A Year in Review
In 2022 we’ve seen rising costs in all aspects of business and life due to inflation. While those increasing costs will undoubtedly have an effect on your bottom line, there are plenty of opportunities to adjust your 2022 tax filing to reduce the amount you’ll have to pay in a year where everyone’s feeling the effects of inflation.
Below are just a few items that could help save a bit of money in 2022. Bring these up with your licensed tax preparer to see if they can work for your business.
Opportunities to Save Through Strategic Tax Elections
- Deduct eligible accrued compensation liabilities (such as bonuses and severance payments) that are fixed and determinable by the end of the year and paid within 2.5 months of year end.
- Accelerate deductions of liabilities such as warranty costs, rebates, allowances and product returns, state income and franchise taxes, and real and personal property taxes under the “recurring item exception.”
- Optimise inventory valuation to soften the blow of increased costs. For instance, if you adopt, or the last-in, first-out (LIFO) method of valuing inventory can result in higher cost of goods sold deductions as the cost of that inventory would have increased YoY.
Write-Off Eligible Losses Related to Depreciated or Worthless Assets
- If there are any bad debts that can be wholly or partially written off for tax purposes, this year is a good year to do it. In order to write-off a debt completely, it must be shown that a debt is wholly uncollectible as of the end of the year. Partial write-offs require a conforming reduction on the books.
- Does your business have any physical assets that are damaged, abandoned, or otherwise worthless? Now would be a good time to get those off the books to generate an ordinary loss.
Tax Credits for Qualified Businesses
- The Employee Retention Credit (ERC) was and is still available for employers significantly impacted by COVID-19 in 2020 or 2021. If your business hasn’t claimed the ERC yet, the statute of limitations will last 3 years after qualifying quarters.
- By investing in certified “Community Development Entities” the New Market Tax Credit Program provides federally funded tax credits for approved investments in low-income communities.
Other Items to Consider
- Contributions made to a qualified retirement plan by the extended due date of the 2022 federal income tax return may be deductible for 2022; contributions made after this date are deductible for 2023.
The CARES Act allowed employers to defer payment of the employer portion of Social Security payroll tax liabilities that would have been due from March 27 through December 31, 2020. Make sure the deferred amount is paid by December 31, 2022.
- There are many more ways that your tax preparer can help your business save money on your 2022 filing but we hope this will help get the wheels turning. As with anything tax related, be sure to refer to a licensed tax preparer in order to keep your business running smoothly.
The Dental Success Network Team