Page 19 - BusinessWest December 12, 2022
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JOSEPH SEARLES Co-Owner International Container Company Holyoke
The owners of International Container Company in Holyoke credit their rapid growth to bringing technology to the waste management and compacting industries, and for their relationship with Country Bank. The bank’s knowledge of the cyclicality of their industry and flexible commercial lending solutions keeps the manufacturing company’s wheels turning all the time.
 First-year bonus depreciation: the TCJA authorized a 100% first-year bonus depreciation deduction through 2022. This includes used, as well as new, property. Be aware that most states do not allow this special bonus depreciation.
Regular depreciation: if any remaining acquisition cost remains, the balance may be deducted over time under the Modified Accelerated Cost Recovery System (MACRS).
If you buy a heavy-duty SUV or van for business, you may claim a first- year Section 179 deduction of up to $25,000. The ‘luxury car’ limits do not apply to certain heavy-duty vehicles.
“We still might not be done. More proposed legislation has been intro- duced in Congress. If another new law featuring tax provisions is enacted before 2023, it may require you to revise
your year-end tax-planning strategies.”
The first-year bonus depreciation deduction is scheduled to phase out
over five years, beginning in 2023. Take full advantage while you can.
Business Meals
Previously, a business could deduct 50% of the cost of its qualified busi- ness entertainment expenses. However, the deduction for entertainment costs, including strictly social meals, was eliminated by the TCJA beginning in 2018.
The ARPA doubles the usual 50% deduction for allowable meals to 100% for food and beverages provided by restaurants in 2021 and 2022. This tax break is not expected to be extended.
Business Repairs
As more remote workers return to your regular workplace, the business may need to fix up the place. While expenses spent on making repairs are currently deductible, the cost of improvements to business property must be capitalized.
When appropriate, complete minor repairs before the end of the year. The deductions can offset taxable income in 2022.
As a rule of thumb, a repair keeps property in efficient operating condi- tion, while an improvement prolongs the life of the property, enhances its value, or adapts it to a different use. For example, fixing a broken window is a repair, but the addition of a new wing to a business building is treated as an improvement.
State Income Taxes
Many states, including Massachusetts, have enacted so-called ‘work- arounds’ whereby flow-through entities such as Subchapter S corporations and partnerships can elect to pay the state tax at the entity level on behalf of the shareholders. The benefit comes from reduced federal taxable income flowing to the shareholder, which serves to circumvent the $10,000 cap for state and local taxes when calculating itemized deduction, which is dis- cussed later. Most states do not give a dollar-for-dollar credit for the tax paid by the entity, but the federal tax benefit is typically larger than the reduced state credit.
The actual benefit will vary for each shareholder or parter and should be reviewed to determine the actual savings. If deemed to be beneficial, don’t miss any deadlines for electing to pay these taxes.
Stock up on routine supplies (especially if they are in high demand). If you buy the supplies in 2022, they are deductible in 2022 — even if they are not used until 2023.
If you accrue in 2022 but pay year-end bonuses to employees in 2023, the amounts are generally deductible by an accrual-basis company in 2022 and taxable to the employees in 2023. A calendar-year company operating on the accrual basis may be able to deduct bonuses paid as late as March 15, 2023 on its 2022 return.
Keep records of collection efforts (e.g., phone calls, emails, and dunning letters) to prove debts are worthless. This may allow you to claim a bad-debt deduction.
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