Year-End Tax Planning Strategies for Businesses

EisnerAmper hosted a pair of webinars in November 2022 on year-end tax strategies. Part II focused on businesses and was presented by a panel consisting of Carolyn Dolci, Anthony Cuti, Max Markel and Mitchell Novitsky who provided a plethora of relevant, valuable information. Here are some of the key takeaways. 

Federal

• The 15% Alternative Minimum Tax (“AMT”) on large corporations to be imposed for years beginning after December 3, 2022.
• The Research Tax Credit applied against payroll tax for small businesses under IRC Sec. 41(h) from $250,000 to $500,000 for tax years beginning after December 31, 2022, is subject to specific provisions.
• The excess business losses limit is extended by non-corporate taxpayers under IRC Sec. 461(l) until 2028.
• The IRS has received funding of $80 billion to help with customer service, enforcement, modernizing their systems and processing returns—including the large backlog due to COVID.
• Domestic research and development expenses starting January 1, 2022, must be capitalized over five years as opposed to expensed.
• The Employee Retention Credit is a fully refundable credit for employers, but no deduction is allowed for wages equal to the amount of credit claimed in the year to which the payroll relates.

International 

• The 15% AMT will affect all foreign entities as well as domestic entities going forward.
• There is increased complexity for all foreign Forms 5471, 8865 and 8858s including new schedules and additional information that need to be provided to the IRS.
• K-2 and K-3s are the new reporting regime for flow-through international forms and items starting in 2022. The IRS issued filing exceptions on October 25, 2022, to reduce the burden of these new forms. This also ties into the elections needed for PFICS that must happen at the partner level, because the partnership cannot make these elections at certain times.
• Foreign research and development expenses starting January 1, 2022, must be capitalized over 15 years as opposed to expensed.
• Form 1042 and its schedule for foreign contractors (similar to a Form 1099 reporting) continue to be areas to look at with the associated W-8s needing to be on file.

State and Local 

• Pass-Through Entity Tax (“PTET”) for various states allows for a deduction at the entity level with a state tax credit for partners/shareholders to bypass the $10,000 SALT deduction for individual taxpayers. To claim these benefits, there are various elections and estimate payments that must be made on a state-by-state basis.
• Telecommuting has become a new norm in our society but bares some impact on personal taxes and at the entity level. A telecommuter in a new state could lead to new nexus and filing requirements for a business.
• Changing domicile in this new telecommuting era is common, but taxpayers need to make sure the definition of domicile is meet and records are up to date to support this; this is a big audit area for many states.

Planning Options

• Establish qualified retirement plans prior to year-end.
• Assess the ability to take losses on current-year returns for at-risk limitations and basis status.  
• Know that 2022 is the last year for 100% federal bonus depreciation. This deduction is scheduled to be phased out over the next few years. States do not always allow for bonuses.
• Take advantage of the qualified business income deduction of 20%, which sunsets in 2025.

All tax situations are unique and should be analyzed yearly for each entity, given the constantly changing tax environment. As always, consult with tax professionals on any areas of concern or questionability as the rules are complex and missteps can be costly. If you missed any of this presentation, check out our on-demand recording.