Tax Tips for 2022

By Prairie Business

Steve Ruda has been a professional tax consultant long enough to recognize ebbs and flows in the market.

But like a lot of people, he hasn’t seen anything like what the pandemic has created: An environment in which some businesses have floundered, while others have excelled.

Ruda, director of client relations with ICS Tax in Sioux Falls, South Dakota, is one of the lucky ones.

“It’s been a very good two years,” he said of the business. “I think a lot of that is because we have some opportunities where we can come in and save the employer, the business, some cash and save on their tax liability.”

Despite the uptick of his business, he feels bad whenever he learns of a company that has struggled due to the pandemic. He knows there have been many.

Ruda has seen a lot of change over the past two years and picked up on some trends.

“The trend that we have seen for cost segregation studies and fixed assets is that there have been a lot more purchases, especially over the last six to nine months,” he said. “A lot of people have been worried about what the capital gains rate tax is going to be and maybe they decided to sell a business in the last six to nine months to try to take advantage of the lower capital gain rates.”

Some Items to Consider

Kacey Halley, a partner with Eide Bailly in Fargo, North Dakota, also has seen trends in the market and pointed out a few things to keep an eye on in 2022, as well as provided some tax tips.

For starters, she said, what happens with taxes depends on legislation, but many people are confident that tax rates will not be going down.

“Many of my clients opted not to pull expenses from early 2022 into 2021 like they normally would do in case there is an unfavorable change to taxpayers,” she said.

Estate Tax Planning: Estate tax planning, Halley said, is still relevant even if there is no new legislation in this arena. She said the current estate exemption of $11.7 million in 2021 ($12,060,000 in 2022) is set to sunset on Dec. 31, 2025, under current law.

“Many business owners and high-wealth individuals were scrambling to pull together estate plans in anticipation of a current year tax bill,” she said. “This flood of planning projects overwhelmed estate planners, business valuation consultations, and attorneys alike. Many professionals were having to turn away work due to lack of capacity. This could happen again at the end of 2025, so don’t wait until the last minute if you have estate concerns.”

Best Practices for Businesses: Hallley said it is best to talk with a tax advisor regarding any accounting clean-up and to get an estimate of your tax liability on April 15 so you can be prepared for any cash needs to cover the tax or take action before year-end, as appropriate.

“No one likes surprises on April 15,” she said. “You should also plan to have your information to your tax advisor as early as possible. Like many other businesses, accounting firms are finding themselves having a shortage of help. The volume of federal and state tax law changes and complexities added to an already complex profession has drastically increased the amount of time needed to prepare returns.”

Tax Planning and Retirement: Halley said good tax planning looks at a period of years rather than just the current year. If it looks like you will be in a higher tax bracket next year, it doesn’t make sense to push income out of this year.

“I have also heard people say they have purchased expensive pieces of equipment they didn’t need just to save on income tax,” she said. “Does it make sense to spend $50,000 on something you won’t use to save $20,000 in tax? I don’t think so; you’re still $30,000 out of pocket. Don’t let the tax answer drive you towards a bad overall business decision.”

She said her favorite deferral mechanism for small business is retirement plan funding. Instead of spending that $50,000 on a piece of unnecessary equipment, you may be able to fund a SEP.

“You get the same current year income tax result plus contributed to your retirement nest egg,” Halley said. “You do need to be mindful of funding requirements for owners and employees alike.”

For property owners, a cost segregation study can accelerate depreciation from a 39-year period to one year in many instances. Performing this study in 2021 can be advantageous not only in reducing current year income tax, but possibly alleviating the 163(j) interest expense limitation. Research and development tax credits can also be powerful at both the federal and state levels. R&D applies to system/process improvements, new development, etc.

“It is not necessarily an activity performed by people in white lab coats,” she said.