Congressional delays may require business tax return extensions

Changes resulting from a 2017 tax law that took effect in 2022 could increase tax liabilities for many business filers.

These controversial changes require taxpayers to capitalize previously deductible Research and Experimentation expenses and amortize them over a 5 year period. There is currently little guidance on which expenses are to be considered. There is strong support in Congress to reverse these rules, but to date no action has been taken and insufficient clarification of how to apply these changes has been provided.

This change in deductions, if left as it is, could result in higher current year taxable income for many wineries and certain vineyards.

The Options

Extend your business tax return - Our firm is recommending extension requests for all business tax filers along with a higher extension payment. (Payments are due this year by May 15, 2023 for those in many California counties, including Napa and Sonoma, who normally pay or file by March 15th or April 15th.) This payment will cover the estimated impact of the deferred deduction if the new provision stands.
File on time - those who do not wish to extend their returns and desire to file on time may need to file an amended return later. Bear in mind that we do not have sufficient information to implement the new change correctly and will therefore be filing under the old rules. If the new law stands, an amended return would likely incur additional penalties and interest. (We still recommend filing an extension to gain additional time to make changes later. )

This is a complex and evolving issue. Please contact us for guidance on your specific situation.