The 2023 filing season is underway, and if you are preparing your 2022 business tax return, several changes from the prior year will affect your filing. The biggest shift is in how you handle depreciation and R&D expenses. Here is what you need to know.
Bonus Depreciation Begins Phasing Down
For assets placed in service in 2022, bonus depreciation remains at 100%. But this is the last year at the full rate. Starting with assets placed in service in 2023, the rate drops to 80% and continues declining by 20% each year. If you made significant equipment purchases in 2022, you can still write off the full cost in year one. Make sure your depreciation schedules reflect the correct placed-in-service dates.
R&D Amortization Takes Effect
This is the big one. Starting with tax year 2022, research and development expenses must be amortized over five years (domestic) or fifteen years (foreign) rather than being deducted immediately. This is a significant change for technology companies, manufacturers, and any business that invests in innovation. Your 2022 taxable income will be higher than it would have been under the old rules because you can only deduct one-fifth of your R&D spending this year.
1099-K Threshold Unchanged (For Now)
The IRS delayed the $600 1099-K threshold that was supposed to take effect for 2022 transactions. The old rules apply: payment platforms report only if your gross transactions exceed $20,000 AND you had more than 200 transactions. The lower threshold is expected to phase in starting with 2023, but for your 2022 return, the old rules apply.
Clean Vehicle Credits Changed
The Inflation Reduction Act restructured the clean vehicle tax credit. For vehicles purchased after August 16, 2022, new requirements apply including manufacturer caps, battery component requirements, and income limits. If you purchased an electric vehicle for business use, verify which rules apply based on when you took delivery.
Get Your Returns Right
The R&D amortization change catches many business owners off guard because it increases their tax liability compared to prior years. If your tax preparer is not aware of this change, or if you are self-preparing, make sure you are using updated software that handles the five-year amortization correctly. An incorrect R&D deduction will generate an IRS notice.