January 2023 / United States

On 4 January 2023, the US Internal Revenue Service (IRS) issued its fiscal year (FY) 2022 progress update, providing an overview into the agency's work over the past year and discussing the agency's goals for FY 2022 to FY 2026.

According to the progress update, during FY 2022, the IRS:

• completed delivery of the third round of Economic Impact Payments, bringing the total distributed by the IRS in three rounds to more than USD 830 billion;
• wrapped up disbursement of advance monthly payments of the Child Tax Credit;
• emphasized that filing electronically with direct deposit was more important than ever in 2022;
• continued efforts to enhance service for all taxpayers, including people in diverse and under-served communities by:
  • taking steps to further improve the amount of assistance the agency provides to taxpayers in multiple languages;
  • completing conversion of 34 Spanish notice inserts to Braille, text, audio and large print;
  • converting Form 1040 and its main schedules, 1040 NR, 1040 SR, W-4 and six IRS publications into Spanish Braille, text and large print;
• worked to reduce paper correspondence inventory and process paper tax returns from 2021 and improve its response to an unprecedented level of phone demand;
• continued to develop and utilize innovative approaches to understand, detect and resolve potential noncompliance to maintain taxpayer confidence in the tax system; and
• created a new office to improve taxpayer experience and identify opportunities to make continuous improvements in real time for taxpayers and tax professionals.

The IRS also discussed its four goals for FY 2022 to 2026, as found in the strategic plan issued in July 2022.

The Inflation Reduction Act enacted last year has further extended the limitation of excess business losses of non-corporate taxpayers, according to the US Internal Revenue Service (IRS)'s publication issued on 13 January 2023.

The excess business losses limitation under section 461 of Internal Revenue Code (IRC), which was enacted under the Tax Cuts and Jobs Act, caps the amount of business losses that non-corporate taxpayers may deduct from their non-business income. While the limitation had been originally slated to take effect in 2018 and expire in 2025, the Coronavirus Aid, Relief and Economic Security Act retroactively pushed its implementation to 2021.

Meanwhile, the American Rescue Plan Act of 2021 extended its effectivity until 2026. According to the guidance, the Inflation Reduction Act further extends the limitation through tax year 2028.

In addition to discussing the extension of the limitation, the 13 January 2023 publication provides guidance on net operating losses (NOLs) for individuals, estates and trusts filing their 2022 tax returns. Specifically, the publication discusses:

• how to figure an NOL;
• when to use an NOL;
• how to waive the carryback period;
• how to carry an NOL back or forward;
• how to claim an NOL deduction; and
• how to figure an NOL carryover.

Moreover, the publication provides that taxpayers who had an NOL deduction carried forward from a year before 2018 that resulted in having taxable income in their 2022 return of zero (or less than zero, if an estate or trust), must complete Worksheet 2 to help them figure their NOL to carry to 2023.

For tax years beginning in 2022, the maximum expense deduction allowed under section 179 of the US Internal Revenue Code (IRC) has increased to USD 1.08 million, according to Instructions for reporting depreciation and amortization on Form 4562 issued by the US Internal Revenue Service (IRS). The IRS published the 2022 Instructions on 6 January 2023.

IRC section 179 allows taxpayers to deduct the entire cost of certain property as an expense on their federal tax return in the year of purchase, rather than capitalizing the costs and deducting depreciation over multiple years.

Taxpayers use Form 4562 to:

• claim deductions for depreciation and amortization;
• make the election under section 179 of the Internal Revenue Code to expense certain property; and
• provide information on the business/investment use of automobiles and other listed property.

According to the updated instructions, for tax years beginning in 2022, the USD 1.08 million limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds USD 2.7 million (previously USD 2.62 million). In addition, the maximum section 179 expense deduction for sport utility vehicles (SUVs) placed in service in tax years beginning in 2022 has increased to USD 27,000 from USD 26,200.

The instructions also state that specified research and experimental costs paid or incurred in tax years beginning in 2022 must be capitalized and amortized over a 5-year period (a 15-year period for any expenditures related to foreign research).

Moreover, the instructions provide that certain qualified property (other than property with a long production period and certain aircraft) placed in service between 31 December 2022 and 1 January 2024, is limited to a special allowance of 80% of the depreciable basis of the property.

The US Internal Revenue Service (IRS) has issued guidance discussing types of income and explaining whether they are taxable or non-taxable income for purposes of filing 2022 tax returns.

According to the guidance, which the IRS issued on 4 January 2023, income is generally taxable unless it is specifically exempted by law. Taxpayers must report and pay taxes on taxable income and may be required to report non-taxable income on their tax returns.

The guidance discusses, among others:

• employee wages;
• fringe benefits,
• income from bartering;
• partnerships;
• S corporations;
• royalties;
• disability pensions;
• life insurance proceeds; and
• welfare and other public assistance benefits.

In addition, the guidance highlights certain changes for tax year 2022. Specifically, for tax year 2022, taxpayers who participate in a 401(k), 403(b), or the federal government's Thrift Savings Plan (TSP), could annually contribute up to USD 20,500 (USD 27,000 if age 50 or older). Previously, the deferred compensation contribution limit was USD 19,500 in 2021.

Moreover, for tax years beginning in 2022, the dollar limitation under IRC section 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is USD 2,850.