Inflation Reduction Act Expands 179D (Energy Efficient Commercial Buildings Deduction)
Oct 17, 2022
The Inflation Reduction Act of 2022 (2022 IRA) was passed to incentivize investment in clean energy and promote the reduction of carbon emissions. A large share of the incentives come in the form of tax credits, which in some cases are extensions or expansions of current credits, such as those for electric vehicles or residential energy upgrades.
Of the tax provisions introduced by the 2022 IRA, one of the most significant to businesses has been the expansion of the Energy Efficient Commercial Buildings Deduction (§179D), which increases the maximum deduction and updates the eligibility requirements for a property’s reduction of energy costs, in addition to other changes.
Under the expanded provision, a deduction is allowed for all or part of the cost of certain energy-savings improvements made to domestic, commercial buildings placed in service as part of the building’s:
- interior lighting systems
- heating, cooling, ventilation (HVAC), and hot water systems
- building envelope
The tax deduction benefits both commercial building owners and lessees along with designers of government-owned buildings. Additionally, the provision states that installation of energy-efficient property may occur as a result of new construction, or through the improvement of an existing commercial or government building.
Efficiency standard: To qualify for the deduction, newly updated eligibility requirements call for energy-efficient property to reduce associated energy costs by 25% or more (decreased from 50% or more) in comparison to a reference building that meets the latest efficiency standards.
Applicable amount: The applicable dollar value of the deduction is $0.50 per square foot, an increase of $0.02 for each percentage point above 25% that a building’s total annual energy cost savings are increased. However the amount cannot be greater than $1/ square foot, and the maximum amount of the deduction in any tax year cannot exceed $1/ square foot minus the total deductions taken over the previous three years (or during a four-year period in cases where the deduction is allowable for someone other than the taxpayer). The applicable dollar value will be adjusted for inflation for tax years beginning after 2022.
An increased dollar value is available for projects that satisfy prevailing wage and apprenticeship requirements for the duration of the construction.
Alternative deduction for energy-efficient retrofit property. Under the 2022 Inflation Act, taxpayers may elect to take an alternative deduction for a qualified retrofit of any eligible property. However, instead of a reduction in total annual energy power costs, the deduction is based on the reduction of energy usage intensity.
For more information on how you may be able to take advantage of this deduction or any other tax relief provisions under the 2022 Inflation Act, contact William Vaughan Company’s team of trusted tax professionals.
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Categories: Tax Planning
IRS Tax Update: Filing Deadlines Extended to February 15, 2023 for Hurricane Ian Victims
Oct 04, 2022
On September 29th, the IRS announced Hurricane Ian victims in the state of Florida will now have until February 15th, 2023, to file various federal returns.
The tax relief measure applies to businesses and individuals operating and residing in areas designated to receive disaster relief from FEMA. Those eligible must also have had a filing deadline of September 23rd, 2022, or later. In other words, any business or individual in the state of Florida that filed to extend their 2021 federal tax returns out to October 17th, 2022, will now have until February 15th, 2023, to file any returns or taxes.
For businesses, the extension relief will also apply to quarterly payroll and excise tax returns normally due on October 31, 2022, and January 31, 2023. For individuals, the tax relief applies to any quarterly estimated income tax payments due on January 17, 2023. Additionally, penalties on payroll and excise tax deposits due on or after September 23, 2022, and before October 10, 2022, will be abated as long as the deposits are made by October 10, 2022.
The IRS will automatically apply this relief measure to taxpayers with a record of address in the disaster area, meaning there is no need to contact the agency directly. However, if an affected taxpayer receives a late filing or payment notice (that had an original or extended filing, payment, or deposit due date falling within the postponement period,) the taxpayer should call the number listed on the notice as soon as possible to abate the penalty.
For more information on the tax relief measure or to see if you qualify, contact your trusted team of tax professionals at William Vaughan Company as we continue to monitor IRS updates and the situation in Florida.
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Categories: Other Resources, Tax Compliance, Tax Planning
Leased Office Space Options In A Post-COVID Landscape
Jun 07, 2022
Most companies can agree one of biggest impacts the COVID-19 pandemic has had on their businesses is the shift from in-person to remote working, and it’s not going back to normal any time soon. However, one thing employers in all industries are struggling to agree on is how to use their leased office space with the majority of their talent working from home.
We’ve compiled information on the strategies some of the nation’s largest companies have taken to make the most of their leased office space, and how these strategies could effect their bottom line.
Airbnb has instituted a permanent, full-remote option for all employees.
On April 28th, Airbnb co-founder and CEO Brian Chesky unveiled the company’s new “Live and Work Anywhere” policy to employees around the globe. This groundbreaking strategy allows anyone from the Airbnb team to “live and work in over 170 countries for up to 90 days a year in each location.”
According to the Chesky, “the best people live everywhere, not concentrated in one area. And by recruiting from a diverse set of communities, we will become a more diverse company.” However, this change came with one caveat; each employee must maintain a permanent address for tax and payroll purposes.
Google and Meta (Facebook) have invested in even more corporate office space.
As many companies begin to embrace hybrid, work-from-home arrangements for their employees, others have started aggressively purchasing the excess office space left in their wake. A recent CBRE report showed a 100% increase in commercial leasing activity year over year for the first quarter of 2022, as tech giants like Google and Facebook work to expand their already sprawling campuses.
Last September, Google announced its plan to purchase and develop a sprawling Manhattan property for $2.1 billion – the largest, single-building commercial-real-estate deal since the start of the pandemic. Six months later, Meta Platforms Inc. (formerly known as Facebook) made headlines with news of its plans to lease an additional 300,000 square feet of office space next to its existing location, giving the company almost an entire New York City building.
What strategy makes the most sense for your business?
Regardless of size or location, the strategies behind where businesses decide to base their workforce can be heavily impacted by a variety tax considerations. Legislation on tax withholding for remote workers in certain municipalities continues to change, as we saw in Ohio during the beginning of the pandemic. On the flip side, those that choose to expand into new office spaces may want to consider running a cost segregation study to ensure no tax benefits have been left on the table.
Regardless of which direction you decide to take with your office space, we recommend connecting with William Vaughan Company’s team of trusted advisors to discuss which strategy best suits your business’s workforce needs all while reducing your potential tax risk.
Categories: Tax Planning
Bonus Depreciation Phase-Out
May 24, 2022
Properly qualifying assets for bonus depreciation can have a significant impact on a business’s bottom line. If an asset qualifies as long-term business property under tax rules, bonus depreciation may allow a business owner to deduct the entire cost of that asset in the year of acquisition.
This will be the last year for 100% bonus depreciation as enacted by Tax Cuts and Jobs Act (TCJA). Starting in 2023, bonus depreciation is scheduled to drop to 80% and will continue to drop by 20% each year thereafter until finally there will be no bonus depreciation starting in 2027.
Prior to the enacting of bonus depreciation, the premier tool for businesses to expense asset purchases was Section 179. Section 179 is still scheduled to be fully available and the current amount of Section 179 deduction allowed is $1,080,000 and the phase-out of the deduction starts once you place eligible assets into service of $2,700,000 and no Section 179 deduction is allowed after $3,780,000 of assets placed in service for that year. Unlike bonus depreciation, Section 179 deductions are only allowed to the extent of taxable income.
Although tax incentives like Section 179 and bonus depreciation can be beneficial, these provisions should only be used in situations that make long-term financial sense for your operation. It is important to always consider your tax circumstances and cash-flow requirements when using these tools. Connect with your William Vaughan Company advisor with additional questions.
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Categories: Tax Compliance, Tax Planning
Strategic Financial Moves to Consider During A Market Downturn
May 19, 2022
The natural ebbs and flows of market volatility can make even the best investors a bit nervous at times. However, smart investors also recognize the opportunities presented by a downturn. These include specific financial strategies to be leveraged for a long-term benefit. Here are several financial moves one should consider during a market lull:
Roth IRA Conversions
During normal market conditions, Roth IRA conversions typically initiate a sizable tax event. However, during a market dip, Roth IRA conversions are a prime opportunity to move funds from a traditional taxable IRA to a tax-free Roth IRA all while saving money.
To achieve the benefits of a Roth IRA conversion, investors convert funds from their traditional IRA to a Roth IRA. While the conversion will trigger a taxable event, it’s based on the contributions and earnings. The larger your pre-tax balance, the more you will owe. During market volatility, financial experts recommend making this move as “it is like getting the Roth IRA on sale” and when the market ultimately recovers, that growth is captured, tax-free, inside of the Roth IRA.
If you don’t have a traditional IRA, this can also be achieved through what some call a “backdoor Roth IRA,” an unofficial means for high-income individuals to create a tax-free Roth IRA.
Remember, the earnings limits for Roth individual retirement account contributions are capped at $144,000 modified adjusted gross income for single investors and $214,000 for married couples filing together in 2022.
To achieve the benefits of a “backdoor” Roth IRA conversion, investors make what’s known as non-deductible contribution to a pre-tax IRA before converting the funds to a Roth IRA, kickstarting tax-free growth.
Gift & Estate Planning
A market downturn is also a great opportunity for individuals seeking to minimize estate taxes and gift assets to others. This is because the value of the securities will be lower, resulting in a lower gift tax amount and all subsequent appreciation will be excluded from your estate – a win-win!
Tax-Loss Harvesting
Tax-loss harvesting is another key strategy to consider during a down market. It involves selling investments that have lost value and replace them with similar investments to ultimately offset your capital gains with capital losses. In doing so, investors reduce their tax liability while better positioning their portfolio. This can be done up to $3,000 a year. The average investor can leverage this strategy and it doesn’t involve much but an assessment of your investments and their performance. A couple of items to note when considering this option is:
- It applies only to investments held in taxable accounts – so it does not include 401(k)s, 403(b), IRAs or 529s because the growth in these tax-sheltered accounts in not taxed by the IRS
- This is not a beneficial strategy for those in lower tax brackets – the idea is to reduce your tax liability and traditionally, those individuals in the higher tax bracket have a greater liability and therefore, a greater savings.
- The deadline for taking advantage of this approach is the end of the calendar year – December 31.
Finally, the information provided above is for general information only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. We recommend connecting with your financial and tax advisors to discuss the best plan of action for your personal situation.
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Categories: Estate Planning, Tax Planning