price, which may limit or bar any credit.
Make charitable contributions
The holiday season is a time for thinking of others. Businesses may contribute to charity in a number of ways:
- Cash donations. Donations by C corporations in 2022 are limited to 10% of taxable income; the 25% limit that applied in 2021 expired. Donations by pass-through entities means owners claim deductions on their personal returns. To take any write off, owners must itemize deductions and not claim the standard deduction. Cash donations by owners are limited to 60% of adjusted gross income; the 100% limit that applied in 2021 expired.
- Property donations, including donations of excess inventory. Depending on what property is donated, a deduction may be little or nonexistent. Nonetheless, the donation may greatly benefit the charity.
- Time off for employees to do charitable work. If this time of the year is slow, giving time off to employees to participate in charitable activities within the community can be a plus to all concerned. If this is paid time off, usual payroll tax rules apply.
Find more information about charitable deductions in IRS Publication 526, but note this does not reflect 2022 limitations.
Be sure to take into account any last minute actions in the final installment of estimated taxes. For calendar year C corporations, payment is due on December 15, 2022. For owners of pass-through entities, the due date is January 17, 2023.
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