The Clock is Ticking on 2022 Tax Saving Strategies

As we approach year end, it’s time to consider planning strategies that may help lower your taxes for this year and next. What strategy makes the most sense for you? It depends on a variety of factors such as expected fluctuations in income and deductions as well as upcoming life changes.

The SALT Parity Act, a key Missouri tax provision enacted this summer is effective for tax years ending on or after December 31, 2022. This Act allows pass-through entities (S-corporations and partnerships) to elect to be subject to Missouri income tax at the entity level rather than individual owners paying their share of the state tax on their MO-1040 tax return. Making the election allows pass-through entities to deduct the state income tax paid without being subject to the federal $10,000 state and local tax itemized deduction limit on the owners’ Form 1040 tax returns. Additional guidance is still needed from the state regarding the specifics and implementation of this election. KPM CPAs & Advisors (KPM) is monitoring communications and will keep you apprised of any required steps.

Bonus depreciation currently allows business owners to deduct 100% of the cost of most machinery and equipment purchases. This is scheduled to decrease to a first-year maximum deduction of 80% beginning January 1, 2023. As such, it may be beneficial to accelerate planned asset purchases before year-end.

The Inflation Reduction Act, passed in August, introduced several new tax credits related to solar, electric, and other energy-efficient additions to your home, business, and personal property assets. New tax credits related to qualified plug-in electric drive motor vehicles, previously-owned ‘clean’ vehicles, and qualified commercial ‘clean’ vehicles also are included.

The SECURE Act and CARES Act, both passed in March 2020, introduced many new permanent tax provisions and planning opportunities for businesses and individuals. Key highlights, which continue to provide for planning opportunities, are:

  • Repeal of the maximum age for traditional IRA contributions, which allows you to potentially make deductible retirement contributions at any age
  • Increase in the required minimum distribution age for retirement distributions from 70½ to 72
  • Expansion of Section 529 savings plans to cover apprenticeships and allow distributions to repay student loans
  • Technical and retroactive correction to the tax law, which allows for faster tax write-offs for interior building improvements, i.e., qualified improvement property

Connect with a KPM tax advisor before year end to discuss potential tax savings strategies or reassess the need for fourth quarter estimated tax payments. If you would like KPM to help with your year-end tax planning, please submit the following by Friday, December 16:

  • Copy of latest pay stub for taxpayer/spouse
  • Gains from the sale of stocks, investments, and property
  • Estimates of business, farm, and rental income
  • Estimates of itemized deductions by category
  • Asset purchases or sales
  • Estimates paid
  • Retirement distribution statements

Start your 2022 tax planning today with KPM’s assistance.

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