2022 has been anything but a normal year

The end of the year is often a time of reflection — looking at the year that is ending and thinking about the year to come. The same is true when it comes to finances and tax planning for businesses and individuals.

However, according to two experts at Herbein + Co., a Berks County-based CPA and accounting firm, it is important for individuals and business owners to be talking with their financial advisers and accountants throughout the year.

“Planning is not a one-time end of the year thing. There are things happening throughout the year, and it is important for us to stay proactive with them and for them to let us know about changes that come throughout the year,” said Stephanie Atkins, a manager in Herbein’s tax department.

Atkins joined the firm in 2013 and focuses on corporate tax services for clients in a variety of industries. She also works with individual clients on tax planning and compliance.

“There is no worse feeling than when we start getting into the busy season and have a conversation with a client and they say they did something during the year. And we say, ‘Wow, maybe we could have structured that a different way,’” said Stacy Weller, a partner in Herbein’s tax department.

Weller joined the firm in 2005 and works with individual and corporate tax clients. In addition to working with a variety of industries, Weller’s focus includes estates, trust, gift planning and compliance for high net worth individuals.

“When we’re working with individuals, maybe their income is down because of the market,” she said. “There is other planning we could do. I can’t help if I don’t know what’s going on.”

Forces impacting 2022

Weller said everyone just wants “what we felt was a normal year, and 2022 was anything but normal.”

“We’re still dealing with COVID and record inflation,” she said. “There is still an ongoing war in Ukraine that has impacts on everyone. The supply chain, labor and workforce shortages are a huge concern, and the market volatility is something everyone is dealing with.”

Stacy Weller

To make things more complicated, Weller added, there are three tax acts accounting firms are working with to help clients with year-end planning because of new tax laws put in place to provide relief during the pandemic.

What could business owners/individuals be considering

Atkins said as the year winds down, it’s important for business owners to evaluate their net income for the year — to help them determine whether to accelerate deductions in 2022 or hold off until 2023.

One tactic, she said, is through depreciation on fixed assets.

“Tax year 2022 is our final year to get a 100% deduction for purchases on new and used assets,” she said.

Starting in 2023, the deduction will decrease 20% every year until it is gone in 2027, pending any action from Congress, she said.

That bonus depreciation is only for assets put into service by the end of the year, with a useful life of less than 20 years — things like computers, machinery and office equipment, she added.

HERBEIN + CO.Stephanie Atkins

Atkins said 2022 is also the final year that business meals are eligible for 100% deduction.

Put in place by the Consolidated Appropriations Act, it provided that the full cost of meals could be deducted, Atkins said, adding that the deductible amount will revert to 50% in 2023 — which had been the standard rule.

Weller added that the goal of the provision was added in an effort to help the restaurant industry during COVID.

A significant change for 2022, according to Atkins, is the business interest expense limitation. Under the Tax Cuts and Jobs Act, the deduction for net business interest expense is limited to 30% of adjusted taxable income.

Another change relates to deductions for research and development (R&D) costs.

“With the 2022 tax year any costs associated with R&D are not allowed to be immediately deducted by the taxpayer,” she said.

Instead, they must be capitalized or amortized over five years domestically and over 15 years outside the U.S. Previously the deductions could be taken in the year the costs were incurred.

For her individual clients, Weller recommends they look at their portfolios and make sure they ae maximizing their 401k contributions.

Something else she recommends is that individuals look at pay stubs and their withholding for the year to make sure they aren’t over or under withholding. She also said individuals should look at what the balances of their flex spending accounts are to assure they don’t lose money at the end of the year.

What are they hearing from clients?

Weller and Atkins have been hearing from their clients a bit more this year — as the economic uncertainties have swirled.

Weller said clients are talking about the labor shortage.

“Some owners are considering what their long-term plan looks like,” she said. “They’re trying to figure out if they can do it given the labor market. That’s troubling to hear.”

Atkins added that the supply chain is also a prevalent topic with her clients, with some delaying projects because of the difficulty in getting supplies.

Atkins and Weller said when they have these conversations with clients, they tell them they are not alone.

“It’s not comforting, but it is the truth,” Atkins said. “That is typically where I start. Then I look at — is there any opportunity.”

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