Dear Clients,
Another challenging year has just passed. While the COVID-19 crisis has lessened, 2022 has seen inflationary prices, rising interest rates, stock market declines, and supply chain issues. There have been minimal changes to tax laws. However, the IRS has increased its enforcement efforts and audit activity. Getting a handle on your 2022 projected income is more important than ever. If you have not spoken to us about 2022 year-end tax planning and wish to do so, please fill out the form (https://forms.office.com/r/sKwgvQVxzy ), and someone will reach out.
1099’s
The IRS has gotten serious about not issuing 1099’s. The penalty for not issuing a 1099 was $50 per event in prior years. For 2022 in many cases, the penalty could be as much as $1000 per each omitted or incorrect 1099. 1099 is required whenever you pay a non-corporate entity $600 or more in one year in business transactions. 1099 must be provided to the taxpayer and filed with the IRS by January 31, 2023, or those penalties will apply. You may encounter sub-contractors that do not want you to issue them one, so make sure you get them to fill out a W-9 form before you issue them a payment. Form W-9: https://www.irs.gov/pub/irs-pdf/fw9.pdf. We will send out a more detailed email with the filing requirements for 2022 1099’s in December.
State and Local Taxes
Businesses should monitor the tax laws and policies in their business states. Understanding tax obligations is essential, as identifying ways to minimize state tax liabilities and eliminating state tax exposure. Have you reviewed the nexus rules in each state where you have property, employees, or sales to determine if you have tax obligations? Have you reviewed the nexus rules of your mobile or remote workforce?
State tax authorities are beginning to utilize technology to determine state nexus for income tax purposes. They use information from other state departments, such as unemployment agencies, to determine if a company has employment nexus to their state. State nexus rules are complex and vary by state; please reach out if you have any questions or concerns.
Sales Tax
We do not monitor sales volumes or the number of transactions by state and do not register or file sales tax returns for you when we prepare your income tax returns. If you have a website selling products or services, or you offer sales across state lines, you must familiarize yourself with these rules and protect your company. We can suggest software solutions or a sales tax service provider if you wish, but you need to act on this issue because it is not part of your income tax preparation.
Shareholder Health Insurance
For 2% or more shareholders, the premiums paid by the company need to be included on their W-2. If the spouse and dependents are included in the shareholder policy, the total is included for reporting on the W-2. The Health Insurance is subject to federal and state withholding. Still, it may be subject to social security, Medicare & unemployment taxes if the policy is discriminatory and NOT in compliance with the Affordable Care Act (ACA).
If KMAF or Advanced Payroll Solutions prepares your W-2s, please provide the amount of the insurance by December 31, 2022. If you have an outside payroll agency, please give them the information to include on your W-2s.
Employer-Provided Vehicles
Personal use by an employee (including shareholders of S-Corporation of 2% or more) of a vehicle provided by the employer is a fringe benefit. Personal use needs to be recorded on your W-2. Personal use of the vehicle can include their commute time between home and work, trips unrelated to the business or someone other than an employee using the vehicle. The compensation that will be charged to you will be based on a table provided by the IRS. The table is based on the fair market value of the vehicle you are driving. In addition to the table amount, a cents per mile personal use fuel charge is required. The taxable value is subject to withholding and reporting requirements.
If KMAF or Advanced Payroll Solutions prepares your W-2s, please provide the amount of the personal use auto by December 31, 2022. If you have an outside payroll agency, please give them the information to include on your W-2s.
Repairs and Capitalization Policies
In 2013 the IRS released sweeping changes in items that could be considered deductible as repairs, maintenance, and small deductible purchases. These regulations allow, with the adoption of a $2,500 de minimis policy, businesses to deduct the first $2,500 of repairs, maintenance, and small purchases but require items costing more than the $2,500 de minimis to be subjected to up to 20 additional tests regarding a 12-month usage life, betterments, adaptions, and restorations. You will be responsible for adopting the policy and applying these tests to all repairs, maintenance, and equipment.
Section 179 Expenses and Bonus Depreciation
If you are thinking of acquiring business property between now and the end of the year, we can help you navigate that decision. Many factors can influence this decision, including current and future tax rates. If your business plans to purchase new or used machinery or equipment before year-end, you may be able to expense the entire cost in 2022 by using bonus depreciation or Section 179.
The Tax Cuts and Jobs Act of 2017, bonus depreciation drops from 100% to 80% for property placed into service in 2023. After 2023 the percentages are as follows:
Business Meal Expenses
For the tax year 2022, business meals from a restaurant, takeout, and delivery, are eligible to be deducted 100%. Typically, business meals are limited to a 50% deduction. All pre-packaged food or beverages provided by a grocery store, convenience store, kiosk, etc., are only available for the 50% deduction. Take time to separate out your meal expenses to take advantage of the higher deduction. As of the letter’s writing, all meals for 2023 will be limited to a 50% deduction.
Available Tax Credits
There are a variety of tax credits and other incentives to encourage employment and investment. These credits are offered across various industries, such as innovation and technology, renewable energy, and low-income or distressed communities. A business that incurs expenses related to qualified research and development (R&D) activities are eligible for the federal R&D Credit. Many states and localities also offer tax incentives. Please reach out if you have any questions regarding any of these credits.
Employer Retention Credits
The Employee Retention Credit (ERC) is a refundable payroll tax credit for qualifying employers that COVID-19 significantly impacted in 2020 or 2021. The credit intends to combat the negative impact caused by the COVID-19 Pandemic. The potential maximum combined credit for 2020 and 2021 is $26,000 per employee. The deadline for claiming the credit does not expire until the statute of limitations closes on Form 941. Therefore, employers generally have three years to claim the ERC for eligible quarters during 2020 and 2021 by filing an amended form 941-X.
Employee Benefit - Retirement
Employers have until the extended due date of their 2022 federal income tax return to retroactively establish a qualified retirement plan and to fund the new or existing plan for 2022. Contributions made to a qualified retirement plan by the extended due date of the 2022 federal income tax return may be deductible for 2022. Contributions made after this due date are deductible for 2023.
Beginning in September 2022, the new Maryland Saves Program (https://marylandsaves.com/) requires most businesses to offer a retirement plan. This is a low-cost, simple solution for retirement plan savings with no employer fees or requirements.
Employee Benefit - Student Loans
Employers can reimburse employees tax-free for up to $5,250 per year in student loan debt through December 31, 2025. The employers must set up a broad-based IRC Section 127 educational assistance plan.
Employers seeking to attract and retain qualified employees may offer tuition assistance to future employees by providing forgivable loan agreements. The amount forgiven is taxable wages, subject to income and employment taxes (including the employer share of employment taxes.)
If you have read this far, thank you. Keeping up with ever so changing tax laws can be overwhelming. If you have any questions regarding anything, please reach out.
Christopher Williams CPA/PFS, CFP®, MST, chrisw@kmaf.cpa
Gregory Litvinuck CPA, gregl@kmaf.cpa
Office 410-643-4477
