Every year brings changes to the federal tax codes and 2022 is no exception. Here is a checklist of key changes to help you with compliance and minimize your tax liability.
Standard mileage rates: In 2022, the rate for business miles driven is 58.5 cents per mile, up 2.5 cents from the rate for 2021.
Section 179 expensing: In 2022, the Section 179 expense deduction increases to a maximum deduction of $1.08 million of the first $2.7 million of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018. The deduction was enhanced under the Tax Cuts and Jobs Act to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems.
Also worth noting is that costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $27,000.
Bonus depreciation: Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after Sept. 27, 2017, and before Jan. 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.
Qualified business income deduction: Eligible taxpayers are able to deduct up to 20% of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount.
In 2022, these threshold amounts are $170,050 for single and head of household filers and $340,100 for married taxpayers filing joint returns.
Research and Development Tax Credit: Starting in 2018, businesses with less than $50 million in gross receipts can use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.
Work Opportunity Tax Credit: Extended through 2025, as per the Consolidated Appropriations Act of 2021, the Work Opportunity Tax Credit is available for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40% of the first $6,000 of wages paid to a new hire.
Employee health insurance expenses: For taxable years beginning in 2022, the dollar amount of average wages is $28,700 ($27,800 in 2021). This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.
Business meals and entertainment expenses: Taxpayers who incur food and beverage expenses associated with operating a trade or business are able to deduct 100% (50% for tax years 2018-2020) of these expenses for tax years 2021 and 2022, as per the Consolidated Appropriations Act of 2021, as long as the meal is provided by a restaurant.
Employer-provided transportation fringe benefits: If you provide transportation fringe benefits to your employees in 2022, the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $280. The monthly limitation for qualified parking is $280.
(This column is for information only and should not be considered advice. This checklist outlines important tax changes for 2022, but additional ones are likely to arise. Taxes are complex and mistakes can be costly, and one should consider seeking professional advice on tax matters.)
Norm Grill, CPA, is managing partner of Grill & Partners LLC, certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien.
