This past year has been a big one for the world of finance, with plenty of changes and new developments. From recently passed legislation to updated tax guidelines, there’s been no shortage of challenges to keep CFOs busy.
The adoption of the new lease accounting standard deadline is upon private companies, pressing finance leaders and their teams to prepare for the switch. Meanwhile, the research & development (R&D) tax incentive; cryptocurrency accounting standard; and environmental, social and governance (ESG) guidelines came to the forefront for change and discussion. And the Inflation Reduction Act (IRA) brought new incentives for companies in various forms. CFOs grappled with these developments throughout 2022, all while helping their companies heal from the aftershocks of the pandemic.
Let's take a look back at some of the highlights.
Inflation Reduction Act Signed Into Law
This year marked the culmination of recent tax law initiatives, with Congressional approval of the IRA being one of the year's top stories. The massive bill addresses climate change, increases funds to the IRS and aims to reduce the federal deficit.
Because of the bill, the IRS is investing in customer support and gearing up to conduct more audits. The IRA commits $80 billion to the IRS, over half of which is earmarked for enforcement activity. Although increased enforcement may not begin for several years and will not target those with income below $400,000, working with your tax provider at the start of the new year can help ensure you're prepared in case the IRS comes knocking. Having accurate records and showing how you arrived at your tax positions will go a long way toward minimizing any potential tax and penalty exposures.
If you're a commercial real estate owner interested in going green, the start of the new year is also a great time to ponder some changes. The IRA is the most aggressive legislative action in U.S. history to combat climate change. It features numerous lucrative enhanced tax incentives to help businesses invest in clean energy solutions.
Another significant change in the bill is the new 15% corporate alternative minimum tax (CAMT) for corporations with revenues over $1 billion. The CAMT is expected to directly impact only several hundred U.S. corporations, but it may indirectly impact a much larger population of companies through increased information reporting requirements.
ASC 842 Deadline Fast Approaches
This year, the countdown for adopting the new lease accounting standard, ASC 842, began. If your organization hasn't enacted this standard yet, you must do so for fiscal years beginning after Dec. 15, 2021. For example, if you are a calendar year-end company, the standard is effective for your 2022 annual financial statements.
The Financial Accounting Stnadards Board (FASB) issued the new standard to bring greater transparency to leasing transactions and align leasing guidance with other recent accounting standards updates. It requires all leases except short-term leases to be recorded on balance sheets.
Organizations need to understand and implement the standard as soon as possible because the process is complex and may require professional assistance. It will require significant legwork to thoroughly investigate your organization's leases — some of which may even be hiding in plain sight.
If your organization needs help understanding ASC 842 during implementation, download our e-book, 4 Keys to Lease Accounting for CFOs.
R&D Tax Credits Signaled for Change
In 2022, the research and development (R&D) tax credit attracted significant attention. Earlier this year, the Fostering Innovation and Research to Strengthen Tomorrow (FIRST) Act was introduced to the U.S. House of Representatives. The bill would increase the R&D credit from 20% to 40% for companies with research expenses within the three preceding years and increase the alternative simplified credit from 14% to 28%.
It would also increase the research credit for companies with no research expenses in the three preceding years from 6% to 14%. Additionally, the proposal would allow small businesses to take any of the credits included in the bill as a credit against payroll taxes for up to $500,000.
The move aims to encourage companies to invest in innovation, technological breakthroughs and scientific discoveries.
The recently passed IRA embraced part of the goals under the FIRST Act by doubling the amount a qualified company can claim as an R&D tax credit against payroll taxes, from $250,000 to $500,000 per year, for tax years beginning after Dec. 31, 2022. The remaining elements of the FIRST Act may resurface as part of future Congressional negotiations.
ESG Transparency Proposed
This year, the Securities and Exchange Commission (SEC) has taken a strong stance on tackling climate change by introducing new climate-related disclosure requirements that will have a substantial effect on companies' disclosure practices.
The proposed changes would require public companies to include certain climate-related information in registration statements and financial reports. These disclosures would be subject to management’s internal controls over financial reporting. The hope is that these expanded and enhanced disclosure requirements will improve transparency and make climate disclosures more consistent and comparable for customers, investors and stakeholders. The impact of the new climate-related disclosures will extend to many private companies as well. In order to meet the proposed disclosure requirements, public companies will be compelled to make additional demands for emissions reporting information from their suppliers and customers.
No longer just a passing trend, it's clear that the SEC views ESG reporting as an integral part of long-term business strategy and one that businesses must take into serious account if they want to keep up with the changing tides.
FASB Proposes New Accounting for Digital Assets
Cryptocurrency has made waves around the globe in recent years, with more businesses warming up to its possibilities. Yet, while accepting cryptocurrency as payment may have seemed like an easy decision at first, accounting for it is much more complex.
Earlier this year, FASB made waves in the financial world by proposing that bitcoin and similar digital assets should be measured at fair value. This significantly differs from the current method of reporting cryptocurrency as intangible assets. The proposal aims to improve transparency and ease the complexities associated with the accounting process.
ERTC Skyrockets in Popularity
With 2020 being one of the most challenging years for many businesses, the Employee Retention Tax Credit (ERTC) came as a welcome offering. However, it wasn't until 2022 that the tax incentive exploded in popularity. With more and more companies learning they meet the eligibility requirements, it's become a commonly sought-after economic aid.
If you're a business with significant payroll costs that has experienced financial challenges due to the outbreak of COVID-19, you may be eligible for substantial ERTC benefits. However, this tax credit can be confusing due to its complex nature and ever-changing rules. It's wise to consult a reputable tax professional who can expertly guide you through understanding the eligibility details and filing claims.
As we head into 2023, your company shouldn't worry about tackling financial challenges. At CBIZ, our team is dedicated to helping you navigate the ins and outs. From unpacking the complexities of lease accounting standards to saving you money with intricate tax incentives, our specialists are here for your every step of the way. Contact us today.
Published on December 16, 2022