As you gear up for the 2022 tax filing season, there are some challenges and changes of which you should be aware. Keep in mind that a vast amount of new legislation that was created in response to the coronavirus pandemic: the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Economic Injury Disaster Loan (EIDL) program, the Employee Retention Tax Credit (ERTC), and the Families First Coronavirus Response Act (FFCRA).
We strongly recommend working with a tax professional, if you do not already. Make sure to ask your business CPA about the following areas:
1. Significant IRS Delays –
The tax bureau is incredibly overburdened due to understaffing, technology woes, and myriad complications arising from COVID-19 pandemic. “CPA tax professionals greeted the launch of tax season with skepticism that the IRS will be able to contend with its continuing logistical challenges,” explains a recent article from the Journal of Accountancy, “with taxpayers and their preparers likely to experience more frustration and delay.”
There is some small hope for relief for taxpayers, as some Senate and House members have begun to call upon the IRS to “excuse penalties in some cases, delay collections and put fewer limits on taxpayers’ ability to claim reasonable cause for relief,” per a recent article from Politico. However, until this becomes more concrete, it should not be counted upon.
2. Rules Regarding the Carryforward of Net Operating Loses –
The rules governing how net operating losses can be utilized are different for the 2021 tax year than they were in 2020. For the current tax season, net operating losses from the years 2018 – 2020 carried forward into 2021 are limited to 80% of taxable income; losses from years prior to 2018 are not subject to the 80% limitation.
3. Limitations on Excess Business Losses –
The CARES Act deferred the excess business loss rules, which were established in the 2017 Tax Cuts and Jobs Act (TCJA), for tax years 2018 – 2020. Now that the deferral is over, taxpayers need to pay attention to this area. What does this mean for you? “The excess business loss limitation applies to noncorporate taxpayers and does not allow a loss that exceeds $262,000 (unmarried) or $524,000 (married) for 2021,” explains a helpful primer on the topic from Becker. “An excess loss not allowed in the current year is carried forward as a net operating loss.”
4. No More Relief from the Interest Expense Limitation –
Similar to the CARES Act deferral of the excess business loss rules, the relief bill made favorable adjustments to the interest expense limitation rules that no longer apply starting with the 2021 tax year. Taxpayers with significant interest expense may no longer be able to deduct their total business interest expense.
As always, please do not hesitate to reach out to your Cole Gavlas tax advisor with any questions or concerns regarding the items listed above. We are eager to work with you to ensure that you maximize your return and minimize your tax burden.