Small business owners know that taxes are a complex reality, with frequently changing rules. Fortunately, this year’s changes came with great news of tax deductions and possible savings. This is a good way to help offset the struggle that small-business owners face post-pandemic.
The first week of May was National Small Business Week in the U.S. The IRS used this opportunity to issue a news release detailing new and expanded small business tax benefits for 2022. Take time to learn how taxes for small businesses affect the bottom line. Also, some tax saving advice may help your business increase the amount of money you keep when filing your taxes.
Expert Tax Professionals at Waters Hardy
If this idea overwhelms you and you’re not sure if you qualify for some of these new tax advantages, reach out to Waters Hardy. We are your expert small business tax resource. As well-trained and experienced tax professionals, we are proficient at tax law and compliance. Furthermore, we can quickly sort through your business expenses to find ways to lower your taxes significantly.
Small Business Tax Rate
The list of taxes is similar across business structures, whether they are small businesses or corporations. What is different is how small companies pay and their tax rate. Various factors determine your small business tax rate. These include your level of income, location, and business structure.
- Income tax
- Self-employment tax
- Employer tax
- Estimated tax
- Excise tax
Knowing how to file and what to pay in taxes can directly impact the success of your company. Just as important as knowing how much to pay is knowing what you don’t have to pay. Therefore, we’ll highlight some of the most overlooked money saving tips for small businesses.
Small Business Tax Deductions
Starting in 2021, the IRS began allowing businesses to deduct the total cost of business-related food and beverages purchased from restaurants. In the past, companies had only been able to deduct up to 50% of the meal cost. However, if the food comes from a restaurant, it doesn’t have to be eaten on the premises, so takeout and delivery count, too.
- Dining with potential or established clients
- Snacks and meals bought for employees
- Company party catering
This full meal deduction will continue for the 2022 tax year, so make those reservations!
Home Office Expenses
If you have a workspace that is dedicated and used solely for work on a regular basis, you are eligible to deduct expenses related creating and maintaining that portion of your home.
There are two ways to calculate your home office expenses.
- The easiest way to do this for your home office space is to take $5 per square foot, up to 300 square feet, and claim the total amount.
- Home office employees can also file using Form 8829, Expenses for Business Use of Your Home. This form helps calculate a percentage of indirect expenses such as insurance, real estate taxes, depreciation, mortgage interest, and maintenance and repairs.
Expenses directly related to work are often overlooked but are completely allowable deductions. The following are some examples but certainly doesn’t include all possible allowances.
- Utilities- Electricity, water, heat
- Internet service
- Phone lines
The tax deduction rate for 2022 is $0.58 for every mile you drive for business purposes. Keep a log of your travel expenses to substantiate your mileage if the IRS asks for it.
This is the primary way you will bring brand awareness to your company. If you’re an established business, you know firsthand the benefits of effective marketing. Therefore, you have probably already built the costs of advertising into your budget. However, this is not as easy to do when you’re just beginning. The IRS has considered this by allowing startup businesses to deduct 100% of the costs of promoting and advertising a start-up.
Here are some examples of what marketing methods can be deducted.
- business cards
- digital marketing
- hiring someone to design a business logo
- launch a company website
- run a social media marketing campaign
- sponsor a promotional event
Salaries and wages during training
How is a business owner supposed to pay employees if they are starting out and the business is yet to take off? Fortunately, salary and wages at start-up are considered tax deductions. Also, training provided for new employees is also deductible.
- Professional publication subscriptions
- Costs of business certifications
Salaries and fees for start-up advisors, employees, or services
You might be able to write off the costs associated with hiring independent contractors or freelancers.
- Professional service providers
Your travel expenses may be deducted from your business taxes if you travel for work.
- Rental Car
Health Insurance Premium Deductions
Businesses with over 50 employees must offer health insurance. Small companies are not obligated to provide benefits but are incentivized to do so with a tax credit. Therefore, a tax credit is available to small businesses who provide health insurance benefits to their staff and have fewer than 25 full-time employees. This includes a reimbursement of up to 50% of insurance premiums that were paid by the employer.
There are other requirements, and the help from a professional tax consultant can help determine if you are eligible to deduct these expenses.
Waters Hardy Helps You Identify Your Deductions
Paying obligatory taxes for small businesses can be challenging but knowing which deductions you qualify for can help maximize your income. The IRS considers business expenses that are “ordinary” and “necessary” deductible. Additionally, figuring out if your business expenses fall into these categories can be complex and confusing, not to mention time-consuming. You don’t have to do it alone!
Working with a tax professional who can manage all your small business tax needs is a smart business decision. Specialists, such as the team at Waters Hardy, can help ensure that you claim every deduction possible to reduce your overall tax bill. Lastly, we can help boost your business profits with unparalleled attention, efficiency, and reliability. Schedule your free consultation today.
We offer a complimentary 20-minute call with one of our specialists to go over your current situation and questions. Contact us today.