More Noteworthy Considerations
SECTION 179For 2021, the limit for Section 179 expensing on eligible property is now $1,050,000 and phases out completely at $2,620,000. The limits for 2022 are $1,080,000 and phases out completely at $2,700,000.
Within these guidelines, Section 179 also allows for immediate and 100% expensing of qualified improvement property placed in service starting in tax year 2018. This provision phases out in 2023. Improvements include:
- Any improvement to a building’s interior but not building enlargements, elevators and escalators, or changes to the internal structural framework of the building
- Roofs, HVAC, and security and fire alarms.
The amount of bonus depreciation percentage you can use for qualified property acquired and placed in service after September 27, 2017 until January 1, 2023 is now 100%. In contrast, the bonus depreciation percentage for qualified property that a taxpayer acquired before September 28, 2017 and placed in service before January 1, 2018, remains at 50%. Talk to your tax professional to get the specifics, of which there are many.
WORK OPPORTUNITY TAX CREDIT EXTENDED
The Work Opportunity Tax Credit is still available through December 31, 2025. This credit provides an incentive for employers to hire long-term unemployed individuals (i.e., those unemployed for 27 weeks or longer.) Generally, the credit is equal to 40 percent of the first $6,000 in wages paid out to the newly hired worker.
EMPOWERMENT ZONE TAX INCENTIVES
The Empowerment Zone Tax Incentive program, which was designed to incentivize business investment and job growth in certain economically disadvantaged areas is available through December 31, 2025. The program may entitle you to expanded Section 179 deduction allowances, potential deferral of capital gains under IRC Section 1397B, and the ability to finance projects using certain tax-exempt bonds under IRC Section 1394.
Depreciation limits have changed for passenger vehicles placed in service after December 17, 2017. If the taxpayer doesn't claim bonus depreciation, limits range from $10,200 in the first year to $5,860 for years four and beyond.
- $10,200 for the first year,
- $16,400 for the second year,
- $9,800 for the third year, and
- $5,860 for each taxable year thereafter in the recovery period.
If the taxpayer claims 100% bonus depreciation, the first-year limit is $18,200, while the limits for the other years remain the same.
Through 2025, amended IRC Section 163(j) limits corporations' business interest expensing to any business interest income, plus 30% of the business' adjusted taxable income. This interest expensing provision doesn't apply to companies with gross average receipts of $26 million or less for the three previous years.
MEALS AND ENTERTAINMENT
For 2021 and 2022, business meals from restaurants are 100% deductible, rather than the usual 50%. Entertainment expenses remain non-deductible.
If your average annual gross receipts were $26 million or less in the three previous tax years, you can choose to either a cash or accrual method of accounting.
If your gross receipts exceed that threshold, you must use the accrual method. For more information about the advantages and disadvantages of each method, speak with your tax professional, or see IRS Publication 538 - Accounting Periods and Methods.
FLEXIBLE SPENDING ACCOUNTS
Employers have the flexibility to allow employees to carryover any unused flexible spending or dependent care account monies as of December 31, 2021 to use in 2022. Typically, these accounts are "use it or lose it" with no rollover provisions.