2023 New Year Resolution – Get an Early Start on Tax Preparation!
By David Kaplan, Partner
As the new year has officially kicked off, so has tax season! The Tax Year 2022 Filing Season does not have much in terms of major tax law changes compared to previous years, but there are certainly things to consider. Most of the typical changes, such as tax tables and standard deduction adjustments, can be found in our 2022-2023 Federal Tax Planning Guide, which we encourage you to look over as you gather your tax information.
If you’re a business owner, you’ll also want to be aware of some other topics we’ve brought up in prior postings:
1. Pass-Through Entity Tax Election as a Workaround for the $10,000 SALT Limitation on the Itemized Deductions for Individuals: Click Here
2. Research and Development Expenses Must Be Capitalized, and Not Expensed in the Year Incurred – (note: the R&D tax credit is not impacted by this): Click Here
3. 100% Bonus Depreciation is Reduced After 2022: Click Here
Some other recent items of note as we start the Tax Year 2022 Filing Season, as well as looking ahead to 2023:
a. The IRS announced the standard mileage rates for 2023:• 65.5 cents per mile driven for business use, up 3 cents from the midyear increase setting the rate for the second half of 2022.
• 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, consistent with the increased midyear rate set for the second half of 2022.
• 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2022.
b. The SECURE 2.0 Act of 2022, which was signed into law on December 29, 2022, as part of the Consolidated Appropriations Act, 2023 did not have any significant tax law changes, but did expand upon provisions from the SECURE Act of 2019 making adjustments to enable more Americans to save for retirement, most of which become effective for tax years beginning after 2023. Some highlights of the Act are:
• Starting in 2023, the age that participants are required to take required minimum distributions (RMDs) is increased over a period of 10 years. Those who turn 72 after 2022 can wait to take RMDs until they are 73. The periodic increase will have the RMD age at 75 by 2032.
• A “second” catch-up for retirement plans for those aged 60-63, effective for tax years after 2024, is limited to $10,000, and $5,000 for SIMPLE plans.
• Effective for tax years beginning after 2023, 401(k) and 403(b) sponsors are required to automatically enroll employees in plans once they become eligible to participate in the plan.
c. NC Corporate Franchise Tax will be calculated based solely on the Net Worth of the business, and no longer be calculated based on the greater of NC Net Worth, Investment in NC Tangible Property, or Appraised Value of NC Tangible Property. This is effective for taxable years beginning on or after January 1, 2023 and is applicable to the calculation of franchise tax reported on the 2022 and later corporate income tax returns.
d. Key NC changes impacting individuals for the 2022 Tax Year:
- NC income tax rate decreased to 4.99%
- Increased Standard Deductions:
- $25,500 for Married Filing Joint
- $19,125 for Head of Household
- $12,750 for Single or Married filing Seperately
- Increased Child Deduction
- $3,000 per dependent, up from $2,500 in 2021
- if AGI is below $40,000 for Married Filing Joint
- if AGI is below $30,000 for Head of Household
- if AGI is below $20,000 for Single or Married Filing Separately
- Range of AGI for child deduction has increased so that you can still be eligible for at least a $500 per dependent deduction
- if AGI is below $140,000 for Married Filing Joint
- if AGI is below $105,000 for Head of Household
- if AGI is below $70,000 for Single or Married Filing Separately
- $3,000 per dependent, up from $2,500 in 2021
- Starting with business losses in tax year 2022, North Carolina will track a separate NC Net Operating Loss and decouple from the Federal Net Operating Loss. Federal Net Operating Losses incurred and unabsorbed in tax years ending in 2007 and later will still be permitted.
e. The Inflation Reduction Act (IRA), signed into law back on August 16, 2022, with tax provisions aimed at investing in our country’s climate and energy initiatives. Click Here to read our prior posting with more details on the related tax provisions.
While we move forward into the Tax Year 2022 Filing Season, we know there is always the chance federal and/or state legislative leaders can pass a last minute retroactive change (usually favorable to taxpayers in those instances). If talks begin, and changes seem possible, your tax advisor will notify you accordingly. We recommend you provide your tax information to your tax advisor early to allow for a smooth process. Please do not hesitate to reach out to your tax advisor to ask questions on how any tax changes may apply to you.
David Kaplan Partner, CPA
David is a Tax Partner in BRC’s Charlotte office. He is responsible for providing tax compliance and consulting services for a diverse client base. He has over 20 years of tax experience from working in public accounting. Prior to joining BRC in 2018, he was a partner in a South Florida firm. His expertise […]
The information contained in this article is for informative purposes only and should not be relied on when making any business, legal, or other decisions. This information may be updated without notice and/or may not contain the most current information that is available related to this topic. Please consult with your advisor to determine how this information applies to your specific facts and circumstances.