Specialty Tax Areas Are Getting More Complex: What You Need to Know

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With filing season quickly approaching it’s important to address recent industry changes and other tax areas that are a large portion of business tax returns. Cost segregation, energy credits and deductions, and research tax credits are all tax areas to optimize your business tax returns. However, due to the Inflation Reduction Act and a lack of tax extenders, these areas are becoming increasingly complex. It’s vital to be aware of these changes to make sure you are getting the most out of your business returns. 

R&D Tax Credit and Cost Segregation

Under the Inflation Reduction Act, more money was allocated to IRS. Increased funding means increased enforcement and increased efficacy. This impacts specialty areas of taxes like R&D credits, 179D tax deductions, and cost segregation. In light of these changes, the first consideration of the year is to ensure that all efforts done to obtain these tax credits are diligently overseen and performed to quality standards. You don’t want to miss out on tax credit because the study is found to be substandard. 


Another major consideration is the sunset provisions of the Tax Cuts and Jobs Act of 2017 that come into play in 2022 and 2023. Many of these provisions were expected to be changed through an extended bill before the enactment period was ever reached, but Congress has not been able to make that happen. The provisions include the leveraging down of bonus depreciation starting in 2023, a change to the calculation of adjusted taxable income for the 163(j) limitation, and a new amortization requirement for 174 expenditures. This will mostly impact how businesses will handle cost segregation studies under 163(j) due to the interaction of depreciation and bonus reduction. 


Something to keep in mind is that although the amortization of 174 expenses has begun, this does not include reductions to the R&D tax credits, as those are based on Section 41 expenses. Not all Section 174 expenses are also Section 41. Don’t make the mistake of forgoing the R&D tax credit in an attempt to impact the amount of amortized Section 174 expenses. It will not impact those expenses and you will be sacrificing an R&D tax credit that could offset the deduction. 

179D Deduction and 45L Credit

Under the IRA, energy-efficient building credits like 179D and 45L will change in 2023. For example, 45L tax credit changes are to be linked to Energy Star and 179D deduction can now be transferred from tax-exempt entities. Also, prevailing wages are now required for some increased credits. While this will increase credits and deductions for some taxpayers, it will devalue them for others. To stay ahead of these changes it’s important to look at projects that are being completed through the year and make sure that you have a plan to ensure that they qualify for these credits and deductions. 

2022 Tax Season

The 2022 filing season is sure to be complicated and it’s vital that clients and their CPAs have the appropriate specialty expertise on their side in order to optimize their returns. The continuing changes to legislation and increased funding to the IRS all make it more important than ever to engage with a specialist. Specialty areas can be tricky so it is crucial that clients are advised appropriately. Contact us at National Tax Group with any questions you have. Our team of experts is always available to assist. 

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