The Advisory


2022 Q3

Heads Up for 2022 Financial Statements—New GAAP Leasing Standards

After many years of delays, the updated accounting standards for recording leases will go into effect. This applies to tax years beginning after December 31, 2021, and will likely have a substantial impact. Currently, most business owners record rent expense for the amount they pay each month on their office and/or other leases. For leases with escalating rent, the expense should be flattened over the period of the lease, while the business carries a net asset or liability for the difference between the amount paid and the consistent monthly expense.

That said, many business owners frequently passed on flattening rent due to the added complexity and frequently trivial impact. Under the new standards, business owners will need to ensure rent is recorded on a straight-line basis and will also need to record an asset for their right to use the property and a liability for the present value of all future payments under the lease. We encourage all clients with debt covenants that involve balance sheet ratios to have a discussion with their bank about the impact of the leasing standards update.

The updated standards are notably complicated, and Raphael and Raphael is always available to help you get a head start on implementation.

Tax Legislation—The Inflation Reduction Act

While the most notable direct tax implications of the recently passed Inflation Reduction Act only apply to extremely profitable corporations, it also contains several credits that you can take advantage of, including:

  • Tax credits for energy efficiency home improvements—these have been renewed and extended for over a decade, allowing you to claim up to $1,200 in credits based on 30% of the cost.
  • Increased rebates in the MassSaves programs for HVAC improvements.
  • Increased credits for home solar and energy storage systems, up to 30% of the cost.
  • Credits of up to $7,500 and $4,000 for purchasing new or used electric vehicles, respectively, with the following caveats:
    • Buyers can’t make more than $300,000 per year on a jointly filed tax return when claiming the credit for a new EV.
    • The credit doesn’t apply to cars that sell for more than $55,000—or trucks, SUVs, and vans priced higher than $80,000.
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