Tax benefits to consider in 2022
As part of National Small Business Week, the IRS has issued a release urging businesses to begin planning now.
Entrepreneurs have time to identify tax benefits and take advantage of them. These benefits could provide significant tax savings.
In 2022, businesses can deduct 100% of business-related food and beverage purchased from a restaurant. The limit is normally 50% of the food cost.
To qualify for the food deduction, the business owner or an employee must be present when the food or beverage is provided. Food from grocery stores, convenience stores, or businesses that primarily sell prepackaged goods, not for immediate consumption do not qualify as restaurants. An employer can not treat employer-operated eating facilities like restaurants, even if they are operated by a third party.
For more information about deducting meals and recordkeeping requirements, see IRS Publication 463.
With a growing number of entrepreneurs working from their homes, many may qualify for the home office deduction. Typically, a business owner must use a room or portion of their home exclusively for business on a regular basis. Exceptions apply to the exclusive use for daycare facilities and to portions of the home used for business storage, where the home is the only fixed location for that business.
The home office deduction can be taken using either the regular method or the simplified method.
The regular method is taken by filling out Form 8829, Expenses for Business Use of Your Home. The form has a column for direct expenses and indirect expenses. Direct expenses are fully deductible. Direct expenses would include maintenance to your office, such as painting or carpeting. The business percentage of indirect expenses are calculated in the other column. These deductions include allowable home mortgage interest, property taxes, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs.
Business owners can also use the simplified method for home office deduction. The rate is $5 per foot of business use of the home. The maximum deduction is $1,500. Homeowners using the simplified method can still deduct real estate taxes, mortgage interest, and casualty losses by itemizing and deducting them on Schedule A.
The simplified method is easier, but the regular method could provide a much larger deduction. For example, if you use 20% of your home for business and your mortgage interest is $10,000, the deduction from just your mortgage interest alone would be $2,000, which is more than the maximum deduction for the simplified method.
The IRS is also reminding small business owners that they may be eligible to deduct start-up costs for their businesses. Some qualifying costs include advertising, salaries, and wages for new employees in training before the business has opened, and travel and other costs incurred while establishing the business.
The IRS recommends small business owners review Publication 535 Business Expenses to find additional business deductions.
Hiring a tax professional specializing in small businesses can help to claim every deduction to reduce your tax liability. Tax strategy specialists for businesses may also save you substantial amounts of money every year.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of six tax books and has shared tax advice on national TV. He is the founder and president of Your Tax Care. The company provides business and tax education, including David’s one-minute tax tip radio recordings at YourTaxCare.com. David can be reached at (865) 363-3019 or contacted by email at firstname.lastname@example.org.