7 Tax Saving Ideas for Small Business Owners
Taxes can be complicated, especially for freelancers, small-business owners, and those with side jobs. They are even more complicated now that filers have to consider the tax consequences of rule changes and small-business relief programs.
Three tax professionals believe that these new twists and turns could create tax-saving opportunities. These are seven things entrepreneurs and independent workers can do this year to reduce their tax bills.
1. Don’t worry about the PPP money
The IRS doesn’t usually consider money as part of your gross earnings if your business was approved for a loan under the Paycheck Protection Program (or PPP). You can also deduct business expenses you have incurred as a result of the loan money on your federal tax return.
Meredith Tucker, the Entrepreneurial Services Group leader at Kaufman Rossin, Fort Lauderdale, Florida, says “The IRS was clear.”
The stance of state-level tax rules on PPP taxability may be different, so make sure you consult a qualified tax professional.
Also read: 10 Ideas To Help Reduce Small Business Costs
2. Take a break
The deduction for business meals is increased from 50% to 100% in 2021 and 2022 if the food or beverages come from a restaurant.
This can include delivery and takeout. It doesn’t need to be eaten on-site,” says Mark Luscombe who is a federal tax analyst at Wolters Kluwer Tax & Accounting.
Make sure that you are getting your business meals at a restaurant. He says, “You cannot get a deli platter from a grocery shop and it qualifies.”
3. Keep an eye on the odometer
For self-employed people, every mile driven for business purposes can be deducted from your tax bill. The rate was 56c per mile in 2021 and 58.5c per mile in 2022. This means that a 20-mile trip to see a client could result in a tax deduction of approximately $12.
Don’t make assumptions here. The IRS might ask you to prove your mileage. Luscombe states that keeping a log is important, especially if your vehicle isn’t used exclusively for business purposes.
4. Take advantage of special retirement opportunities
If you are self-employed, there are tax breaks available for retirement savings. Solo401(k), also known as one-participant401(k), is one example IRS-blessed retirement account for self-employed individuals. These accounts mimic the features of an employer-sponsored retirement account, including the ability to save money pretax.
You have another option: SEPIRAs. This is especially true if you are eligible for a tax extension.
She said, “You can deduct 2021 taxes and not have to fund the retirement account until the extended due date for return, which could be in September or October.”
5. Take a look at the contents of your home office
A popular way to get a tax deduction on rent, utilities, and other house-related expenses is the home office deduction. But a home office can also provide tax breaks. If you rent a table, chair, or computer in 2021 to use as your home office, and have not claimed it as a business expense, You may be able to deduct its market value, according to Sean DiMercurio of DiMercurio Advisors, Orlando, Florida.
If you buy a laptop worth $3,000 two years back and it is now worth $1,250 today, you might be eligible for a $1250 deduction if that laptop is used for business purposes this year.
DiMercurio states, “This is something that is often overlooked by this group of taxpayers is completely allowed.” He also suggests that you keep the receipts and proof of purchase.
6. Prepare now for 2022 new paperwork
If clients pay self-employed individuals at least $600 per year, they will receive a form 1099-NEC. However, if these clients use Venmo, PayPal, or another payment platform to send money, a second tax form could start appearing for 2022.
Luscombe states that they will receive 1099 from the independent contractor and then 1099 from the payment processor. If the transaction was made by credit card or other electronic means, they’ll also get a 1099 K.
This means that small business owners in 2022 will have to be more organized. He says that there will be more paperwork and sorting — to make sure income is not being double-reported.
7. Be serious about bookkeeping
“If your eating, sleeping, or drinking habits are related to your business, it’s likely that what you’re doing can be tax-deductible,” DiMercurio says.
A few cups of coffee could be tax-deductible if you have the right circumstances, and This can save you a lot of tax, he states.
Keep receipts. Use accounting software to ensure you keep good records. Don’t lie. Tax evasion can be a crime. Tucker stated, If it is not possible to make the argument for deduction or credit without laughing, then it is probably not a good argument.