Tax Planning Guide for 2022/23

Welcome to the 2022/23 Tax Planning Guide. As the year winds down, we see inflation and interest rates spiking, the stock market oscillating wildly, regional real estate values rapidly warming then quickly cooling, return-to-office policies widely discussed, and the newest “new normal” just around the corner with the pandemic apparently in history’s rear view.

It’s been rather a slow news year with respect to changes in federal tax law, as the Democrats’ razor-thin majorities in Washington have proven difficult for the Biden administration to wrangle.  Let’s start with a look at what did – and did not – occur in 2022.

Here’s what DID happen:

The recently enacted Inflation Reduction Act (IRA) has some provisions that will likely have minimal direct impact on PP&Co’s clients, including a 15% minimum tax on corporations with over $1 billion in profits, and a 1% tax on repurchases of publicly traded stock.  Of more interest is the IRA’s changes to the $7,500 electric vehicle (EV) tax credit. Note that not all EVs will qualify for the full credit—some not at all until 2023 (example: two Tesla models), and your income cannot be more than $300,000 per year for a married couple filing jointly.  There is also a new credit for the purchase of used EVs, but that has an income cap of $150,000.

Perhaps the most intriguing provision in the IRA is the funding to hire about 87,000 new IRS employees. Only about 4% of this funding is earmarked for much needed “taxpayer services,” but nearly 57% is for “enforcement.”  This portends a lot more IRS audits, along with the associated increased taxpayer compliance costs. Note that an amendment to the IRA would have prohibited increased audits of taxpayers making under $400,000 per year; however, that proposal was defeated in the Senate.

Much like “the dog that didn’t bark,” it can be insightful to consider some proposals from 2022 and previous years that have not been enacted. 

Here’s what DID NOT happen:

• Increase in individual and corporate income tax rates
• Repeal of the $10,000 state and local tax (SALT) deduction federal limit
• Repeal tax basis step-up upon an individual’s death with appreciated estate property taxed as capital gains
• Gifts of appreciated property would be taxed as capital gains
• Reduce the estate tax exemption to perhaps $3.5 million or lower with a $1 million lifetime gift tax exemption
• Repeal of the capital gain deferral for like-kind exchanges of real estate
• Increase in California individual income tax rates and enactment of a California estate tax

Might these proposals re-emerge before the new Congress is seated in January, or perhaps in the next Congress in 2023? Could something completely unexpected, something not previously proposed, gain sufficient political traction to be signed into law? Only time will tell. Stay tuned, and PP&Co will help you stay aware and informed.

Have questions or need tax planning assistance? Reach out to us at info@ppandco.com or (408) 287-7911 to schedule some time to talk with one of our experienced tax professionals about your specific situation.