End of tax season is a time of year when many small business owners breathe a sigh of relief. But it’s also a time when you should start thinking about what to expect in the coming year. In this blog post, we will discuss some of the changes that have come to small business taxes in 2022. By being prepared for these changes, you can ensure that your business is ready for them!
Small-business tax credits vs. tax deductions
One of the biggest changes coming to small business taxes in 2022 is the elimination of many tax deductions. For example, starting in 2022, businesses will no longer be able to deduct expenses for entertaining clients or customers. This change is expected to have a significant impact on businesses that often entertain clients or customers as part of their operations.
In addition, the new tax law also eliminates several other deductions that businesses have been able to take in the past. These include deductions for business meals, employee achievement awards, and certain types of professional services. While some of these deductions may be missed by businesses, others may not have a significant impact on their operations.
To offset the elimination of these deductions, the new tax law provides several small-business tax credits. These credits can be used to offset the cost of certain business expenses, such as employee health insurance or retirement plan contributions. The new law also expands the eligibility for the research and development tax credit, which can provide a significant benefit for businesses that are engaged in innovative activities.
Overall, the new tax law makes some changes that will impact businesses, both positively and negatively. However, the net effect of the changes is likely to be positive for most businesses. By understanding the changes and taking advantage of the opportunities they present, businesses can position themselves for success in the years ahead.
How to claim small-business tax credits?
The new tax law provides several opportunities for businesses to claim tax credits. One of the most valuable credits is the research and development tax credit, which can provide a significant benefit for businesses that are engaged in innovative activities.
To claim the credit, businesses must first determine if they are eligible. To be eligible, businesses must have incurred qualified research expenses during the tax year. Qualified expenses include wages paid to employees who are engaged in research activities, as well as costs associated with materials and supplies used in research.
Once a business has determined that it is eligible for the credit, it can calculate the amount of the credit by multiplying the amount of qualified expenses by a specified percentage. The specified percentage depends on the type of business and the amount of qualified expenses incurred.
Businesses can claim the credit on their annual income tax return. The credit is claimed as a deduction from taxes owed, and any unused portion of the credit can be carried forward to future tax years.
The research credit is just one of many tax credits that are available to small businesses. By taking advantage of these credits, businesses can save money on their taxes and reinvest those savings into their business. With the right planning, small businesses can maximize their tax savings and keep more of their hard-earned money.
Tax credits often missed by small businesses
The new tax law has created a lot of confusion for small businesses. With all the changes, it’s no wonder that many small businesses are unsure of what to expect come tax time.
To help ease some of the uncertainty, we’ve put together a list of five tax credits that your small business may be eligible for in 2022:
The Small Business Health Care Tax Credit
This credit is available to small businesses that provide health insurance coverage to their employees. To qualify, your business must have fewer than 25 full-time equivalent employees and pay at least 50% of the premiums for employee health insurance coverage.
The Work Opportunity Tax Credit
This credit is available to businesses that hire individuals from certain target groups, such as veterans, ex-felons, and food stamp recipients. To qualify, your business must have fewer than 50 employees.
The Disabled Access Credit
This credit is available to businesses that make their facilities accessible to people with disabilities. To qualify, your business must have gross receipts of less than $50,000 per year.
The Renewable Energy Tax Credit
This credit is available to businesses that invest in renewable energy projects, such as solar or wind power. To qualify, your business must have gross receipts of less than $20 million per year.
The Research and Development Tax Credit
This credit is available to businesses that engage in research and development activities. To qualify, your business must have gross receipts of less than $50 million per year.
If you’re a small business owner, it’s important to be aware of the different tax credits that may be available to you. By taking advantage of these credits, you can save money on your taxes and reinvest in your business.
The top 17 small business tax deductions
As a small business owner, you’re used to being inundated with taxes. Federal, state, and local taxes can take a huge chunk out of your profits each year. And while you may be used to shouldering this burden, it’s important to know what changes might be coming down the pipeline.
Small businesses are the backbone of the American economy, accounting for more than 99% of all businesses in the country and employing nearly half of all private sector workers. They’re also shouldering a huge burden when it comes to taxes, paying an average effective tax rate of 19.0%, according to a recent report from the National Small Business Association.
Fortunately, there are a number of deductions and credits available to help offset the tax burden on small businesses. Here are 17 of the most common and valuable small business tax deductions:
• Advertising and marketing expenses
• Auto and truck expenses
• Business insurance premiums
• Charitable donations
• Commissions and fees paid to independent contractors
• Cost of goods sold (COGS) for manufacturers, retailers, and wholesalers
• Employee benefits (including health insurance, retirement plans, etc.)
• Home office expenses (if you use part of your home for business purposes)
• Interest expense (on business loans)
* Legal and professional fees paid to accountants, attorneys, and consultants
• Rent or lease payments for office or retail space
• Repairs and maintenance expenses
• Salary, wages, and other forms of compensation paid to employees
• State and local taxes (including sales tax)
• Travel expenses (for business-related travel)
• Utilities (for business-related purposes)
Home office expenses
Home office expensesare one of the many deductions that self-employed individuals can take come tax time.
If you’re like most people, your home is also your office. And, as such, you’re entitled to deduct a portion of your rent or mortgage interest, utilities, insurance, and other home expenses on your taxes.
The deduction is calculated by taking the square footage of your home office and dividing it by the total square footage of your house. The resulting percentage is then applied to your total expenses.
For example, if your home office is 200 square feet and your house is 2000 square feet, you would be able to deduct ten percent of your total expenses.
So, if you paid $1000 in mortgage interest last year, you could deduct $100 on your taxes.
The home office deduction can be a great way to save money on your taxes, but it’s important to keep good records and receipts in case the IRS ever questions your deductions.
So, if you’re planning on claiming the home office deduction on your taxes this year, make sure you have all of your ducks in a row!
Business use of your car
If you use your car for business purposes, you may be able to deduct some of the costs of operating your vehicle.
For example, if you use your car to travel to client meetings or to pick up supplies for your business, you can deduct a portion of the cost of gas and wear and tear on your vehicle.
The IRS has a standard mileage rate that you can use to calculate your deduction, or you can keep track of actual expenses like gas and maintenance.
Either way, it’s important to keep good records so that you can show the IRS how much you spent on business-related travel.
Again, good record-keeping is key when it comes to claiming deductions on your taxes.
Business meals
Business meals are another common deduction for small business owners.
If you entertain clients, prospects, or business associates, you can deduct 50% of the cost of the meal as a business expense. For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant.
Just be sure to save your receipts and keep track of who you entertained and what business was discussed.
The IRS has strict rules about what counts as a legitimate business meal, so make sure you’re familiar with them before claiming any deductions.
Travel and entertainment expenses can add up quickly, so it’s important to know which ones you can deduct on your taxes. By keeping good records and knowing the IRS rules, you can ensure that you claim all the deductions you’re entitled to.
Salaries and benefits
Salaries and benefits are another areas where taxes can take a bite out of your small business income. As an employer, you’re responsible for paying federal and state unemployment taxes, as well as Social Security and Medicare taxes.
You may also be required to provide health insurance for your employees, which can add to the cost of doing business. But there are some tax breaks available for businesses that provide health insurance.
So if you’re self-employed or have a small business, it’s important to stay on top of the latest tax changes. By doing so, you can minimize your tax bill and keep more of your hard-earned money.
Advertising and promotion
Advertising and promotion expenses are often some of the first expenses to be cut when business owners are looking to save money. But advertising and promotion are essential to keeping your business visible and top-of-mind with potential customers.
The good news is that there are some tax deductions available for advertising and promotion expenses. For example, you can deduct the cost of print ads, radio ads, television ads, and Internet advertising. You can also deduct the cost of promotional items such as pens, mugs, and T-shirts.
Contract work
If you hire independent contractors to help with your business, you may be able to deduct their fees as business expenses. This includes contractors such as bookkeepers, accountants, web designers, and virtual assistants.
To qualify for this deduction, you must have a written contract with the contractor that specifies the services they will provide. You also need to make sure that you pay the contractor directly (not through an employee).
Legal and professional fees
If you incur legal or professional fees in connection with your business, you may be able to deduct these expenses. This includes fees for lawyers, accountants, and consultants.
To qualify for this deduction, the fees must be related to your business activities. For example, if you hire a lawyer to help you with a personal matter, such as a divorce, you cannot deduct the cost of their services.
Permits and licenses
If you need to obtain permits or licenses in order to operate your business, you can deduct the cost of these as business expenses. This includes things like building permits and business licenses.
Depreciation
Depreciation is an important tax deduction for small businesses, but it can be confusing to calculate. The IRS will be changing the depreciation rules for equipment and property in 2022, so it’s important to understand how these changes will affect your business.
Under the new rules, businesses will no longer be able to deduct the full cost of equipment and property in the year they are purchased. Instead, businesses will have to spread the deduction over a period of years. This change will impact businesses that have been using accelerated depreciation methods, such as bonus depreciation or Section 179 expensing.
The good news is that the new rules will not apply to equipment and property purchased before January 2023. So, if you’re thinking about buying any big-ticket items for your business, you may want to do it sooner rather than later.
Is there a tax break for starting a business?
The answer is maybe. The new tax law enacted in 2017 created a deduction for qualified business income, which could potentially apply to small business owners. However, the deduction is subject to a number of limitations and restrictions, so it’s not a sure thing.
For one thing, the deduction is only available to businesses with taxable income below certain thresholds. For single filers, the threshold is $170,050; for married couples filing jointly, it’s $340,100. So if your business makes more money than that, you’re out of luck.
In addition, the deduction is only available for certain types of businesses. Specifically, it applies to “pass-through” businesses – that is, businesses whose income is taxed on the owners’ personal tax returns, rather than at the corporate level. This includes sole proprietorships, partnerships, LLCs, and S corporations. It does not apply to C corporations.
So if you’re thinking of starting a small business in 2022, don’t count on getting a tax break for it. But there are other potential benefits – like the satisfaction of being your own boss! – that might make it worth your while anyway. Thanks for reading!
Staying on top of your deductions is one of the most important things you can do for your small business.
As always, it’s important to consult with a tax professional to make sure you’re taking advantage of all the deductions and credits that are available to you. By staying on top of your taxes, you can ensure that your small business is as successful as possible. Thanks for reading!
If you have any questions about your small business taxes, please contact our office. We would be happy to help!