New tax rules may spark business switch to EVs

New tax rules have come online this year, with certain key provisions expiring or scaling down and other new incentives created by recent legislation, especially for transitioning from gas- and diesel-powered vehicles.

As 2023 progresses, small businesses should consider this in their overall planning for certain purchases, including equipment — given the start of a phaseout of an accelerated deduction on depreciable business assets — and a credit tied to purchasing electric vehicles, experts say.

The year “2023 brings lots of new tax rules and some are favorable and some are not,” says Barbara Weltman, a Vero Beach, Florida, small business tax specialist and author of J.K. Lasser’s Small Business Taxes 2023.

Included on the favorable side are certain tax credits related to the purchase of clean vehicles, she says. Thanks to the Inflation Reduction Act, your business may qualify for a credit up to $7,500 when buying a new, qualified plug-in EV or fuel cell electric vehicle (FCV) under 14,000 pounds, and up to $40,000 for heavier clean vehicles and certain machinery, Weltman says. There’s certain restrictions and requirements. See https://tinyurl.com/4hctty4n

Scott Maskin, senior vice president and general manager of the New York region for Ronkonkoma-based SUNation Energy, which installs EV charging stations, says he thinks the tax credit will be an added inducement for people to purchase electric vehicles.

He said soaring fuel costs last summer already helped encourage more people to buy electric vehicles and this tax credit he thinks “will be a catalyst for much larger-scale adoption.”

Maskin said often people like the idea of a clean vehicle, but sometimes “just need a little something to give it a try and make the plunge.”

Even before the credit, he’s seen double-digit year-over-year adoption rates of commercial installations of EV charging stations — meaning businesses providing EV charging stations for employees and customers. He said this credit can only help.

While that tax credit is favorable for 2023, some aren't. Expensing for business meals, which was 100% for 2021 and 2022, drops down to 50% for 2023, says Jason Drucker, a tax principal at Grassi Advisors & Accountants in Jericho.

This includes business meals with clients, in-office food like bagels or snacks, meals when traveling for work and meals at a conference, he says.

It doesn’t apply if you’re having say a company or holiday party or if you buy meals for employees working late, Drucker says. Those would still be 100% deductible, he says.

Another perk scaling down for 2023 tax year is bonus depreciation.

The Tax Cuts and Jobs Act of 2017 temporarily increased first-year depreciation to 100% on the federal level. This was helpful because normally when you buy property or equipment for your business you’d have to depreciate the cost over a number of years, Weltman says. This change allowed you to deduct 100% of depreciation upfront in the first year, she says.

For 2023, instead of 100%, you can deduct 80% of the cost of the property/equipment placed in service this year, she says. That will decline 20% annually through 2026 and then no longer be available, Weltman says.

On a positive note, New York State has accelerated individual income tax rate reductions from originally 2025 to Jan. 1, 2023, Drucker says, noting most flow-through entities like partnerships pay taxes on a personal level.

For single filers with incomes between $13,900 and $80,650 and joint filers between $27,900 and $161,550 their rates drop from 5.85% in the 2022 tax year to 5.5% for 2023; and for incomes of $80,650 and $215,400 for single filers and between $161,500 and $323,200 for joint filers their income tax rates drop from 6.25% in the 2022 tax year to 6.0% for the 2023 tax year, Drucker says.

Separately, any business that didn’t evaluate eligibility for the Employee Retention Credit, a refundable payroll tax credit that can be up to $26,000 per employee, still can to amend and claim the credit for certain tax years, says Tom Sena, a senior manager in the tax department at UHY LLP, a certified public accounting firm with local offices in Manhattan and Melville.

“Generally the period of limitations to claim and file an amended return starts to expire three years from the date the quarterly payroll tax return was filed,” he says. However, businesses could have up until April 15 of the following year to file.

If a business met certain eligibility criteria, and qualified wages were paid during March 2020 to September 2021 they could still be eligible for the credit, Sena says. That means April 15, 2024 and April 15, 2025 are key dates for the 2020 and 2021 periods, he says.

By Jamie Herzlich

jherzlich@aol.com

Herzlich writes the Small Business column in Newsday.