As you start the process of year-end tax planning, it gives us the opportunity to look at any updates or changes in credits, both Federal and in New York State that could affect our personal and business returns this upcoming filing season. Below is an overview of some credits that to pay attention to for the upcoming tax season.

Federal - Research and Development (R&D) Credit

One significant change for companies engaged in research and development (R&D) is in regards to the amortization of research or experimental (R&E) expenditures. When the Tax Cuts and Jobs Act (TCJA) went into effect January 1, 2018, many of the tax provisions were implemented immediately. However, one of the provisions that was delayed was the amortization of research or experimental expenditures and how they are handled. As of now, there are legislation proposals with bipartisan support urging Congress to revise this provision.  But for the time being companies should expect to implement the changes discussed below.

Prior to this change, taxpayers originally were allowed to treat R&E expenditures in four different ways:

1.      They could deduct these costs under Sec. 174 (a).

2.      They could capitalize them (if not subject to depreciation or depletion allowances under Sec 167 or 611) and then amortize them over a period of not less than 60 months under Sec. 174 (b), beginning with the month in which they were first realized benefits from the expenditures.

3.      If these costs were neither treated as a current deduction nor amortized over 60 months, the taxpayer would be able to charge them to a capital account under Regs. Sec 1. 174-1.

4.       Under Sec. 59 (e) (2) they would be able to capitalize and amortize ratably certain qualified expenditures over a 10-year period.

For tax years beginning after December 31st, 2021 you are required to follow the new rules under Section 13206 of the TCJA amended Sec. 174. This requires taxpayers to amortize specified R&E expenditures ratably over a five-year period for domestic expenditures and a 15-year period for specified R&E expenditures attributed to foreign research, using a half-year convention. Taxpayers no longer have the option to deduct the expenditures in the year they were incurred.

With the changes to how R&E expenditures are handled, a number of other activities for the taxpayer will be impacted. With not having the option to expense the R&E expenditures, taxable income will increase. The increase in taxable income may impact the following: business interest expense deduction, a limited charitable contribution deduction, NOL Carryforwards, tax credits and estimated tax payments. If you believe any of these changes might impact you, reach out to your Dermody, Burke & Brown Tax advisor for more information.

New York State - Covid-19 Capital Costs Credit

The COVID-19 Capital Costs Credit is a new refundable credit that is available to small businesses that incurred costs of at least $2,000 to comply with public health or other emergency orders or regulations related to the COVID-19 pandemic between the dates January 1, 2021 and December 31, 2022. Small businesses that are eligible may to receive a tax credit of 50% of qualifying expenses up to a maximum of $25,000 in tax credits based on qualifying expenses of $50,000. To apply for this credit, go apply to the Empire State Development website for a certificate of the credit which will be applied to the year the certificate gets issued (www.eds.ny.gov).

 

New York State - Additional Child and Earned Income Tax Payments

The 2022-2023 New York State budget is providing a one-time payment for eligible taxpayers who received at least $100 from either the Empire State Child Credit and/or Earned Income Credit (or noncustodial parent earned income credit) for the tax year 2021. If you are eligible for either one, or both of the credits, the one-time payment will be automatically calculated and sent to you. The checks were sent out beginning in October 2022.

New York State – Homeowner Tax Rebate Credit (HTRC)

The Homeowner Tax Rebate Credit is a one year program that will provide direct property relief to about 2.5 million eligible homeowners in New York State in 2022. In order to be eligible for this credit, taxpayers must have qualified for a 2022 STAR credit or exemption, their income was less than or equal to $250,000 for the 2020 tax year and have a school tax liability for the 2022-2023 school year that is more than your 2022 STAR benefit. The amount of the credit will depend on a few factors: where the taxpayer’s home is located, the taxpayer’s income, and whether they received the Enhanced STAR or Basic STAR exemption. If you were eligible for this credit, the credit will be automatically calculated and sent to you.

New York State – Hire a Vet Tax Credit

The Hire a Vet Tax Credit is a nonrefundable tax credit which was extended until December 31, 2025. In order to be eligible for this credit you must hire a qualified veteran who begins employment on or after January 1, 2014, but before January 1, 2022 and employ the Veteran in NYS for one year or more for at least 35 hours each week.

The definition of an eligible veteran was expanded to include anyone that was in the Space Force, commission corps of the national oceanic and atmospheric administration, as well as commissioned corps of the US public health service.  The credit was increased this year to 15% of wages with a maximum of $15,000 for full time veterans, or 20% of wages with a maximum of $20,000 for full time disabled veterans.

New York State – Brownfield Redevelopment Tax Credit

The Brownfield Redevelopment Tax Credit was extended for sites accepted into the program prior to January 2033, and receiving a certificate of completion (COC) prior to January, 2037

·        For the qualified sites that were issued a COC on or after March 20, 2020, but before December 31, 2015, it extends the period to claim the tangible property component to 15 years after the issuance of the COC.

·        For the qualified sites that issued a notice of acceptance on or after July 1, 2015 but before June 24, 2021, the site preparation costs shall include costs paid or incurred within 84 months after the last day of that tax year in which the COC was issued.

·         For any of the qualified sites that were issued a COC on or after July 1, 2015 but before June 24, 2021, to claim the on-site groundwater remediation cost component and the site preparation credit component it has to be within seven years after the COC was issued.

·         For any new sites that are accepted on or after 1/1/23, there are increased rate designations for tangible personal property credit components. This credit is also available now for certain athletic complexes that qualify.

New York State – Investment Tax Credit for Farmers

The Investment Tax Credit (ITC) for eligible farms has been increased for the 2022 tax year:

·        For Article 22 filers, the rate will increase from 4% to 20%,

·        For Article 9A filers, the increase will be from 5% to 20%.

This credit applies to any property principally used by the farmer in production of goods by farming, agriculture, horticulture or viticulture and placed in service on or after April 1, 2022.

New York State - Farm Workforce Retention Credit

The Farm Workforce Retention credit was extended through 2025. This credit was also doubled from the $600 to $1,200 per eligible farm employee this year. That increase will be in effect for the years 2022 through 2025.

New York State – Transportation to Individuals with Disabilities

This credit was extended for taxicabs and livery service vehicles that are accessible to persons with disabilities through December 31, 2028. There was also an additional credit for $15,000 for electric vehicles that were added for tax years on or after January 1, 2023.

New York State – Other Credit Extensions

Other New York state credits that were extended include:

·        The Clean Heating Fuel tax credit through 2025

·        Alternative Fuels tax credit through 2025

·        Electric Vehicle Recharging tax credit through 2025

·        Workers with Disabilities tax credit through 2025

·        Empire State Apprenticeship tax credit through 2027

Please feel free to contact your Dermody, Burke & Brown Tax advisor to further discuss any questions you may have about any of the above credits that were discussed.  

 

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.