What is your company’s tax position for the 2022 tax year? This is a good time to talk to your tax preparer. Depending on the kind of entity your company operates, there may be available tax benefits to carry forward from prior years to use for 2022.
For example, C corporations and individuals may have a net operating loss to offset some 2022 taxable income. S corporation owners may have suspended losses that can be released with 2022 taxable income. Suspended Section 179 deductions may be an available tax benefit for your company. Always make sure you know what depreciation you have available for current year tax purposes.
There are options for depreciating any new large capitalizable purchases for the current year. The modified accelerated cost recovery system (MACRS) is an accelerated form of depreciation used for federal tax purposes. It is generally faster than the straight-line method, the accelerated cost recovery system (ACRS). Both are depreciation methods for assets with the goal of providing tax breaks.
Additional accelerated methods include a 100% bonus depreciation for 2022 purchases within one or more of an entire asset class life. For example, all new motorcoaches purchased in 2022, or none. Or all sedans purchased, or none. Each asset class is assigned a life by the IRS.
Bonus depreciation is available for property with a recovery period of 20 years or less. It is available for new or used property. However, there are some eligibility limitations for used property. Bonus depreciation can be used for buses, new upholstery, replacement flooring for buses, engine and transmission rebuilds, complete exterior paint and other similar items. Some leasehold improvements are also eligible.
Section 179 Depreciation allows up to $1 million of 2022 combined purchases across all class life, without consideration of the number of 2022 purchased assets within a class life. For instance, one of three motorcoaches, two of four new engines, and all of the computers purchased in 2022 can make up a Section 179 tax depreciation schedule.
Section 179 allows for the immediate expensing of capitalizable property. This methodology is available for businesses that have purchased less than $2.5 million of new property during the tax year. Certain vehicles, such as SUVs and automobiles, have their own limitations. Buses are not subject to automobile limitations.
Exclude COVID-19 income items
Finally, look at your prior returns and make sure none of the tax-exempt COVID-19 income items were included in taxable income in previous years. Specifically, look for Paycheck Protection Program (PPP) loan forgiveness and Economic Injury Disaster Loans (EIDL) advances, as these were specifically excluded from federal taxable income.
Please note that your state may have rules that differ from the federal rules discussed above.
A quick reminder about the federal fuel tax credit: Make sure you claim it if your company is eligible.
And, as always, check with your CPA or tax preparer for their opinion on this subject and how these rules may impact your company’s tax liability.
This information is general in nature and is not intended as legal, accounting, or tax advice provided by BUSBooks LLC to the reader. This material may not apply to the reader’s specific circumstances and may require consideration of additional factors. BUSBooks LLC recommends that the reader contact a tax professional before taking any action based on this information. BUSBooks assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect this information.
UMA Member Tracy Fickett, CPA, operates BUSBooks, a specialty accounting firm dedicated to the motorcoach industry. If you have a question, you can reach Fickett at email@example.com.