CPA Shares What to Do Now for End-of-Year Tax Planning
Consider this your annual reminder. Early November until the end of the year is a good time to touch base with your CPA. Whether it’s checking to see if there is anything you should do before the end of the year, or to get assistance with planning, your CPA can be helpful in determining the best way to maximize deductions and other tax strategies.
John Barnard, owner of John M. Barnard, CPA, PA, certified public accounting firm in Statesville, works extensively with the agricultural community. He also is one of two appointed directors on the Carolina Farm Credit Board of Directors. He shares advice on what to do now, along with a brief update on current law that may have a bearing on your financial decisions.
- Get your 2022 records together. While it may seem premature as far as tax season, it’s really a good time to review where you currently stand so you can make wise decisions when it comes to any end-of-year purchases.
- Match your deductions to your income. Good recordkeeping will help you determine whether this might be the year to buy farm equipment, for example. John says the goal is to even out years as much as possible. If your records indicate a good income year, it may make sense to go ahead and get some expenses out of the way, such as the purchase of farm equipment, instead of holding off until next year to buy when next year may not be as big a year. That resulting deduction may be more beneficial during a good year. On the other hand, if revenues aren’t quite where you wanted them, it may be important to finish up certain projects to add to your income this year and to wait to purchase in the coming year, particularly if prospects for greater income seem possible. The whole idea is not to have an extreme high low wave type of arrangement. If possible, even out the wave a little by staying abreast of where you stand with good recordkeeping and by matching deductions with income.
- Consider contributions to IRAs, ROTH, or SEP accounts for retirement and tax purposes. These are still a great benefit for small businesspeople who are eligible and who can’t or don’t want to set up extravagant retirement plans. If eligible, you can make contributions until April 15, 2023, for the 2022 tax year. “It’s a good planning tool that can be helpful if you are eligible,” says John. “There are all kinds of retirement arrangements available for small businesses and now is the time to pursue them before the end of the year. Talk with your financial advisor about what is best for you.”
- Be your own advocate. Trade associations are helpful in sharing information about changing tax rules and tax laws. Whenever you hear about changes, talk with your CPA about how they may affect you.
Changes in tax laws to be aware of:
- Deductions for Equipment Purchases -- Currently, tax laws allow you to deduct 100 percent of new equipment against your business profits the year you make the purchase and put the equipment into service. That continues through 2022 and then drops back to 50 percent January 1, 2023. While you don’t lose the other 50 percent deduction, you will have to stretch it over a period of 5 to 7 years or so.
- Health Insurance Extension – For small businesses relying on the Affordable Care Act for insurance, which was expected to run out at the end of 2022, the legislation has been extended through 2025, making some premium assistance available for those in lower and moderate income levels who seek health insurance through the marketplace.
- Adjusted Tax Brackets – Tax brackets have been adjusted and increased, taking into consideration cost of living raises and inflation. Likewise, standard deduction amounts have also been increased. So, you can make a little more money without it bumping you into the next tax bracket. For example, in 2021, the upper limit for the 12 percent tax bracket for a married couple filing a joint return was $81,050. For 2022, it is $83,550. An important aspect to the tax brackets and tax rates is the step system. John says several people misunderstand it and believe that even if you get bumped into the 22 percent bracket by $1 that you now pay 22 percent taxes on all your income. That is not the case. For example, the first $83,550 of taxable income for a married couple filing a joint return is taxed at the 10 to 12 percent rate; anything over that is taxed at the next higher rate.
- Cost of Living De Minimis Rule for Gifting – For those giving cash or assets such as stock, land, or a vehicle to a family member, for example, the limit allowed with no tax return filing consequences is $16,000 for 2022, up from $15,000 in 2021. It has been set for $17,000 for 2023.
- No estate tax up to $12.06 million for 2022. If you die, your estate is not subject to federal estate tax if the value of your estate is less than the exemption amount, which is $12.06 million in 2022, and will be $12.92 million in 2023. For a married couple, that doubles for a combined exemption of $25.84 million in 2022. If you own lots of acreage, this can be useful information for estate planning.
John says that during election years, there typically isn’t a lot done a couple of months before and after the election, regardless of which party is in power. On occasion, decisions are made that are retroactive. Do what you can by keeping good records and touching base with your CPA around November or early December to make sure you can match purchases and deductions with income as much as possible.
By Leah Chester-Davis