Each year, Aldrich creates a guide with the must-know information for your financial plan. Our experts compile the latest insights and opportunities to help you achieve your financial goals. The guides are divided into recommendations for businesses and individuals.
We hope this guide serves as a beacon for your upcoming financial planning. If you have questions or concerns about 2022 and 2023 tax planning, don’t hesitate to contact your Aldrich Advisor.
Table of Contents
Employee Retention Credit Penalty Relief
The Employee Retention Credit (ERC) is a long-standing disaster-relief initiative and was re-established with new rules in the CARES Act. However, this relief ended in September 2021 when President Biden signed the Infrastructure Bill and terminated the ERC.
The refunds from the ERC must be reported in the year the credit is related to. In many cases, this credit was claimed on prior year amended returns, and due to IRS delays in processing backlogged forms, businesses had not received the refunds before their tax bill was due. To help, the IRS stated that taxpayers might also qualify for the first-time penalty abatement program to remove penalties related to tax payments due on the amended returns.
While the federal first-time penalty abatement can only be used once every four years, we recommend using the reasonable cause penalty abatement to navigate this situation, if possible. Taxpayers, however, should consult with their Aldrich Advisor to determine the best penalty relief options for their business.
Depreciation Tax Planning
Depreciation planning is a valuable strategy for taxpayers to manage their tax liability for years. Particularly useful for businesses with tangible assets that help generate revenue, such as farm equipment, using a depreciation tax planning strategy can help businesses recover the costs of major asset investment.
100% bonus depreciation is available for assets placed in service from September 28, 2017 through December 31, 2022. Notably, the rate will drop 20% in 2023, and businesses may see a drop in their allowed depreciation deductions.
If large equipment purchases are happening in the near term, it may be in your best interest to accelerate those purchases into 2022 if they can still be received and placed into service before year-end. Other factors, such as cash flow planning, should also be considered.
Businesses shipping products to Canada or working with Canadian vendors may need to pay more careful attention to international taxes this year. As of July 2021, any nonresident who sells more than $30,000CAD within the last four calendar quarters (or fewer) must collect GST and HST on all business-to-consumer transactions.
Certain US-based businesses should register for, collect, and remit Canadian sales tax. US exporters—nonresident vendors and distribution platform operators—generally should pay GST when exporting to Canada if they meet a certain sales value threshold.
What if your business sales fall below that threshold? In that case, you may not be required to collect GST and HST unless you have voluntarily registered for GST and HST purposes. However, as a nonresident, once you’ve registered in Canada, you must collect GST and HST, even if your sales are under the $30,000CAD threshold.
It is advisable to keep track of sales made to Canadian consumers. Remember that the 12-month period is rolling, so if you’ve come close to the threshold and are about to enter a busy season, you may exceed it. If you’re close to that sales amount or a DPO with many unregistered vendors using your distribution platform, it’s time to take action.
R+D Tax Credit
The government created the R+D tax credit to encourage businesses to invest more in domestic research and innovation. This includes designing, developing, or improving products, processes, techniques, software, and other inventions. It’s a federal tax credit, and more than 30 states also offer their own version of an R+D credit.
Your business can use this credit to reduce tax liability through its eligible research costs. Some possible expenses that qualify are:
- The wages of employees conducting research
- The cost of supplies used during R+D
- The cost of hiring contractors or consultants for research-related activities
- Payments made to educational institutions and scientific research organizations for conducting your research
- Certain cloud computing expenses
You can potentially claim approximately 10% of your annual R+D costs for the federal credit, and there is no limit on the total amount you can claim. Remember, this is a tax credit, not a deduction. It gives your business a dollar-per-dollar reduction in your tax bill, which is more generous than a deduction.
Even though the credit is non-refundable, if you don’t owe enough taxes to use the entire earned credit, you can carry it forward for up to 20 years to offset future taxes.
New small businesses and startups with gross revenues below $5 million and no gross receipts dating back five years can also use the research and development tax credits to offset their payroll (FICA) taxes up to $250k.
Finally, eligible small businesses (ESBs) can use this credit against any owed Alternative Minimum Tax (the IRS defines an ESB as one that is not publicly traded and has averaged less than $50 million a year in revenue over the past three years).
Inflation Reduction Act + Advanced Manufacturing Tax Credit
The Inflation Reduction Act (IRA) created several new tax savings opportunities for manufacturing facilities under construction or those soon to be. The credits aim to incentivize American businesses to produce and invest in sustainable energy, like wind and solar.
Similarly, the Advanced Manufacturing Tax Credit (AMTC) offers tax benefits to organizations producing critical business components. The list of qualifying components includes:
- PV cells
- PV wafers
- Solar grade polysilicon
- Solar modules
- Wind energy components
- Torque tubes
- Structural fasteners
- Electrode active materials
- Battery cells
- Battery nodules
- Critical minerals
Most of the business tax benefits are related to constructing facilities that generate sustainable energy or manufacture components related to energy production. These credits could signal a growth opportunity if you’re part of the construction or manufacturing industries.
Preparing for 2023 + Beyond
As a reminder, we recommend keeping all relevant tax documents on hand for a minimum of seven years. Here’s a detailed chart with record retention best practices.
We know that your business faces unique challenges based on the industry, employees, and region. Our expertise can help you navigate the nuances of financial planning to help you achieve your goals. Your Aldrich Advisor is here to provide support and answer your questions. Reach out today to schedule a meeting to discuss your 2022 tax plan.
This year-end tax planning guide is based on the prevailing federal tax laws, rules, and regulations. It is subject to change, especially if Congress enacts additional tax legislation before the end of the year. Your personal circumstances will likely require careful examination.
This guide was written with the most current information as of November 1, 2022. Please continue to check back for future updates.