While taxes are an annual concern, the coming year will bring changes that accounting professionals should understand. Understanding these 2022 tax changes can help controllers and corporate accountants prepare for the tax year, ensuring compliance with established codes and optimizing the deductions their companies can make.
The following items represent the most significant tax changes of 2022 and provide some insight into what they mean for corporate financial employees.
Tax Rate Increase for C Corporations
C corporations are currently taxed at a rate of 21%, but coming changes will raise this rate to 28%.
This rate applies to tax years beginning after December 31, 2021. A slightly more complex formula applies to tax years that begin during the 2021 calendar year. The rate for this tax year is 21%, plus 7% times the portion of taxable income that occurs in 2022.
Tax Changes for Large Corporations
Large corporations will also see a shift in tax liability in 2022. A large corporation is defined as any corporation with a book income in excess of $2 billion. Any organization that earns more than this amount will be subject to a 15% minimum tax on the book value of their company.
If this applies to your company, a wise corporate strategy may be to plan additional deductions to offset your annual taxes.
Tax Changes for Multinational Corporations
A variety of tax changes are in store for U.S.-based multinational corporations. These changes include:
- A new way to compute foreign-exchange gains and losses
- Currency options will be subject to mark-to-market accounting
- Tighter withholding tax rules are in the process of being devised
- New guidance on transfer pricing and other international levies
Some of these changes are continually evolving, which means that if you work with a multinational organization, 2022 could see a complete re-engineering of the way your tax liabilities are calculated.
This constant change means that controllers and financial professionals will have to work hard to stay ahead of proposed changes and what they can mean for individual companies.
Clean Energy Tax Credits
The 2022 tax year will introduce a number of new tax credits applicable to businesses that pursue sustainable energy practices and investments.
These include tax credits that apply to electric vehicles, including providing credits for companies that provide charging stations at their place of work and to companies that rely on zero-emission electric vehicles as part of their commercial activities.
This approach may provide a financial incentive for your company to adopt clean energy practices, and providing charging stations at your building may promote goodwill among employees who rely on electric vehicles.
Previous Tax Incentives Expiring in 2022
In 2017 we saw major tax reforms designed to assist real estate companies and American manufacturers. In recent years, this reform has enabled these industries to receive perks for capital expensing and tax cuts for partnerships.
However, these tax incentives begin to expire in 2022, which will mean that tax rates will rise for companies that operate in these industries. Controllers would do well to alert senior management to this fact since it may require a shift in strategy for the 2022 calendar year.
Changes to the Childcare Tax Credit
The Employer-Provided Childcare Tax Credit is increasing in 2022. Previously, this credit offered employers a tax credit equal to 25% of qualified child childcare expenses and 10% of qualified childcare resources.
In 2022, the credit is raised to 50% of the first $1 million of qualified expenses. This type of spending could be another way for companies to receive tax credits in the coming year.
Changes to Long Term Capital Gains and Qualified Dividends
While these changes apply to individuals rather than corporations, you may be called upon to explain these changes to board members and other high-end investors you come into regular contact with.
Starting in 2022, at least a portion of Long Term Capital Gains (LTCG) and Qualified Dividends will be taxed at ordinary tax rates for those whose adjusted gross income is more than $1 million.
For example, if a taxpayer made $900,000 from their salary and $200,000 from LTCGs, then $100,000 of the LTCG would be taxed at the favorable 20% rate, while the other $100,000 would be taxed at the standard rate of 39.6%.
It’s not presently clear whether deductions will impact the $1 million threshold. While taxpayers may wish to pursue deductions to offset their tax liability, this may or may not absolve them from falling into this tax rate for their LTCGs or qualified dividends.
Conclusion: The Importance of Vigilance
Tax regulations tend to be complex and ever-evolving. It’s important that controllers and others stay in the know about any additional proposed changes that can impact their company’s liability in the 2022 tax year and make adjustments to prepare for future years.
This preparation may require a shift in corporate strategy, and the data you provide your company can keep business running smoothly regardless of regulatory changes.
Get more 2022 Tax Season Tips and Advice.
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