2022 Year End Tax Letter

– Williams & Schiller, PC | CPAs & Consultants –

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2022 Year End Letter

In 2022, our firm has continued to change and adapt to the rapidly transforming business landscape. For example, our year-end tax letter has gone digital! We are also continuing to invest in our technology infrastructure, our team, and our expertise so that we can further serve our clients.

The year 2022 has brought us some staffing transitions, and we want to highlight the addition of Doug Richter to our team. Doug is a CPA with over 15 years of experience working in public and industry accounting, joining us as a remote team member living in Charlotte, North Carolina. Brad Williams, CPA, and Mark Schiller, CPA continue to lead Williams and Schiller from our Sandpoint, ID, and Fargo, ND offices. Click here to meet the rest of our team.

The end of the year is one of the most important times for our firm and for each of you as the decisions you make now significantly impact your overall financial planning and tax position. Please read on for some end-of-the-year tax planning and tips, and other items of interest for financial health and well-being.

2022’s year-end is marked by a lot of financial challenges, including inflation, market volatility, domestic political uncertainties, global geopolitical risks and issues, and the threat of an impending recession. We know these issues are top of mind for many, and our highly skilled and client-focused team is here to support you through the challenges of today and the future.

As compared to some recent years, this year has not seen a great deal of new tax legislation and we really don’t expect anything major before year-end.  The only federal act that has a significant impact on taxation is the Inflation Reduction Act of 2022. That law has some large revenue-raising sections, but those apply only to large and/or public corporations and won’t have a direct impact on most of our clients.  Read a summary of changes enacted in this law here.

We want to say thank you to all of you, our clients and friends, for your support as the past few years have been trying for many of us. We sincerely appreciate the trust you place in us and are excited to see what the future has in store.

Be watching your mail for your tax organizers in the first few weeks of the new year. We anticipate a heavy busy season, and the more proactive you can be about returning your documents, the sooner we can complete your return.

Do you prefer a paper copy of this newsletter? Contact our office!

Important Tax Deadlines

January 16th, 2023 Fourth Quarterly 2022 estimated tax payment due
March 15th, 2023 Deadline for partnerships, multi-member LLCs, and S corporations without an extension
April 18th, 2023

Deadline for individuals, sole proprietorships, LLCs taxed as disregarded entities, and C Corporations

First Quarterly estimate due

June 15th, 2023 Second Quarterly 2023 estimated tax payment due
September 15th, 2023

Deadline for partnerships and S Corporations with extension

Third Quarterly 2023 estimated tax payment due

October 16th, 2023 Deadline for individuals, sole proprietorships, C-corporations, and LLCs taxes as disregarded entities with extension
December 15th, 2023 Fourth Quarterly payment due- C corporations only
January 15th, 2024 Fourth Quarterly 2023 estimated tax payment due

Individual Tax Planning

The tax landscape in 2022 hasn’t seen as many changes as in the recent previous years. The most major piece of new tax legislation impacting the tax landscape this year was the Inflation Reduction Act of 2022. Read a summary of changes enacted in this law here.

More importantly, for many of our clients, the expiration of tax items that pushed up 2021 refunds will impact 2022-ending tax positions. Many items that were allowing people to pay less tax and receive larger than normal refunds will no longer be with us at the same level for 2022. Click here to learn more.

President Biden originally announced a plan to forgive up to $20,000 in student loans, however, the program is now in question, as a federal judge in Texas struck down the program. Knowing that the student loan payment freeze is ending, financial advisors are recommending that borrowers prepare to make student loan payments. Learn more here.

With only a short amount of time remaining before 2023 is upon us, there are a few things that individuals can to do reduce their 2022 tax burden.

Shelter money from tax by maxing out retirement plans. Pre-tax contributions to your IRA or 401k will lower your tax bill. The limits have bumped up slightly since last year. Expecting a large bonus this year that you haven’t withheld any tax from? It would be a great idea to defer that into your retirement plan if you have one.  Below are the new maximum tax-free deferrals for 2023:

    • Contribution limits for 401(k)s, 403(b)s, most 457 plans, thrift savings plans (TSPs), and other qualified retirement plans rise is $20,500 for 2022 and $22,500 for 2023.
    • The annual contributions limit for traditional IRAs and Roth IRAs is $6,000 for 2022 and $6,500 for 2023. There is an additional catch-up contribution of $1,000 for those over age 50.

Review tax-loss harvesting inside brokerage accounts. Tax-loss harvesting is a strategy used to sell selected investments in your portfolio at a loss in order to offset the negative tax impact from other investments sold at a profit. This can reduce taxes on capital gains. This may be an effective strategy for those experiencing high capital gains in other areas this year.

Review itemized deductions. Though the Tax Cuts & Jobs Act changed the tax landscape such that many cannot itemize their deductions. Those who can may benefit from accelerating expenses into this year such as charitable donations or medical expenses (if your medical expenses have already broken through the 10% of AGI threshold for the year).

Charitable contribution planning. If you are planning to donate to a charity, it’s likely better to make your contribution before the end of the year to potentially save on taxes. There are many tax planning strategies we can discuss with you about charitable giving. For example, consider donating appreciated assets that have been held for more than one year, rather than cash. Opening and funding a donor-advised fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and the ability to dole out those funds to charities over multiple years. Qualified charitable distributions* (QCDs) are another option for certain older taxpayers who don’t typically itemize on their tax returns.

In addition to specific tax savings items, there are a few other tax considerations to be aware of.

First, we recommend you review your retirement plans at least annually. That includes making the most of tax-advantaged retirement saving options, as discussed previously. It is important to keep in mind that you cannot keep retirement funds in your account indefinitely. RMDs are the minimum amount you must annually withdraw from your retirement accounts once you reach a certain age (generally age 72). Failure to do so can result in penalties. And withdrawals usually have tax impacts. There are also opportunities to roll retirement funds to a qualified charity to satisfy the RMD without incurring taxes. Also, note that the IRS has issued new life expectancy tables effective for the 2022 tax year, resulting in lower RMD amounts. We can help you calculate any RMDs to take this year and plan for any tax exposure.

We want to highlight digital currency issues. Digital assets are defined under the U.S. income tax rules as any digital representation of value that may function as a medium of exchange, a unit of account, and/or a store of value. Digital assets may include virtual currencies such as Bitcoin and Ether, Stablecoins such as Tether and USD Coin (USDC), and non-fungible tokens (NFTs). The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services, or holding such currencies as an investment, generally have tax impacts –– and the IRS continues to increase its scrutiny in this area. Many of our clients (or their children) hold these digital currencies. It is important to disclose that information when you provide your 2022 filing information. 

Idaho taxpayers – keep in mind the education tax credit! Individuals are eligible for a credit worth 50% of the gift—up to $1,000 for those married filing jointly or $500 for single filers. The law also allows corporations a credit of 50% of the gift up to 10% of their gross income – to a maximum of $5,000. The Idaho Credit is available every year regardless of whether you itemize your deductions or take the standard deduction.

Year-end planning equals fewer surprises!

Whether it’s working toward a tax-optimized retirement or getting answers to your tax and financial planning questions, we’re here for you. Please contact our office today to set up your year-end review. As always, planning ahead can help you minimize your tax bill and position you for greater success.

 

 

*A qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity.

 

Tax and financial planning is not a one-size-fits-all cap. Your situation and that of your neighbor will differ as each family or business has different fibers that weave their financial fabric. We can help evaluate your situation and discuss the best options for you. Remember that early planning saves time and money! Reach out to our team today to discuss your tax position and any questions you might have.

Business Tax Planning

As is true with individuals, the most major piece of new tax legislation impacting the tax landscape this year was the Inflation Reduction Act of 2022.  

As outlined for individuals in your individual tax return, business owners also have some options for reducing their taxable income. We appreciate that you look to us to help you manage that aspect just like you manage the rest of your business expenses. It is important to look at tax-saving strategies that will assist in helping you save tax now, and over time while making sense of your business goals. The goal is to manage your income and expenses in a way that maximizes your overall tax savings for all years.

The first step at year-end is to perform an analysis of your financial statements. Let’s look at where your business is positioned with income and expenses to close out the tax year. This may mean getting caught up on your bookkeeping to have a better picture of where your tax situation stands. We can help you analyze your financial statements for tax savings and planning opportunities.

Below are some issues impacting small businesses to consider, and possible options for business owners to lower their tax liability in 2022:

  1. Write off of asset additions and/or vehicles. This is particularly useful for businesses that are reporting higher than usual revenue in the 2022 calendar year.
  2. Deferring income and accelerating deductions if your business is a pass-through entity may be beneficial if you are expecting to be in the same or lower federal income tax bracket in 2023. However, if compared to 2022, you are expecting to be in a higher tax bracket in 2023, then accelerating income into this year (if possible) and postponing deductible expenditures until 2023 may be more beneficial.
  3. As you enter the holiday season and have more social gatherings with your customers and employees, keep in mind the rules for business meal deductions. There is a 100% deduction (rather than the prior 50%) for expenses paid for food or beverages provided by a restaurant. This provision expires at the end of 2022.
  4. Consider the qualified business income (QBI) deduction for Pass-through Entities. may assist in lowering your tax bill. For instance, if you make some year-end decisions to reduce your taxable income, you will have a negative side effect of reducing your QBI deduction for this year as well. If you want to optimize your results with this deduction, consult our tax staff. We will be happy to give you a more in-depth analysis.
  5. Establish a Retirement Plan. Current retirement plan rules allow for substantial deductible contributions. If your business doesn’t already have a retirement plan, now may be a good time to reconsider. Our office can help you review retirement plan options for your business.

Additional tax and financial planning considerations for businesses:

  • Employee retention credit (ERC): The ERC encouraged businesses to keep employees on their payroll during the pandemic. Although these credits relate to tax years 2020 and 2021, applying for these credits is still available. The IRS warned employers to be cautious of third parties taking improper positions related to ERC eligibility, as claiming the credit inaccurately can result in severe consequences. We can help you appropriately navigate the ERC.
  • IRS Forms K-2 and K-3: These new forms can require much effort and potentially apply to even smaller entities. The IRS announced an additional exception to the requirement to complete and provide these forms. Let’s discuss this exception’s applicability to your situation and otherwise strategize to comply with this new and important requirement.
  • Digital assets and virtual currency: The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services, or holding such currencies as an investment, generally have tax impacts –– and the IRS continues to enhance its scrutiny in this area. We can help you understand any tax and investment consequences.

Reducing the impact of the reduction in the deductibility of state tax payments

This is not a new law this year, but it is probably the most tax-favorable thing to impact our clients for the past few years. As you recall, the 2018 tax act doubled the standard deductions for individuals, that act also limited the itemized deduction for state and local taxes to $10,000. Those two things mean that most people really can’t deduct state and local taxes (SALT) from their federal income.

In 2021, Idaho, Minnesota, California, and 19 other states adopted “SALT workaround” legislation. Those various state laws are all a bit different, but in general, they allow a pass-through entity (S corporations, partnerships, and trusts) to pay the state tax owed on the entity’s income, then that state tax paid is treated as a credit that can be used to reduce the state tax owed by the individual owners of the businesses. By going through that SALT workaround process, the owners of these pass-through entities are allowed to deduct the state tax paid for federal purposes.

We have discussed the SALT workaround with most of our business clients and we have given coupons to pay that state tax to many entities. However, if you have questions or would like to discuss this strategy, give us a call. This is truly a great tax reduction tool, one of those rare deductions that are allowed for something you are required to pay anyway.

Year-end planning equals fewer surprises

Whether it’s working toward a tax-optimized business succession plan or getting answers to your tax and financial planning questions, we’re here for you. Please contact our office today to set up your year-end review. As always, planning ahead can help you minimize your tax bill and position you for greater success.

Facts & Figures

2022 Federal Income Tax Brackets

2022 Federal Income Tax Brackets

Tax Rate For Single Filers For Married Individuals Filing Joint Returns For Heads of Households
10% $0 to $10,275 $0 to $20,550 $0 to $14,650
12% $10,275 to $41,775 $20,550 to $83,550 $14,650 to $55,900
22% $41,775 to $89,075 $83,550 to $178,150 $55,900 to $89,050
24% $89,075 to $170,050 $178,150 to $340,100 $89,050 to $170,050
32% $170,050 to $215,950 $340,100 to $431,900 $170,050 to $215,950
35% $215,950 to $539,900 $431,900 to $647,850 $215,950 to $539,900
37% $539,900 or more $647,850 or more $539,900 or more
Source: Internal Revenue Service

2022 Standard Deduction

2022 Standard Deduction
Filing Status 2021 2022 Change
Single $12,550 12,950 $400
Married Filing Joint/ Widow 25,100 25,900 $800
Head of Household 18,800 19,400 $600
Married Filing Separate 12,550 12,950 $400

Child Tax Credit

The maximum Child Tax Credit is $2,000 per qualifying child and is not adjusted for inflation. The refundable portion of the Child Tax Credit is adjusted for inflation and will increase from $1,400 to $1,500 for 2022.

Annual Exclusion for Gifts

In 2022, the first $16,000 of gifts to any person are excluded from tax, up from $15,000.

2022 Mileage Rates

2022 Mileage Rates
Category 2021 1/1/22-6/30/22 7/1/22-12/31/22
Business $0.56/mile $0.585/mile $0.625/mile
Medical 0.16/mile 0.18/mile 0.22/mile
Charitable 0.14/mile 0.14/mile 0.14/mile
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