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Will the standard business mileage rate go up in 2022? Yes!

After two years of no increases, the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business will be going up in 2022 by 2.5 cents per mile. The IRS recently announced that the cents-per-mile rate for the business use of a car, van, pickup or panel truck will be 58.5 cents (up from 56 cents for 2021).

The increased tax deduction partly reflects the price of gasoline. On December 21, 2021, the national average price of a gallon of regular gas was $3.29, compared with $2.22 a year earlier, according to AAA Gas Prices.

Don’t want to keep track of actual expenses? 

Businesses can generally deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.

Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.

How is the rate calculated? 

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear.

When can the cents-per-mile method not be used?

There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2022 — or claiming 2021 expenses on your 2021 income tax return. 

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Checkpoint Marketing for Firms
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Onboarding vs. orientation: Is there a difference?

Top view of Onboarding training text on the table with laptops, notepad, coffee, eyeglasses, pens. Business concept.

It’s a historically difficult time for employers to hire. What this means, other than the obvious, is that if your organization is fortunate enough to find and win over a job candidate, “onboarding” is more important than ever.

The Society for Human Resource Management, commonly known as simply “SHRM,” defines onboarding as “the overall process of welcoming a new employee to your organization, the process of integrating a new employee with a company and its culture, as well as getting a new hire the tools and information needed to become a productive member of the team.”

Sounds simple enough, right? It’s anything but. Many employers struggle to perfect their onboarding processes. Some don’t even have one at all. Yet the importance of getting an employee acclimated and comfortable with your work environment is critical to increasing the odds that he or she will stick around and won’t send you diving back into the decidedly shallow hiring pool.

An important point to keep in mind is that onboarding isn’t synonymous with orientation. Rather, orientation is typically regarded as only the administrative part of onboarding — though an important part nonetheless.

Day by day

You can reduce the pressure on new employees with an extended, step-by-step approach to orientation. This enables you to present information about your organization in bite-size pieces that new hires can readily digest. Most people hope to fall in love with, or at least really like, a new employer. Cramming paperwork, introductions, tours and lectures about organizational philosophy into one hectic day is probably not the way to get a working relationship off on the right foot.

To the extent possible, set aside one day solely for paperwork, security checks and other administrative matters. This gives new hires time to review employee manuals, company rules and benefit plans. Then reserve another full day for tours of the workplace and for initial meetings — perhaps even lunch with the supervisor and coworkers, if feasible.

After your new hire has spent a week or so on the job, schedule another session to discuss organizational philosophy, incentive programs, and the types of advanced training and career paths they can pursue. By this time, the employee is likely to have at least several substantive questions about the position and your organization’s policies. So, this creates the perfect opportunity to talk about these and other related subjects.

The story is just beginning

A gradual, thorough orientation helps new hires truly see that you want them to have a long and productive career with your organization. And from there, the rest of the onboarding process can play out. But that’s a story for another day.

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Checkpoint Marketing for Firms
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How to account for change orders

concept word CHANGES on wooden cubes on a beautiful background. Business concept

Last-minute changes to contracts can be frustrating. But, if managed properly, they can sometimes provide an opportunity to boost profits. Here are ways construction companies, engineering firms, software developers and other businesses that enter into long-term contracts with customers can better track change orders, account for them properly on their financial statements and use them to enhance the bottom line.

Common mistakes

Customers can sometimes change their minds after signing a contract, but before work is completed. To keep projects on schedule, it’s not unusual for contractors to begin out-of-scope work before a change order is approved. But failure to properly track and account for the costs and revenue associated with this work can have a negative impact on a business’s financial statements.

Suppose, for example, that a contractor records costs attributable to a change order in total incurred job costs to date, without making a corresponding adjustment to the total contract price and total estimated contract costs. To a lender or surety, this may indicate excessive underbillings.

On the other hand, profit fade can occur if contractors are overly optimistic about their chances of receiving change order revenue. If a contractor increases the total contract price based on out-of-scope work but is unable to secure change order approval, profits may fade as the job progresses. This can also shake the confidence of financial statement users.

3 categories

Without proper tracking procedures, contractors may inadvertently forget to charge customers for change orders in accordance with the terms of agreement. Change orders generally fall into these three categories:

1. Approved. For this category, it’s appropriate to adjust incurred costs, total estimated costs and the total contract price. Depending on the contract’s change-order provisions, this may increase the business’s estimated gross profits.

2. Unpriced. If the parties agree on the scope of work but leave negotiations on price for later, the accounting treatment depends on the probability that the contractor will recover its costs. If it’s not probable, change order costs are treated as costs of contract performance in the period during which they’re incurred, and the contract price is not adjusted. As a result, the contractor’s estimated gross profit decreases.

If it’s probable that the costs will be recovered through a contract price adjustment, the contractor can either:

  • Defer the costs until the parties have agreed on the change in contract price, or
  • Treat them as costs of contract performance in the period incurred and increase the contract price to the extent of the costs incurred (resulting in no change in estimated gross profit).

To determine whether recovery is probable, a contractor should consider its past experience in negotiating change orders and other factors. If it’s probable that the contract price will be increased by an amount that exceeds the costs incurred (increasing estimated gross profit), the contractor may recognize increased revenue — provided realization of that revenue is “assured beyond a reasonable doubt.”

3. Unapproved. These should be treated as claims. It’s appropriate to recognize additional contract revenue only if, under guidance provided in the accounting rules, it’s probable that a claim will generate such revenue and the amount can be reliably estimated.

We can help

Accounting for change orders under the percentage-of-completion method of accounting can sometimes be confusing. Contact us for help managing your company’s change order procedures and improving the accuracy and transparency of your financial statements.

© 2021
Checkpoint Marketing for Firms
THOMSON REUTERS

There’s a deduction for student loan interest … but do you qualify for it?

If you’re paying back college loans for yourself or your children, you may wonder if you can deduct the interest you pay on the loans. The answer is yes, subject to certain limits. The maximum amount of student loan interest you can deduct each year is $2,500. Unfortunately, the deduction is phased out if your adjusted gross income (AGI) exceeds certain levels, and as explained below, the levels aren’t very high.

The interest must be for a “qualified education loan,” which means a debt incurred to pay tuition, room and board, and related expenses to attend a post-high school educational institution, including certain vocational schools. Certain postgraduate programs also qualify. Therefore, an internship or residency program leading to a degree or certificate awarded by an institution of higher education, hospital or health care facility offering postgraduate training can qualify.

It doesn’t matter when the loan was taken out or whether interest payments made in earlier years on the loan were deductible or not.

Phase-out amounts

For 2021, the deduction is phased out for taxpayers who are married filing jointly with AGI between $140,000 and $170,000 ($70,000 and $85,000 for single filers). Thus, the deduction is unavailable for taxpayers with AGI of $170,000 ($85,000 for single filers) or more.

For 2022, the deduction will be phased out for taxpayers who are married filing jointly with AGI between $145,000 and $175,000 ($70,000 and $85,000 for single filers). That means the deduction is unavailable for taxpayers with AGI of $175,000 ($85,000 for single filers) or more.

Married taxpayers must file jointly to claim this deduction.

No deduction is allowed to a taxpayer who can be claimed as a dependent on another’s return. For example, let’s say parents are paying for the college education of a child whom the parents are claiming as a dependent on their tax return. The interest deduction is only available for interest the parent pays on a qualifying loan, not for any interest the child-student may pay on a loan he or she may have taken out. The child will be able to deduct interest that is paid in a later year when he or she is no longer a dependent.

The deduction is taken “above the line.” In other words, it’s subtracted from gross income to determine AGI. Thus, it’s available even to taxpayers who don’t itemize deductions.

Other requirements

The interest must be on funds borrowed to cover qualified education costs of the taxpayer or his or her spouse or dependent. The student must be a degree candidate carrying at least half the normal full-time workload. Also, the education expenses must be paid or incurred within a reasonable time before or after the loan is taken out.

Taxpayers should keep records to verify qualifying expenditures. Documenting a tuition expense isn’t likely to pose a problem. However, care should be taken to document other qualifying education-related expenditures such as for books, equipment, fees and transportation.

Documenting room and board expenses should be straightforward for students living and dining on campus. Students who live off campus should maintain records of room and board expenses, especially when there are complicating factors such as roommates.

We can help determine whether you qualify for this deduction or answer any questions you may have about it.

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Checkpoint Marketing for Firms
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2022 Q1 tax calendar: Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2022. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 17 (The usual deadline of January 15 is a Saturday)

  • Pay the final installment of 2021 estimated tax.
  • Farmers and fishermen: Pay estimated tax for 2021.

January 31 

  • File 2021 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2021 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
  • File 2021 Forms 1099-MISC, reporting nonemployee compensation payments in Box 7, with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2021. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2021. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2021 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 28

  • File 2021 Forms 1099-MISC with the IRS if: 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)

March 15

  • If a calendar-year partnership or S corporation, file or extend your 2021 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2021 contributions to pension and profit-sharing plans.

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Checkpoint Marketing for Firms
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