The year is nearly over, but there’s still time to take steps that can lower your 2022 tax bill. The first thing is to meet with your CPA or other tax advisor.
Last minute tax measures for 2022
Consider discussing the following with your tax advisor:
Buy the necessary equipment
If your equipment is old, fixing it may not be the best option. Consider buying new equipment, which probably has better functionality and uses less energy, which saves costs and is good for the planet.
If you purchase and commission qualifying equipment before December 31, 2022, you can deduct 100% of the cost; no amortization over several years is required. This 100% write-off is expected to decline starting in 2023 (for example, it’s capped at 80% next year unless Congress extends the current rule), so take advantage of this tax relief while you can.
Set up a retirement plan
If your company does not have a qualifying pension plan, you have until the extended due date of your 2022 return to establish and fund the plan. The sooner you act, the sooner you…and your employees covered by the plan…will start accumulating tax-deferred income for retirement. Two tax breaks to consider:
- Deduction for employer contributions. Amounts you contribute to employee accounts are tax deductible up to limits for the year.
- Tax credit for setting up a plan. If you don’t already have a plan and have a plan in place that covers at least one employee who is not an owner (or not related to an owner), you may qualify for a credit tax every year for three years. Plus, there’s another credit if you take a 401(k) auto-enrollment plan. These credits reduce your tax bill dollar for dollar.
For more information on the general rules for small business pension plans, see IRS Publication 560but this does not reflect the 2022 limitations.
Buy a new vehicle
If your business needs a new vehicle, now may be the time to act. If you do, consider using 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 respond to a final assembly requirement. The The Department of Energy has a list of electric vehicles eligible for credit.
If you delay your purchase until 2023, new rules for EV credit come into effect. These rules include a cap on income and purchase price, which may limit or prohibit any credit.
Make charitable donations
The holiday season is a time when we think of others. Companies can contribute to charity in several ways:
- Cash donations. Donations from C corporations in 2022 are limited to 10% of taxable income; the 25% limit that applied in 2021 has expired. Donations through flow-through entities mean owners claim deductions on their personal returns. To deduct any write-offs, owners must itemize the 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 has expired.
- Donations of goods, including donations of excess inventory. Depending on the property being donated, a deduction may be small or non-existent. Nevertheless, the donation can greatly benefit the charity.
- Free time for employees to do charity work. If this time of year is slow, giving employees time to participate in charitable activities within the community can be a plus for everyone involved. In the case of paid leave, the usual payroll tax rules apply.
Find more information about charitable deductions in IRS Publication 526but note that this does not reflect the 2022 boundaries.
Be sure to account for any last-minute actions in the final estimated tax installment. For companies in calendar year C, payment is due on December 15, 2022. For owners of flow-through entities, the due date is January 17, 2023.
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