Tax

Here’s an easy question: Do you need more 2022 tax deductions? If yes, continue reading.

Next easy question: Do you need a replacement business vehicle?

If yes, you can simultaneously solve or mitigate the first problem (needing more deductions) and the second problem (needing a replacement vehicle) if you can get your replacement vehicle in service on or before December 31, 2022. Don’t procrastinate.

To ensure compliance with the “placed in service” rule, drive the vehicle at least one business mile on or before December 31, 2022. In other words, you want to both own and drive the vehicle to ensure that it qualifies for the big deductions.

Now that you have the basics, let’s get to the tax deductions.

1. Buy a New or Used SUV, Crossover Vehicle, or Van

Let’s say that on or before December 31, 2022, you or your corporation buys and places in service a new or used SUV or crossover vehicle that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more. This newly purchased vehicle gives you four benefits:

• The ability to elect bonus depreciation of 100 percent
• The ability to select Section 179 expensing of up to $27,000
• MACRS depreciation using the five-year table
• No luxury limits on vehicle depreciation deductions

Example. On or before December 31, 2022, you buy and place in service a qualifying used $50,000 SUV for which you can claim 90 percent business use. Your business cost is $45,000 (90 percent x $50,000). Your maximum write-off for 2022 is $45,000.

2. Buy a New or Used Pickup

If you or your corporation buys and places in service a qualifying pickup truck (new or used) on or before December 31, 2022, then this newly purchased vehicle gives you four big benefits:

1. Bonus depreciation of up to 100 percent
2. Section 179 expensing of up to $1,050,000
3. MACRS depreciation using the five-year table
4. No luxury limits on vehicle depreciation deductions

To qualify for full Section 179 expensing, the pickup truck must have

• a GVWR of more than 6,000 pounds, and
• a cargo area (commonly called a “bed”) of at least six feet in interior length that is not easily accessible from the passenger compartment.

Short bed. If the pickup truck passes the more-than-6,000-pound-GVWR test but fails the bed-length test, tax law classifies it as an SUV. That’s not bad. The vehicle is still eligible for either expensing of up to the $27,000 SUV expensing limit or 100 percent bonus depreciation.

If you would like to discuss vehicle strategies, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 15, 2022

All small-business owners with one to 49 employees should have a medical plan for their business.

Sure, it’s true that with 49 or fewer employees, the tax law does not require you to have a plan, but you should.

When you have 49 or fewer employees, most medical plan tax rules are straightforward.

Here are six opportunities for you to consider:

1. Make sure to claim the federal tax credit equal to 100 percent of the required (2020) and the voluntary (2021) emergency sick leave and emergency family leave payments. You likely made payments that qualify for the credits.
2. If you have a Section 105 plan in place and have not been reimbursing expenses monthly, do a reimbursement now to get your 2022 deductions, and then put yourself on a monthly reimbursement schedule in 2023.
3. If you want to implement a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), but you have not yet done so, make sure to get that done correctly now. You are late, so you could suffer that $50-per-employee penalty should your lateness be found out.
4. But if you are thinking of the QSEHRA and want to help your employees with more money and flexibility, consider the Individual Coverage Health Reimbursement Arrangement (ICHRA). It’s got more advantages.
5. If you operate your business as an S corporation and want an above-the-line tax deduction for the cost of your health insurance, you need the S corporation to (a) pay for or reimburse you for the health insurance and (b) put that insurance cost on your W-2. Make sure the reimbursement happens before December 31 and you have the reimbursement set up to show on the W-2.
6. Claim the tax credit for the group health insurance you give your employees. If you provide your employees with group health insurance, see whether your pay structure and number of employees put you in a position to claim a 50 percent tax credit for some or all of the monies you paid for health insurance in 2022 and possibly in prior years.

If you need more insights into the opportunities described above, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 11, 2022

The federal government wants you to go green if you own a commercial or residential rental building.

The newly enacted Inflation Reduction Act extends and expands valuable tax credits for solar panels or other renewable energy installations and electric vehicle charger units. Also, the long-available accelerated tax deduction for commercial building energy improvements is now easier to get and potentially worth much more.

These credits and deductions are complicated and subject to new restrictions.

Business Energy Investment Tax Credit

You can claim the Business Energy Investment Tax Credit (ITC) if you install solar, wind, or other renewable energy facilities in your commercial or rental buildings.

The Inflation Reduction Act retroactively increased this credit from 26 percent to 30 percent for projects begun before 2025.

Starting in 2023, you can qualify for 10 percent bonus credits available for projects

• complying with domestic content requirements,
• located in low-income communities, or
• located in communities involved with fossil fuels.

You also can claim an additional 20 percent ITC by participating in various federal housing programs.

One more thing: the ITC is non-refundable, but it is transferable. You can sell it to an unrelated taxpayer.

The ITC above expires in 2025, to be replaced with a new technology-neutral 30 percent clean electricity ITC.

Energy Efficient Commercial Buildings Deduction

This tax deduction enables owners of commercial buildings and multifamily residential buildings of four stories or more to deduct in one year all or part of the cost of various energy improvements made as part of a plan to reduce total energy costs. Such improvements include heating and cooling systems, roofs, walls, floors, and interior lighting.

Under the old deduction, building owners had to improve a building’s energy efficiency by 50 percent.

Now, building owners have to improve energy efficiency only by a minimum of 25 percent. In addition, starting in 2023, the new law increases the deduction to $5.00 per building square foot if the owners meet prevailing wage and apprenticeship requirements. If not met, the building owner may claim only a $1.00 per square foot maximum deduction.

The old deduction was $1.88 per square foot.

The buildings deduction is complex; to get it, you’ll likely need to hire a heating and ventilating engineer, a refrigeration engineer, an illumination engineer, or other similar experts.

Electric Vehicle Charger Credit

The new law extended to 2032 the credit for installing electric vehicle charger units in commercial or rental buildings. But starting in 2023, some rules change:

• The 30 percent credit is available only for projects that comply with prevailing wage and apprenticeship rules; otherwise, it’s 6 percent.
• The credit is available only for properties in low-income or rural areas.
• The annual cap on the credit increases to $100,000 per unit.

If you want to discuss these tax credits, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 8, 2022