Month: September 2022

Preface: A man doesn’t need brilliance or genius, all he needs is energy. – Albert M. Greenfield

2022 Inflation Act: Research Credit for Small Businesses

In tax years beginning after 2015, certain qualified small businesses are allowed to claim a limited amount of the research credit against payroll taxes. Under the Inflation Reduction Act of 2022, in tax years beginning after 2022, the maximum amount of the credit against payroll taxes is increased from $250,000 to $500,000.

Taxpayers may be able to claim a credit for qualified research expenses. The research credit comprises three separately calculated credits: (1) the incremental research credit, (2) the credit for basic research payments to universities and other qualified organizations, and (3) the credit for energy consortium payments. A qualified small business may elect to apply a portion of its research credit against the social security tax imposed on an employer’s wage payments to employees.

A qualified small business must satisfy the following tests:

1. for the year of the election, the business’s gross receipts must be less than $5 million;
2. the business cannot have had gross receipts in any tax year preceding the five-tax-year period that ends with the tax year of the election; and
3. the business cannot be a tax-exempt organization

New Energy Efficient Home Credit

The Inflation Reduction Act of 2022 (2022 Inflation Act) extends the New Energy Efficient Home Credit through 2032, in addition to increasing and modifying energy-saving requirements effective for dwelling units acquired after December 31, 2022.

Extension of credit. The credit is extended for 11 years, through December 31, 2032.

Energy-saving requirements. The 2022 Inflation Act modifies the energy-saving requirements that must be met to qualify for the credit, including requirements for:

• single-family new homes;
• manufactured homes; and
• multifamily dwelling units.

Credit amounts. Additionally, the 2022 Inflation Act replaces the existing credit amounts with a $2,500 credit for new single-family homes that meet certain energy efficiency standards and a $5,000 credit for new single-family homes that are certified as zero-energy ready homes.

The credit for multifamily dwelling units is set at $500, or $1,000 for eligible multifamily units certified as zero-energy ready. Additionally, an enhanced bonus credit is available with respect to multifamily housing units if taxpayers satisfy prevailing wage requirements for the duration of the construction of such units. The bonus credit is equal to $2,500, or $5,000 for units that are certified as zero-energy ready.

Basis adjustment. Further, the 2022 Inflation Act clarifies that taxpayers claiming the credit do not have to reduce basis for purposes of calculating the low-income housing tax credit.

Please call our office and we can discuss how these tax laws might affect your individual tax situation.

Preface: If you’re trying to create a company, it’s like baking a cake. You have to have all the ingredients in the right proportion. –Elon Musk

2022 Inflation Act: Energy Efficient Commercial Buildings Deduction

The Inflation Reduction Act of 2022 (2022 Inflation Act) modifies the energy efficient commercial buildings deduction for tax years beginning after December 31, 2022, by increasing the maximum deduction and updating the eligibility requirements for reduction of energy costs, in addition to other changes.

Energy efficient commercial buildings deduction. A deduction is allowed for all or part of the cost of energy efficient commercial building property placed in service as part of a building’s:

• • • • interior lighting systems;
      • heating, cooling, ventilation, and hot water systems; or
      • envelope.

The deduction was enacted to encourage commercial building owners or lessees to install energy efficient property. Installation of energy-efficient commercial building property occurs when constructing a new, or improving an existing, commercial building or government building. The tax deduction benefits both commercial building owners or lessees and designers of government-owned buildings.

Efficiency standard. The 2022 Inflation Act updates eligibility requirements for the deduction so that property must reduce associated energy costs by 25% or more (decreased from 50% or more) in comparison to a reference building that meets the latest efficiency standard.

Applicable amount. The applicable dollar value of the deduction is $0.50 per square foot, increased by $0.02 for each percentage point above 25% that a building’s total annual energy cost savings are increased. The amount cannot be greater than $1.00 per square foot. However, the maximum amount of the deduction in any tax year cannot exceed $1 per square foot minus the total deductions taken in the previous three tax years (or during a four-year period in cases where the deduction is allowable for someone other than the taxpayer). The applicable dollar value will be adjusted for inflation for tax years beginning after 2022.

An increased dollar value is available for projects that satisfy prevailing wage and apprenticeship requirements for the duration of the construction.

Alternative deduction for energy-efficient retrofit property. Under the 2022 Inflation Act, taxpayers may elect to take an alternative deduction for a qualified retrofit of any qualified property. However, instead of a reduction in total annual energy power costs, the deduction is based on the reduction of energy usage intensity.

Please contact us for information on how you may be able to take advantage of this deduction or any other tax relief under the 2022 Inflation Act.

Preface: The way we look at manufacturing is this: The US’s strategy should be to skate where the puck is going, not where it is – Tim Cook

2022 Inflation Act: Advanced Manufacturing Production Credit

The Inflation Reduction Act of 2022 (2022 Inflation Act) provides for investment in clean energy and promotes reductions in carbon emissions. A large share of those incentive provisions are in the form of tax credits for green energy. In some cases, the credits are extensions and expansions of current credits, such as those for electric vehicles or residential energy property. Additionally, the 2022 Inflation Act includes new credits, such as those for the production of clean electricity.

The 2022 Inflation Act also adds a new general business credit for various components of advanced energy production and storage devices produced and sold after December 31, 2022. The amount of the credit varies depending on the component and begins to phase out after 2029.

The amount of the advanced manufacturing production credit is the sum of all credit amounts determined for each type of eligible component (including any incorporated eligible components) produced and sold to an unrelated person during the tax year, even where the sale to an unrelated person is made by a person related to the taxpayer.

Eligible Components. The amount of the advanced manufacturing production credit is determined by the particular component produced, and is available for the production of the following items, subject to specified requirements applicable to each particular component:

• thin film photovoltaic cells or crystalline photovoltaic cells;
• photovoltaic wafers;
• solar grade polysilicon;
• solar modules;
• wind energy components;
• torque tubes;
• longitudinal purlins;
• structural fasteners; and
• inverters.

Credit. The amount of the credit is phased out for eligible components sold after 2028. The credit is 75% of the otherwise eligible amount for components sold during the 2029 tax year, 50% for components sold during the 2030 tax year, 25% for components sold during the 2031 tax year, and zero percent thereafter.

Taxpayers eligible for the advanced manufacturing production credit can elect to receive direct advance payment from the Treasury Department instead of a credit against taxes.

 

Preface: The Journey of a thousand miles begin with one step – Lao Tzu

Mileage and Meals

Credit: Jacob M. Dietz, CPA

Do you or your employees drive personal vehicles for business purposes? Do you eat at restaurants for business purposes? If yes, then there may be tax benefits waiting for you.

Business Mileage

Business travel is tax deductible. First, there are two general ways a business can deduct expenses for travel by vehicle. The first method is actual expenses. For example, suppose a construction company buys a new pickup truck used 100% for business. The cost of that pickup truck, as well as gas or diesel, repairs, maintenance, inspection etc. are all tax deductible either directly as expenses or as depreciation.

The second method is the mileage deduction. The IRS publishes a set rate at which miles can be deducted. For the second part of 2022, that rate is $.625. If a business owner decides not to take the actual expense deduction, they can deduct a mileage rate. The mileage rate can be an especially good option for a small business if the owner uses a vehicle primarily for personal use and only secondarily for business use.

The standard mileage deduction replaces certain actual expenses like car insurance, gasoline, repairs, registration fees, and depreciation. If you incur tolls (such as on the PA turnpike) or parking fees, those can still be deductible in addition to the standard mileage rate.

In IRS Publication 463, the IRS explains that in certain situations the mileage method is not allowed. For example, if you take bonus depreciation or 179 expense on a car, you are prohibited from then taking the mileage deduction. This helps prevent a business owner from getting a double benefit, both expenses and mileage.

Employee Mileage for Business?

What happens when an employee drives their personal vehicle for work? If the business has an accountable plan, then the employee can submit mileage logs for reimbursement to the business. The company can then reimburse the employee for their mileage at the IRS rate, which is currently $.625 per mile. The business can then deduct those mileage expenses for tax purposes, and the employee does not need to pick up that reimbursement as income.

If a business has employees driving their personal vehicle for work, then an accountable plan can be a tax-efficient way to reimburse the employee for that expense. Simply increasing the employees pay would not be as efficient, since the employee would then be subject to taxes on the increased pay and there could be increased payroll taxes. Note that the reimbursement should be for business miles, not commuting miles.

Meals

Taxpayers can often deduct 50% of the cost of a business meal, or 100% (for 2021 and 2022) of a business meal if it is from a restaurant. To deduct this meal, the taxpayer should be able to substantiate the expense.

Adequate Records
Whether reporting your own business mileage or reporting mileage to an employer under an accountable plan, make sure that you substantiate the information. Simply taking a wild guess in April as to how many miles you drove for business last year may not hold much weight in an audit. Also, when reporting business meals, make sure you have adequate substantiation. If the meals and mileage are not substantiated, expect to have them thrown out in an audit. Remember to establish the business purpose of the expense, not just that the expense was incurred.

Per Diem

If you have employees traveling for business, consider using the per diem rules. Under the per diem rules an employer may deduct expenses paid to an employee at the federal per diem rate with less paper shuffling. The details of the per diem rules are beyond the scope of this blog. If you want to implement a per diem plan, please contact your accountant for more details. The per diem rules may make some things easier, but they do not eliminate all the recordkeeping.

This article is general in nature, and it does not contain legal advice. Contact your advisors to discuss your specific situation.