Tax Planning – the Knowns and the Unknowns

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By the CBIZ National Tax Office
F
or the first time in a while, the end of the calendar
year occurred without a surge of new tax legislation.
Starting 2022 at status quo doesn’t necessarily
make tax planning easier for the year ahead, as Congress
continues negotiating significant tax changes in the
Build Back Better Act (BBBA), which now could involve
retroactive tax measures as of Jan. 1, 2022.
Below, we highlight some of the knowns and unknowns
that may help your business formulate a tax plan for
2022 and navigate potential changes to come.
Capturing Past Tax Benefits
It’s not too late to receive the benefits of 2020’s
Coronavirus Aid, Relief, and Economic Security (CARES)
Act. The legislation suspended for 2018, 2019 and 2020
the Section 461(l) limitation on excess business losses,
which prohibits business loss deductions in excess of
$500,000 for married taxpayers filing joint (MFJ) filers
or $250,000 for single (S) filers. The legislation also
temporarily restored the ability for businesses to carry
back net operating losses (NOLs) incurred in the 2018,
2019 and 2020 tax years, without those losses being
subject to the limitation.
Further, the CARES Act expanded the Section 163(j)
business interest deduction percentage to 50% for the
2019 and 2020 tax years for most taxpayers. If your
business didn’t apply the enhanced percentages to
previously filed tax returns, you can amend those past
tax returns to claim these benefits.
Employee Retention Tax Credit (ERTC)
Taxpayers may also amend quarterly payroll tax returns
for 2020 and 2021 if they qualify but haven’t taken
advantage of the refundable Employee Retention
Tax Planning – the Knowns
and the Unknowns

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Tax Credit (ERTC). The provision benefits those who
experienced business disruption because of the
pandemic and helps to offset the cost of keeping
employees through the third quarter of 2021. The ERTC
is equal to 70% of qualified wages paid after Dec. 31,
2020 and before Sept. 30, 2021, with a maximum 2021
credit per employee of $21,000. To be eligible, your
business must have experienced a 20% decline in gross
receipts during any calendar quarter in 2021 compared
to the same quarter in 2019 or must have been subject
to a full or partial shutdown on account of government
orders. Similar ERTC benefits are also available for
calendar quarters in 2020, with a maximum 2020
credit per employee of $5,000. An ERTC refund analysis
study would help ensure all eligible wages have been
assessed and the credit has been applied correctly.
The Uncertainty That Remains
Provisions remaining in the BBBA contain measures
that could play an important role in your tax planning.
Complicating these planning activities is the open
question about whether the BBBA has the support to
become law and if it will contain retroactive measures
since the bill was not passed in 2021 as originally
intended. The following are the BBBA provisions that
could have the largest impact on 2022 tax strategies.
Delay to the R&D Amortization
The tax reform law known as the Tax Cuts and Jobs Act
(TCJA) requires all research and development (R&D) costs
to be capitalized and amortized starting in 2022. There’s
a provision in the draft BBBA legislation that would delay
the capitalization and amortization requirement until after
2025. Companies may want to prepare for the impact that
the amortization of research and development expenses
will have if the requirement remains in effect for 2022.
Business Interest Expense Limitation Changes
A proposal in the draft BBBA legislation would affect
partnerships and S corporations by moving the
calculation of the Section 163(j) limitation from the
entity level to the individual level, which may significantly
impact the amount of business interest expense that is
ultimately deductible.
Excess Business Loss Limitation Up for Permanent
Extension
There is a proposal that would permanently extend the
excess business loss limitation under Section 461(l)
that was also established by the TCJA. Presently, the
limitation will expire after 2026. The BBBA proposal
would also change the nature of excess business loss
carryforwards so that the carryforwards would continue
to be subject to the $250,000 limitation (for S filers)
or the $500,000 limitation (for MFJ filers) during each
carryforward year. Note that the limitation levels are
indexed for inflation each year.
Taxpayers facing excess business loss limitations
may want to consider strategies that delay business
deductions, such as electing out of bonus depreciation
or electing to capitalize R&D and internally developed
software costs, so that these deductions do not readily
turn into excess business losses.
The Importance of a Holistic Tax Plan
For many tax strategies, timing is key. Considering when
to take deductions and expenses requires a comparison
across calendar years. We recently put together a guide
with insights for 2021 and tax rates for 2021 and 2022
that may help your decision-making. You can view the
guide here.
For questions about how potential tax changes affect your
strategy, connect with a member of our tax team.
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