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Arla Wallace is an accounting professional with over 20 years experience. She spent several years working for both publicly-traded and private entities before founding her own business. Today she partners with small business owners so they can focus on operations while leaving the responsibility of staying on top of accounting tasks to her. She is a Certified Public Accountant (CPA) and a Certified ProAdvisor for Quickbooks Online.
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Federal Tax Law Changes for 2022 Changes to certain tax laws affecting small businesses are taking effect in 2022. As the owner of a small business, midyear is a good time to review any tax changes so that you and your tax preparer can ensure your business is in compliance and the correct amount of taxes are paid. Qualified Business Income Deduction The Qualified Business Income Deduction (QBID), also known as the pass-through deduction, is still available for tax year 2022. Individuals and certain trusts and estates may be eligible to take the QBID of up to the lesser of 20% of Qualified Business Income (QBI), or 20% of taxable income minus net capital gain. QBI includes the net amount of income, gain, deduction, and loss from any qualified trade or business. Businesses that may claim the QBID include sole proprietorships, S Corporations, partnerships, trusts, and estates. This deduction is available regardless of whether the taxpayer takes the standard deduction or itemizes deductions. The maximum deduction is limited once the taxpayer reaches an income threshold, which is increasing for tax year 2022 to $170,050 for single filers, and $340,100 for joint taxpayers, up from $164,900 and $329,800 for in 2021. The QBID is phased out completely when income reaches $220,050 for individual filers, or $440,100 for joint filers. Business Interest Expense Deduction Section 163(j) of the Internal Revenue Code, the business interest expense deduction, was amended through the Tax Cuts and Jobs Act (TCJA) by imposing a limitation on the deduction for years beginning after December 31, 2017. The amount of the deductible business interest expense cannot exceed the sum of (i) the taxpayer’s business interest income, (ii) 30% of the taxpayer’s adjusted taxable income (ATI), and (iii) the taxpayer’s floor plan financing interest. The temporary increase in the limitation on the deduction to 50 percent of ATI, which was enacted in the Cares Act (Coronavirus Aid, Relief, and Economic Security Act), has been discontinued for taxable year 2022, and the deduction has reverted to 30 percent. In addition, depreciation, amortization, and depletion are no longer added back in computing ATI. There is a small business exemption to this limitation, however, for those businesses who are not tax shelters and can meet the gross receipts test of Section 448(c) of the Internal Revenue Code (average annual gross receipts for the immediately preceding three-year taxable period does not exceed $25,000,000). Other Expiring COVID-19 Credits The Paid Leave Credits for small and midsized businesses and the tax credits for self-employed individuals, which were enacted in The American Rescue Plan, have expired and are no longer available for tax year 2022. Similarly, the Employee Retention Credit, which afforded small businesses an offset against payroll tax liabilities, has also expired. New tax laws, including state laws, can always change before the next filing season occurs, so make sure you and your tax preparer stay up-to-date on proposed legislation and regulations. |