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Top 3 Tax Year 2022 Topics to Consider with your CPA 

With the tax filing season fast approaching, here are 3 significant items impacting Manufacturers for the 2022 tax year that you should discuss with your CPA before filing.

  1. R&D Expenses Now Need to be Amortized
    1. Old: Companies could deduct R&D expense as incurred
    2. New: Required to capitalize R&D expenses (5 years for domestic expenses and 15 years for foreign expenses) and utilize a half year convention (similar to how fixed assets are depreciated for tax purposes)
    3. Why it matters: Slower payback/benefit of R&D expenditures and potential increase to taxable income. For example, if a company had $500,000 of R&D expenses in 2021 and 2022, the company would be able to fully deduct the $500,000 in 2021 while in 2022, the allowable deduction would be $50,000 ($500,000/5 * 6/12). That would be a net increase to taxable income of $450,000 from 2021 to 2022.
    4. 2022 Ends 100% Bonus Depreciation
          1. 2022 Ends 100% Bonus Depreciation
            1. Old: TJCA extended bonus (accelerated) depreciation through 2022
            2. New: Starting in 2023, Bonus amounts decrease by 20% over the next 5 years. After 2026, bonus depreciation will no longer be allowed unless Congress extends it.
            3. Why it matters: Less depreciation expense will be available to offset income in future years
          2. Business Interest Expense Deduction Now Further Limited
            1. Old: Depreciation/Amortization/Depletion expense addback allowed in calculation of adjusted taxable income
            2. New: Depreciation/Amortization/Depletion is no longer an addback
            3. Why it matters: With depreciation no longer included in the computation of adjusted taxable income, this means that a much smaller portion of the company’s business interest expense will be deductible in 2022 versus in 2021, with all other things remaining constant.

          The Bonadio Group’s Manufacturing and Distribution Team has decades of experience in strategic consulting, accounting, and proactive tax planning to manufacturers of all sizes and verticals. If you have any questions or are interested in learning more about this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts today.

          his material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.