Reminder: Third Quarter Estimated Taxes Due

 If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment. The third quarter due date is now here.

 Due date: Thursday, Sept. 15, 2022

 Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s obligation. * A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:

•  Underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. A quick payment at the end of the year may not help avoid the underpayment penalty.
• W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough funds to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
• Self-employed. Remember to account for the need to pay your Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter when you pay your estimated taxes.
• Don't forget state obligations. With the exception of a few states, you are often also required to make estimated state tax payments if you're required to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.

*If your income is over $150,000 ($75,000 if married filing separately), you must pay 110 percent of last year’s tax obligation to be safe from an underpayment penalty.

2022 Inflation Reduction Act

 The Senate Bill is 755 pages, much of which is devoted to prescription drugs and insurance and non-tax items. The President has not signed this bill as of today.

 

As to the major tax points, I have bold faced the ones affecting most Americans:

 

Corporate Alternative Minimum Income Tax-Sec. 10101

·         Only applies to companies with greater than $1 billion in book income. Not a concern for us.

 

Excise Tax on Repurchase of Corporate Stock-Sec. 10201

·         Only applies to publicly traded companies. Not a concern for us.

 

IRS funding-Sec. 10301

·         Billions provided for the IRS. Not a direct concern for us.

 

Energy Producer Credit-Sec. 13101

·         The current credit rate is extended from the end of 2021 to the end of 2024, as has most other energy and fuel related credits for energy producers.

 

Nonbusiness Energy Credits-Sec. 13301

·         Most residential energy credits (IRC Sec. 25C) like insulation, windows, doors and energy efficient furnaces are extended through the end of 2032 instead of expiring at the end of 2021.

 

 Residential Clean Energy-Sec. 13302

·         The 2022-2032 home solar/wind credit (IRC Sec. 25D) has been increased back to 30% for 2022 and extended for 10 years at that rate.

 

 Clean Vehicles or Electric Car Credit-Sec. 13401

·         The $7,500 maximum credit is back, but only if certain US component thresholds are met. According to the Congressional Budget Office only 30% of electric vehicles would qualify under the stringent thresholds of US material component requirements.

 

Used Electric Vehicles-Sec. 13402

·         A new credit equal to 30% (max $4,000) would apply for buyers of electric vehicles that are more than 2 years old. It must be bought from a dealer and be the 1st resale.

 

 Qualified Refueling Property Credit-Sec. 13404

·         The alternative energy refueling station (or home electric car charger) credit was extended through 2032.

Rent or Lease

Accounting Services For Small Businesses – Rent is any amount paid for the use of property not owned by the taxpayer. The following rules apply to rent or lease payments.

·         Rent is deductible as a current expense if the taxpayer does not receive equity or title to the property being rented.

·         If an amount is paid to cancel a business lease, the amount is deductible as rent.

·         A rental deduction for unreasonable rent is not allowed. Ordinarily, the issue of unreasonableness arises only if the taxpayer and lessor are related. Rent is not unreasonable just because it is computed as a percentage of gross sales.

·         If rent is paid in advance, deduct only the amount that applies to the use of the rented property during the year. The rest of the rent payment is deductible over the period to which it applies.

·         If the taxpayer is leasing business property, the taxpayer can treat taxes paid on the property as deductible rent.

·         The cost of getting a lease is amortized over the term of the lease.

 

Need More Information?

ABA Tax Accounting

 

Amare Berhie, Enrolled Agent

Licensed by the IRS

amare@abataxaccounting.com

651-300-4777

 

https://www.abataxaccounting.com/smallbiz.php

Recoveries

Accounting Services For Small Businesses – If an expense is later recovered in the same tax year, such as a rebate or credit for a returned item, the recovery is treated as a reduction in the expense deduction for that category of expense. If an expense that was deducted in one tax year is later recovered in a different tax year, the recovery is included in income in the year of recovery, unless the expense did not reduce tax in  the  year it was originally deducted.

 Need More Information?

ABA Tax Accounting

Amare Berhie, Enrolled Agent

Licensed by the IRS

amare@abataxaccounting.com

651-300-4777

 

https://www.abataxaccounting.com/smallbiz.php

Penalties and Fines

Accounting Services For Small Businesses – Penalties incurred for late performance or nonperformance of a contract, for example missing a deadline under a construction contract, are generally deductible.

Generally, no deduction is allowed for fines and penalties paid to a governmental or specified nongovernmental entity for the violation of any law, except in the following situations.

·         Amounts that constitute restitution.

·         Amounts paid to come into compliance with the law.

·         Amounts paid or incurred as the result of certain court orders in which no government or nongovernmental agency is a party.

·         Amounts paid or incurred for taxes due.

No deduction is allowed for the restitution amount or amount paid to come into compliance with the law unless the amounts are specifically identified in the settlement agreement or court order. Also, any amounts paid or incurred as reimbursement to a government for the costs of investigation or litigation are not deductible.

 

Need More Information?

ABA Tax Accounting

 Amare Berhie, Enrolled Agent

Licensed by the IRS

amare@abataxaccounting.com

651-300-4777

 

https://www.abataxaccounting.com/smallbiz.php