Tax deductions are a little treat for the government to help you out. Whether these deductions are related to business expenses or giving back to the community, you should totally be taking advantage of these deductions! We at Coastal Tax are highlighting some of these deductions for smaller businesses to help you out this tax season.
Bookkeeping is a Tedious Necessity
You may be surprised by the number of things that are tax-deductible when you’re operating your business. Being tedious about marking down what you are purchasing on behalf of your business is imperative, and ensuring these numbers are accurate and not estimated or rounded is also important. Keeping an organized excel sheet is helpful and tracking things as basic as a cup or two of coffee can benefit you in the long run. To gain incredible accuracy you may consider hiring an accountant on your behalf.
Start Eating Good!
The business meal deduction is quite the luxury, and in 2021 and 2022 the business meal deduction is up from 50% to 100% if the food and beverages are from a restaurant — both takeout and delivery. If you have not been dining out with clients and co-workers, it may be time to start considering it and keeping receipts for some tax-deductible meals!
Tracking Your Traffic for Returns
Every mile you drive is eligible for a tax deduction if you are self-employed and properly tracking these miles. While the former rate in 2021 was 56 cents per mile, this has since risen to 58.5 cents per mile in 2022. We want to emphasize that you cannot merely guess your mileage, you must be actively tracking this to take advantage of this deduction. It is also worth noting that these miles can not be part of your commute to and from work, but rather the trips you take once you have already arrived at work or gone elsewhere as a business destination. Learn more about these rules here.
Investing in a Retirement Plan
401(k)s are one of the most popular retirement options, but they are not the only ones available. Certain retirement accounts have special tax breaks included in them — self-employed individuals can opt into one-participant 401(k)s which mimic an employer-sponsored 401(k). IRAs are another option and SEP IRAs allow you to take a deduction off of your 2021 taxes without the need to fund the retirement account until the extended due date of the return.
Home Office = Possible Deduction
With the advent of a global pandemic, many businesses switched to being entirely remote meaning the home office has increased drastically in popularity. You can deduct $5 per square foot of your home office for up to 300 feet, which could give you as much as $1,500 back in your tax return. Not every home office qualifies for this deduction, so be sure that if you’re trying to take advantage of this that your office space is only used as an office and that the home is the principal place of business.
Getting Proactive About Paperwork
Form 1099 counts as miscellaneous income and a form must be filled out for each person you have paid over $600 during the year such as:
- Prizes and awards
- Side gigs and hobbies
- Medical and health care payments
- Crop insurance proceeds
- Cash payments for fish (or other aquatic life)
- Cash paid from a notional principal contract to an individual, partnership, or estate
- Payments to an attorney
- Any fishing boat proceeds
If clients are using popular payment methods like Venmo or PayPal, another tax form may show up for 2022. Small businesses will thus have to be super organized about these extra forms since this will require extra paperwork and assurance that no one is double-reporting income.
No Extra Fees for the PPP Loan
The Paycheck Protection Program (PPP) was temporary loan assistance offered amid COVID-19 to provide small businesses with sufficient funds to help with operations such as up to 8 weeks of payroll and benefits! If you qualified and took advantage of this forgiveness, this additional money does not count as part of your gross income. On your federal tax return, it is generally okay to deduct the business expenses you used the PPP money on. To ensure you’re in the clear, it may be worth meeting with an accountant, but generally speaking, no need to worry about this loan!
If you find yourself still having questions or doubts about if you’re filling out your taxes correctly or taking full advantage of these deductions, we at Coastal Tax are here as a resource! Please reach out to us today to book an appointment and we will be happy to answer any questions and concerns you may have: 843-549-5561