Updated: Mar 24
Park City Wealth Advisors had the opportunity to sit down with Eric Evans, a tax expert with WSRP, to discuss this year’s Tax Season.
WSRP is one of the largest and most respected CPA firms in Utah. The Firm’s reputation was earned through the continuous demonstration of proficiency in the needs of both large and small businesses.
With expertise in traditional audits, tax services, and business consultation, Mr. Evans introduced PCWA to 5 changes he believes that Entrepreneurs, Founders, and Venture Capitalists should be prepared for when filing for 2022 this Tax Season.
The Talk of Increased Individual Income Tax Rates
President Biden's recent State of the Union Address included talk of raising income taxes for the wealthy. Mr. Evans explains that as long as Congress is divided we will not likely see increases in income tax rates, including during 2023. However, even though it is not expected that income taxes will increase for the wealthy soon, it is assumed that the groundwork is being laid to make this increase possible in future legislation.
Corporate Income Tax Rates
Mr. Evans feels confident that The Corporate Income Tax Rate is likely to stay in the low twenties in order to remain competitive with other OECD countries. Both sides of Congress are aware that the Corporate Income Tax Rate needs to remain competitive as Companies will move their R&D activities to countries with lower costs, including Income Tax Rates, thus the US wants to remain competitive with OECD countries to retain those high-paying jobs.
Additionally, Entrepreneurs, Venture Capitalists, and others who operate / invest in US ventures, should become familiar with qualified small business stock under Section 1202, which allows the exclusion of up to $10 Million or more of gains from Income Tax when a shareholder sells its C corporation stock. It is often overlooked or analyzed incorrectly by professional advisors structuring ventures.
Real Estate Opportunity Zones
Mr. Evans explains that there are significant benefits for properties purchased and developed in land classified as opportunity zones by governors of states in the U.S.
If you were to invest dollar for dollar the amount of the original investment in the land, into developing that land with improvements, you can benefit significantly.
You can defer capital gain taxes on the opportunity zone property until 2026 including any appreciation on the cash you invested in that fund after a 10 year hold period, with no tax on the appreciation of your investment into the opportunity zone fund.
Investing in R&D for Startups
Mr. Evans advises that entrepreneurs may be surprised by a recent change affecting Research and Development expenditures. Effective 1/1/2022 under statutory law, it is required to capitalize your Research and Development expenses pursuant to newly modified Section 174.
Historically, Research and Development expenditures were deductible in the year of incurrence. Unfortunately, Research and Development expenses incurred in 2022 must be capitalized to the balance sheet and amortized over 5 years. Specifically, the salary of your Research and Development (engineers) employees must be written off over a period of 5 years. In 2022, if your company had $500,000 in revenue and spent $1 Million on Research and Development (overall GAAP operating loss), your company could still be subject to federal and state income taxes for 2022.
Increased Federal Fund Rates
Lastly, Mr. Evans advises that for individuals who prefer to hold onto their money instead of paying quarterly estimated taxes, the Applicable Federal Rate has increased with broader interest rate increases in the back half of 2022 and into 2023. This means that individuals should expect greater interest on any underpayment of estimated taxes.
Park City Wealth Advisors is ready to help you with your tax strategy for the 2022 tax filing season and beyond. We invite you into our network of experts who act as your fiduciary when it comes to all matters of your personal and financial legacy. Contact us today to get started on your tax planning!