What Roofers Need to Know When Filing Their 2022 Tax Return

New tax credits and other abatement mechanisms are available to offset earnings and capital gains

It’s tax time, so companies nationwide are preparing to file their tax returns. As you prepare to meet with your accountant, here are some details to remember:

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Legislative Measures with Impact

The Inflation Reduction Act, passed in August 2022, includes several provisions that will impact companies this year and in the near term. These are the biggest highlights, but your accountant will be the best person to know your company's particular circumstances.

Corporate buybacks will incur a 1% excise tax applicable to publicly traded U.S. companies' stock repurchases after Dec. 31, 2022; some U.S. corporations' affiliates may also be affected.

Some large corporations may now be subject to a 15% alternative minimum tax on the adjusted financial statement income. Also referred to as a business "minimum tax" or "book minimum tax," its effect began after Dec. 31, 2022. Companies potentially affected by it for this calendar year must first estimate their AFSI for 2022, 2021, and 2020.

Section 462(l), excess business losses limitation rules that apply to non-corporate taxpayers, which were to expire after 2028, have since been extended by two years.

Many energy-related tax credits have either been introduced or modified. For example, the IRA provides new opportunities for monetizing climate change and green energy tax credits. Also, the Creating Helpful Incentives to Produce Semiconductors Act, from August 2022, offers a 25% advanced investment credit for semiconductor manufacturing.

Claiming Tax Credits

The federal government provides many tax credits in addition to the latest energy-related ones garnering the most headlines. Examples include credits for projects in low-income communities, innovation and technology, and various other industries. Here are other examples:

The R&D credit applies to start-ups that incur specific research and development expenses.

Under the "New Markets Tax Credit Program," companies can use federally-funded credits for qualifying investments in low-income areas.

Some employers can receive tax credits through the Federal Empowerment Zone Credit, the Work Opportunity Tax Credit, and the Indian Employment Credit, as well as credits related to the Family and Medical Leave Act [FMLA].

Some taxpayers may delay federal taxes on capital gains if they reinvest them in Qualified Opportunity Zones; the reinvestment period is limited for abatement.

Tax Accounting that Increases Savings

With rising interest rates, many companies want to safeguard their cash reserves. One way to accomplish this is to defer tax liability using varying accounting methods. This approach will likely not reduce the amount of reported income but can delay "recognizing" that income, postponing payment to a later year or scheduling deductions for an earlier year. Companies may benefit from these maneuvers and should consult their accountants about those options.

Other Strategies to Consider

Write-Offs: Many businesses are still recovering from the effects of the COVID-19 pandemic while also weathering inflation. Those with "worthless" assets should consider claiming those losses on their tax returns. Examples include bad debts, which can offset earnings either partially or in full; damaged or abandoned property falls within this sphere. Companies should also consider insolvent subsidiary investments if they are 80% owned or part of a partnership and consider claiming those as losses.

Operating Losses: Net operating losses can decrease taxes owed in profitable years, making them valuable assets. Businesses should check with their accountants about the percentages allowed based on the tax year.

Capital Gains: Companies should consider future and current taxes when they undertake capital gains tax planning. Consider imposing possible deferral periods, how to use alternative funds and keeping your company's current cash needs in mind.

Final Advice

As you close out 2022, talk to your accountant about your options for this year, but also discuss planning for 2023 and the years ahead. By adopting sound practices now and taking advantage of new tax credits, you can likely lower your tax obligations in the future.