Taxes and transition planning for CEA owners in 2022

KCoe Isom is one of the leading food and agricultural consulting and accounting firms in the U.S. that provides a variety of business services such as tax and accounting, financial advice, next-gen services, sustainability services, and technology consulting.

(Question) Q: What are some of the tax updates owners of controlled-environment greenhouse operations need to know about heading into this coming year?

Abbie Everist: At the end of the year, the IRS issues guidance for inflation updates, and several items are indexed for inflation. It is even more notable this year because we have seen the biggest increase in inflation for two or three decades. There will be an impact, and much of it is positive. By increasing the inflation amount in your tax brackets, the lower brackets are bigger, so your average tax rate is lower overall. That is something to look at along with your standard deductions. People who are on Social Security also get these adjustments.

Q: We had several companies in the industry apply for and receive PPP funding. Does that affect anything at all with getting ready for this coming year?

Elizabeth Swanson: In most states, it doesn't. Most states are following the federal rule, which is that PPP forgiveness is not taxable income. The forgiveness will be taxable for greenhouses in California that received a second-round loan, or a first-round loan after March 31, 2021, so that is something to keep in mind as you're planning your taxable income and any additional deductions you want to take before the end of the year. Again, most other states are following the federal rules. Those are really specific to states as to whether some of the PPP forgiveness might be considered taxable income.

Q: Is there anything in proposed tax reform that will have any sort of an impact?

Everist: In Build Back Better, the name of the latest tax reform act, the biggest thing we see impacting businesses is the government is looking to apply the net investment income tax, which is the 3.8% that's levied currently on primarily passive earnings over certain threshold amounts. They want to apply that towards portions of S-corporation income that flow through to an individual. Previously, those have been excluded. Now, if an organization is set up as an S corporation, it gets its K-1 and it flows through to an individual. Once that individual's adjusted gross income exceeds $400,000 for a single filing and $500,000 for married filing joint, now any income above those amounts, if they have that active interest in an S corporation, would be subject to that additional tax.

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Source: Greenhouse Grower