Category: Uncategorized

Q4 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.

Preface: Californians can keep driving and buying gas-powered vehicles after 2035, but no new models will be sold in the state thereafter.

2022 Inflation Act: Electric Vehicle Credits

SACRAMENTO, Calif. (AP) [August 26, 2022] — California set itself on a path Thursday to end the era of gas-powered cars, with air regulators adopting the world’s most stringent rules for transitioning to zero-emission vehicles.
The move by the California Air Resources Board to have all new cars, pickup trucks and SUVs be electric or hydrogen by 2035 is likely to reshape the U.S. auto market, which gets 10% of its sales from the nation’s most populous state.
But such a radical transformation in what people drive will also require at least 15 times more vehicle chargers statewide, a more robust energy grid and vehicles that people of all income levels can afford.

“It’s going to be very hard getting to 100%,” said Daniel Sperling, a board member and founding director of the Institute of Transportation Studies at the University of California, Davis. “You can’t just wave your wand, you can’t just adopt a regulation — people actually have to buy them and use them.”
Other states are expected to follow, further accelerating the production of zero-emissions vehicles.

Washington state and Massachusetts already have said they will follow California’s lead and many more are likely to — New York and Pennsylvania are among 17 states that have adopted some or all of California’s tailpipe emission standards that are stricter than federal rules.
https://apnews.com/article/technology-california-air-resources-board-climate-and-environment-dc75c11280f85a8ab134cf392497be68

The 2022 Inflation Act signed into legislation includes extension and modification to tax credits for electric vehicles.

The credit for the purchase of new electric vehicles (which includes both plug-in electric vehicles and fuel cell vehicles) is extended through 2032, and modified, under the 2022 Inflation Act. The 2022 Inflation Act eliminates the current credit’s limitation on the number of vehicles produced by a specific manufacturer.

A new credit of up to $4,000 is also available for the purchase of a previously owned clean vehicle, subject to income limitations, through 2032. The 2022 Inflation Act also includes a new credit for up to 30 percent of the basis of a qualified commercial clean vehicle acquired after 2022 and before 2033.

New Clean Vehicle Credit

The credit for new qualified plug-in electric drive motor vehicle credit is restructured as a maximum credit of $7,500 for a new clean vehicle. The new clean vehicle credit generally applies to vehicles placed in service after December 31, 2022. Only one credit is allowed once with respect to any vehicle, as determined based on its vehicle identification number (VIN), including any vehicle with respect to which the taxpayer elects to transfer the credit to an eligible entity.

The credit imposes sourcing requirements on the critical components of the vehicle and battery systems. The maximum amount of the credit remains at $7,500, but includes income limitations, as well as limitations on the manufacturer’s suggested retail price.

Taxpayer adjusted gross income price caps.
The threshold amounts are:

• • • •  $300,000 for a joint return filer or a surviving spouse;
      • $225,000 for a head of household; or
      • $150,000 for any other taxpayer (an unmarried taxpayer or a married taxpayer filing a separate return).

The credit also is not allowed if the manufacturer’s suggested retail price (MSRP) for the vehicle exceeds:

• • • •  $80,000 for a van,
      • $80,000 for a sports utility vehicle (SUV),
      • $80,000 for a pick-truck, or
      •  $55,000 for any other vehicle.

Credit Amount.

The new clean vehicle credit has two components:

• • • A $3,750 credit applies if the vehicle satisfies domestic content requirements for critical minerals in the battery
    • A $3,750 credit applies if the vehicle satisfies domestic content requirements for battery components

Previously Owned Clean Vehicle Credit

A tax credit of up to $4,000 is available for the purchase of certain used clean vehicles. A qualified buyer who places in service a previously owned clean vehicle during a tax is allowed as a credit the lesser of:

• • • • $4,000, or
      • 30 percent of the vehicle’s sale price.

The credit is not allowed if the lesser of the taxpayer’s modified adjusted gross income for the tax year or the preceding tax year exceeds $75,000 ($150,000 for married couples filing jointly and $112,500 for head of household filers).

A “previously owned clean vehicle” is a motor vehicle whose model year is at least two years earlier than the calendar year in which the taxpayer acquires the vehicle. It must have been used originally by a person other than the taxpayer. The taxpayer must have acquired the vehicle in a qualified sale. The vehicle must have a gross vehicle weight rating less than 14,000 pounds.

A qualified sale is a sale of a motor vehicle by a dealer for a sale price that does not exceed $25,000. The sale must be to a qualified buyer. The sale must be the first transfer since the date the enactment of this provision. The sale may not be to the original user of the vehicle.

Commercial Clean Vehicle Credit

The qualified commercial clean vehicle credit for any tax year is an amount equal to the sum of the credit amounts determined with respect to each qualified commercial clean vehicle placed in service by the taxpayer during the tax year.

Per vehicle amount- The credit amount is equal to the lesser of:

• • • 15 percent of the basis of the vehicle (30 percent in the case of a vehicle not powered by a gasoline or diesel internal combustion engine), or
    • the incremental cost of the vehicle.

The amount is limited to $7,500 for a vehicle having a gross vehicle weight rating of less than 14,000 pounds, and $40,000 for other vehicles. A qualified commercial clean vehicle’s incremental cost is the excess of the vehicle’s purchase price over the price of a comparable vehicle. A comparable vehicle is any vehicle powered solely by a gasoline or diesel internal combustion engine and comparable in size and use to the vehicle.

Please contact us if you would like to discuss tax reporting requirements and help to determine if you qualify for the clean vehicle credits.

Preface: “What you do makes a difference, and you have to decide what kind of difference you want to make.” —Jane Goodall

2022 Inflation Act: 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.

Call our office and we can discuss how these changes might affect your individual tax situation.

Preface: “Life is what happens to us while we are making other plans.”
― Allen Saunders

4 Reasons Why Planning for a Successful Future Isn’t DIY

Credit: Donald Feldman, CExP™, CPA, CVA, MBA

At their core, successful business owners like you are builders. Whether you founded your business, or purchased one and took it to new heights, doing it yourself runs through your veins. Why, then, would you need professional help to plan for a successful business future?

We could go on and on about all the reasons why, but let’s focus on four major elements of planning for a successful future that are typically complex and extremely challenging for even the most talented business owners to handle alone.

1. Your individual brilliance may not be scalable

Business owners are a special breed of ambition and brilliance. As you run the business, you may have methods that work well based on your individual talents and idiosyncrasies.

However, a key to a successful business future is building a business that doesn’t rely on you. Because if it relies on you, you can never leave it. And even if you never want to leave it during your lifetime, a business that lives by you may also die by you, which can have wide-ranging effects on others.
The true tragedy of individual brilliance is that when it comes naturally, it’s hard to explain to others. A classic example of this is Wayne Gretzky. Gretzky was the greatest hockey player in history, setting unbreakable records with ease. But when he tried his hand at coaching, he was much less successful because he struggled to explain how he did the things that made him so outstanding, which came so naturally to him.

So it goes in running a successful business. Having (a) documented operating systems that increase cash flow sustainability and (b) a way to scale those systems in ways that don’t involve you, are profoundly important for a successful future.

A professional advisor can help you distill your individual brilliance into something that doesn’t rely on you for success.

2. What does a successful future mean?

The idea of a successful future might seem easy to understand at first glance. Maybe you want enough money to retire with some left over to begin building generational wealth. Perhaps keeping the business in the family is your idea of success.

Whatever your vision of success is, do you know precisely what it takes to achieve it? And have you begun implementing a plan to pursue it?
Many business owners have two jarring experiences when they start considering the nuts and bolts of a successful future. First is the Misperception Spell. This is when a business owner becomes complacent because they believe they’re farther ahead in their planning than they truly are.

For example, you may think that having $3 million in retirement is enough for you. But how can you know that for sure? What happens if your estimate is wrong? What if you live longer than you expect? Would you be willing to go back to work for someone else if you were wrong about your estimates?
Second, and related to the Misperception Spell, is that many business owners have an Asset Gap. This is the difference between what you actually have and what you’ll actually need to achieve financial independence, whether you leave your business during your lifetime or die at your desk.
Without accurate information, planning for a successful business future is essentially a gamble. Professional advisors can help you obtain accurate information about your wants and needs, and then create plans that help you achieve them.

3. Best friends may not make best managers

A crucial element of planning for a successful business future is Next-Level Management. However, many business owners struggle with this because it could mean that longtime, loyal managers aren’t the best people to help them pursue future business success.

This doesn’t necessarily mean that you need to be starkly Machiavellian with your current managers. However, a professional advisor may be able to examine your talent pool more objectively. Then, they can help create a plan that allows you to maximize your business’ potential through Next-Level Management.

This may include incentivizing current managers to achieve more ambitious goals if they’re capable. It may also mean finding a more appropriate role for your current managers as you bring in next-level managers, if necessary.

4. Honesty is hard when it’s your baby

Finally, planning a successful business future is emotional. It often requires owners to confront the warty parts of their business to take the business to the next level.

For instance, business owners typically place a higher monetary value on their businesses because of how much the business means to them personally. It can be devastating, even financially harmful, to find that an objective valuation doesn’t agree.

Though many business owners believe they can handle the slings and arrows of building a successful business future, it’s much, much harder when their expectations fall short of reality. However, with the help of professional advisors, business owners can obtain accurate information; begin to act in ways that improve business performance; and gain a clearer path toward creating the business future they want, rather than a business future they’re forced into.

We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience.

The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional.

Don Feldman is the founder of Keystone Business Transitions, LLC, a Lancaster, PA firm devoted to helping business owners smoothly exit their companies. He has been a CPA for over 25 years and a valuation professional for 20 years. For the last 15 years, Don’s practice has focused on succession and exit planning, including transfers of business interests to family members and key employees, as well as sales to outside buyers.

Preface: “History has not dealt kindly with the aftermath of protracted periods of low risk premiums.” – Alan Greenspan

Austrian Economics, Business Cycles, and the Theory and Practice of Money – Segment II  7.27.222 Austrian Economics Presentation Segment II

Preface: “People don’t realize that we cannot forecast the future. What we can do is have probabilities of what causes what, but that’s as far as we go. And I’ve had a very successful career as a forecaster, starting in 1948 forward. The number of mistakes I have made are just awesome. There is no number large enough to account for that.” – Alan Greenspan

Austrian Economics, Business Cycles, and the Theory and Practice of Money – Segment I     7.27.222 Austrian Economics Presentation Segment I