2022 Year-end Tax Planning Tips for Businesses

Posted on Tuesday, December 20, 2022

As year-end approaches, many business owners start thinking about how to reduce their tax bill for 2022. Here are a few areas where some opportunities may exist.

Bonus Depreciation. If you are contemplating making an asset purchase, doing so by the end of 2022 can reduce your taxable income dollar-for-dollar in many cases. A 100% “bonus” first-year depreciation deduction is available for any machinery or equipment (some exceptions apply) that are both bought and placed into service in 2022. Since there is no provision for pro-rating bonus deprecation based on the length of time the asset is in service, your deduction is not limited by the fact that you would be making the purchase in December. Note that this deduction is not available for Indiana tax purposes and is limited in other states as well. However, the federal treatment usually outweighs this negative state income tax provision.
Business Property Expensing Option. There are some assets that don’t qualify for bonus depreciation but do qualify for business property expensing, also known as “Section 179 Expense”. For tax years beginning in 2022, the expense limit is $1,080,000 and applies to off-the-shelf computer software, most interior building improvements, roofs, HVAC, fire protection, alarm, and security systems. Note that Indiana limits this deduction to $25,000.
Income Deferral and Expense Acceleration. Cash-basis taxpayers can defer income into 2023 by delaying billings into next year. Companies can take a similar approach by accelerating most types of expenses into 2022. Cash basis taxpayers have more control over this because they can usually simply elect to pay bills early.
Year-end Bonuses. Year-end bonuses can be expensed by cash-basis companies if they are paid by the end of the year. Accrual-basis employers can deduct bonuses if they meet the all-events test and are paid within two and one-half months of year end. The all-events test is met if all three of the following are true: all events have occurred that establish the liability, the amount of the bonus can be determined with reasonable accuracy, and economic performance has occurred.
Retirement Plan Contributions. In many cases, retirement plan profit-sharing contributions can be made up through the extended due date of the tax return. And, with the adoption of the SECURE Act in 2019, some plans can even be set up after year end.

For more information on how these and other techniques can apply to your business, please contact your DWD accountant.

Posted in Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.