General Tax Strategies for Business Owners

Special 100% Bonus Depreciation: Businesses are able to deduct 100% of the cost of new OR used business assets purchased and placed in service during 2022 so long as they have a useful life of 20 years or less. The 100% deduction is only available through the end of 2022 and is phased down to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.

Section 179 Deduction: Section 179 allows businesses to expense the full cost of new or used equipment. The 2022 limit is $1,080,000 for qualifying property. Section 179 expensing is subject to phase outs if a business added more than $2,700,000 of assets; the deduction is reduced dollar for dollar.

Section 1202 Qualified Small Business Stock: Taxpayers may exclude 100% of the gain on the sale or exchange of Qualified Small Business Stock held over five years. Certain restrictions apply in determining eligibility of the stock, and the exclusion from gross income is limited to the greater of $10,000,000 or ten times the taxpayer’s stock basis.

Section 199A Qualified Business Income Deduction: Taxpayers who have qualified business income (QBI) related to their pass-through activities or solely owned businesses may qualify for the deduction. While subject to several limitations and exceptions, many taxpayers will be able to deduct up to 20% of their QBI.

Repair Regulations: Under the De Minimis Safe Harbor rules, taxpayers may deduct up to $2,500 per invoice for items related to repairs or improvements of property. Due to the complexity of these rules, you should discuss any plans you may have with us.

Washington State 7% Capital Gains Tax: the 2021 Washington State Legislature previously passed a 7% tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments. In March 2022, the Douglas County Superior Court ruled this tax is unconstitutional and invalid. The State has appealed the ruling to the Washington Supreme Court and the appeal is currently pending.

Multistate Activity: Clients with sales in multiple states should remain aware of the rules and economic nexus thresholds for each state. Behind the authority of the 2018 Wayfair decision, states have become more assertive in subjecting business located outside of their borders to sales tax. In addition, the states have begun applying the theory of the decision to income tax requirements within the state.

Changes to R&D Expenses and Credits:

The 2017 Tax Cuts and Jobs Act (TCJA) contained a provision that effective January 1, 2022, research and development (R&D) expenses are no longer immediately deductible in the year incurred. Instead, these costs must be capitalized and amortized over five or 15 years.

• R&D performed within the U.S. are recovered over 5 years
  • R&D performed outside the U.S. are covered over 15 years
• Increase in research credit against payroll tax for small businesses. The limit on the amount of research credit that qualified small businesses may elect to treat as a credit against their payroll tax liability increased from $250,000 to $500,000 for taxable years beginning after 2022

Conclusion

As new tax regulations come into effect each year, your safest course of action is to keep apprised of any changes that may impact your personal situation. Feel free to give us a call with any questions you have. Remember, the IRS issued a Taxpayer Bill of Rights to help you better understand your rights in dealing with the U.S. tax system. However, if you receive any IRS correspondence, do not ignore this notice. You should contact your tax professional to appropriately respond to this notice to avoid or reduce potential charges. We would be happy to set up a meeting or assist you in any additional ways that we can.