Your 2022 taxes are going to look different. Here’s what you should know.

In our last post, we broke down some year-end tax strategies to help businesses and individuals maximize savings. Now, let’s take a look at how the 2022 tax code is different from 2021.

Some of the changes are good, including the return of green-energy provisions. Unfortunately, most of the changes involve deductions and credits expiring, including enhancements made during the pandemic. While it’s possible that some may be renewed by the end of the year – President Biden has vowed to renew some deductions but has yet to act – we will walk you through those that are currently set to expire, along with some other changes.

Here’s what to expect this tax season.

R&D write-offs are getting weaker.

The Tax Cuts and Jobs Act of 2017 reduced taxes for businesses. But it also contained a number of provisions to offset its cost, including the elimination of immediate expensing for research and development costs.

Under current law, all R&D costs incurred after 2021 must be capitalized. These capitalized costs will be spread over a five-year period, which means less immediate savings for businesses.

This news hits especially hard for manufacturers who typically rely on the deduction of these expenses. The silver lining is that the House could reinstate the deduction of 2022 R&D expenses, but they would have to act quickly. Regardless, businesses should have a plan in case the current law sticks.

Green-energy provisions are returning.

Good news for businesses and individuals investing in sustainability: The Inflation Reduction Act is extending several green-energy provisions that were set to expire. That includes the Energy Efficient Commercial Building Tax Deduction, the Plug-in Electric Vehicle Credit (renamed the Clean Vehicle Credit), the Energy Efficient Home Improvement Credit, the Residential Clean Energy Credit, the Alternative Fuel Refueling Property Credit, and the Credit for Energy Efficient Homes, as well as existing credits for the energy industry.

Several deductions and credits are set to expire.

A number of savings opportunities made during the pandemic are set to expire, affecting individuals and businesses.

The enhanced Child Tax Credit, the enhancements made to the Dependent and Child Care Credit, the Earned Income Tax Credit, the charitable deduction for non-itemizers, and expanded percentage deductions for itemizers and corporations are all on the chopping block. The Biden Administration has proposed extending several but has yet to act. Businesses and individuals should plan for these savings opportunities to expire.

In addition to the COVID-related enhancements, several regular provisions are set to expire and have yet to be extended. Businesses may see a few tax breaks disappear, including those for railroad maintenance. Individuals, meanwhile, will see a number of credits and deductions expire, including the Mortgage Insurance Premium Deduction, the Fuel Cell Motor Vehicle Credit, and the Health Coverage Tax Credit for Trade Adjustment Recipients, among others.

The IRS will be better-funded and will probably be conducting more audits.

The IRS received nearly $80 billion from the Inflation Reduction Act. While that money was intended to be used to improve customer service and enhance enforcement on the highest earners, it may also result in more audits for individuals with incomes under $400,000.

Treasury Secretary Yellen explicitly directed the IRS not to increase audits on this group beyond historic rates. However, due to lack of funding, the IRS has performed fewer audits in recent years, so they may interpret ‘historic rates’ as their previously higher auditing rates and therefore conduct more audits. Either way, individuals and businesses should take measures to ensure compliance and be prepared in case of an audit.

Standard mileage rates were adjusted mid-year.

It’s not unusual for standard mileage rates to increase. But for 2022, this change occurred as a mid-year adjustment designed to address inflation. Now, business miles must be separated into two periods.

The IRS is redefining crypto.

The IRS recently released a revised Form 1040 for 2022. While most of the changes reflect deductions and credits that are set to expire, the form also modifies the language surrounding cryptocurrency. What was previously deemed “virtual currency” is now “digital assets.” It’s unclear how this new terminology will affect taxation – the IRS has been asked to clarify – but anyone who invests in crypto should keep an eye on it.

Feel confident going into tax season with expert financial guidance for businesses + owners.

At Dugan + Lopatka, we partner with businesses and owners to identify tax savings opportunities, analyze data, manage wealth, and help our clients make key decisions with confidence.

By partnering with one firm for both your business and personal finances, you can ensure that you are maximizing your total tax savings while positioning yourself for success—in business and life.

Contact our Chicagoland CPAs today.

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