Year-end Tax Planning Checklist
By: Keith VanHoy
As the year draws to a close, business items can easily get lost in the blur of all that occurred in 2022. That is why we created this year-end checklist – to help you make the most of 2022 and to help keep your business as healthy as it can be.
Business Tax Planning:
· Purchase any needed equipment (new or used) and place it in service by December 31st in order to fully write off the cost of the equipment in 2022. Expensing is generally available for most depreciable property (other than buildings) and off-the-shelf computer software. It is also available for interior improvements to a building (but not for its enlargement), elevators or escalators, or the internal structural framework), for roofs, and for HVAC, fire protection, alarm, and security systems.
· Review the current fixed asset listing and remove any equipment that has been disposed of or abandoned. This is particularly important in Missouri, where equipment is subject to personal property tax.
· Consider separating meals and entertainment transactions into multiple accounts based on tax deductibility as established by tax reform.
o Meals furnished to employees – 100% deductible
o Client business meals – 100% deductible
§ For 2022, a business may claim 100% of food or beverage expenses paid to restaurants.
o Entertainment expenses for the benefit of employees (i.e. holiday party) – 100% deductible
o Entertainment expenses – non-deductible
· Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income. For 2022, if taxable income exceeds $340,100 for a married couple filing jointly, (about half that for others), the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business (such as law, accounting, health, or consulting), the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the business. The limitations are phased in; for example, the phase-out applies to joint filers with taxable income up to $100,000 above the threshold, and to other filers with taxable income up to $50,000 above their threshold.
· Review aged receivables and determine if any amounts should be written off.
· Pay any current bills or expenses by year-end if possible.
· Provide the following items to your payroll provider (if applicable) for inclusion on W-2 forms:
o Personal use of company-owned automobiles
o Shareholder health insurance premiums paid on behalf of a greater-than-two-percent owner of an S corporation
o Disability insurance premiums paid on behalf of owners
Retirement Tax Planning:
· Maximize your traditional and/or Roth IRA contributions. *
o The 2022 maximum for those under age 50 is $6,000.
o The 2022 maximum for those age 50 and older is $7,000.
- * Please note that there are income limitations related to Roth IRA contributions. Please contact your tax adviser with any questions.
Maximize employee and/or spouse retirement plan deferrals
Simple IRA: Under Age 50 = $14,000
Simple IRA: 50 and above = $17,000
401(k): Under Age 50 = $20,500
401(k): 50 and above = $27,000
Maximize Health Savings Account (HSA) deferrals
Individual Coverage: Under Age 55 = $3,650
Individual Coverage: 55 and above = $4,650
Family Coverage: Under Age 55 = $7,300
Family Coverage: 55 and above = $8,300
Individual Tax Planning:
· If you believe a Roth IRA is better for you than a traditional IRA, consider converting traditional-IRA money invested in any beaten-down stocks (or mutual funds) into a Roth IRA in 2022 if eligible to do so. Keep in mind that the conversion will increase your income for 2022, possibly reducing tax breaks subject to phaseout at higher AGI levels. This may be desirable, however, for those potentially subject to higher tax rates under pending legislation.
· Consider making any charitable contributions by December 31st. Ask your adviser about a donor advised fund to lump charitable contributions into one year.
· Postpone income until 2023 and accelerate deductions into 2022 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2022 that are phased out over varying levels of AGI. These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may actually pay to accelerate income into 2022.
· Required minimum distributions RMDs from an IRA or 401(k) plan (or other employer-sponsored retirement plan) have not been waived for 2022. If you were 72 or older in 2022 you must take an RMD. Those who turn 72 this year have until April 1 of 2023 to take their first RMD but may want to take it by the end of 2022 to avoid having to double up on RMDs next year.
· Make contributions to your 529 college savings plan and receive a state tax deduction.
· Submit for reimbursement any business expenses including mileage that were paid personally. These are no longer deductible on your personal return.
· Discuss your tax projection with your CPA to avoid any financial tax surprises on April 15th.