According to nerdwallet.com, Small-business owners, freelancers, and other self-employed individuals face additional challenges now that new tax relief programmes and regulations are taking effect.
Three tax experts, however, say that these new twists and turns may open up new avenues for saving money on taxes. Entrepreneurs and self-employed workers can lower their tax bills and anxiety by following these seven tips this tax season and in the year to come.
Is my child required to file a federal tax return? What you need to know is here.
Keep your cool when it comes to the PPP budget.
The IRS generally doesn’t count the money you received from the Paycheck Protection Program, or PPP, as part of your gross income if you qualify for forgiveness. You can also deduct the business expenses you paid with the loan money on your federal tax return.
At Kaufman Rossin’s entrepreneurial services group in Fort Lauderdale, Florida, Meredith Tucker says the Internal Revenue Service has been transparent.
PPP taxability may differ from state to state, so it’s important to consult a tax professional before making any decisions.
2. Fill yourself up.
During the years of 2021 and 2022, if food and beverages are purchased from a restaurant, the business meals deduction is increased from 50% to 100%.
That includes both takeout and delivery options. Mark Luscombe, a federal tax analyst for Wolters Kluwer Tax & Accounting, says it doesn’t have to be eaten there.
If you’re having business meals at a restaurant, make sure to do so. You can’t just go to the grocery store and pick up something like a deli tray and expect it to pass.”
3. Keep an eye on the mileage.
A tax deduction can be claimed for every mile driven for business purposes if you are self-employed. Rates increased from 56 cents per mile to 58.5 cents per mile in 2022. This could mean a $12 tax deduction for a 20-mile trip to meet a client.
The IRS may ask for proof of your mileage, so don’t take any chances. Luscombe stresses the importance of keeping track of your mileage, especially if you don’t have a dedicated vehicle for business use.
4. Make the most of special retirement options available.
If you’re self-employed, you’re eligible for special tax breaks on retirement savings. 401(k)s for self-employed people, also known as one-participant 401(k)s, are one type of IRS-approved retirement account. In many ways, they resemble an employer-sponsored 401(k), including the ability to save pretax money for retirement.
In addition to traditional IRAs, Tucker recommends SEP IRAs because you have more time to contribute — especially if you receive an extension on your taxes.
It’s possible to defer funding your retirement account until the extended due date of your tax return, which may be in September or October of this year.
5. Take a look around your home office and see what’s there.
Tax breaks for rent, utilities, and other home-related expenses are popularly known as the “home office deduction,” but a home office can also result in additional tax benefits. According to Sean DiMercurio of Orlando, Florida-based DiMercurio Advisors and certified public accountant at DiMercurio Advisors LLC, you may be able to deduct the current market value of an old table or computer for your home office if you haven’t already claimed the expense.
This is a good example of how you may be able to claim a deduction for a laptop that you bought for $3,000 two years ago and now it’s worth $1,250.
“This is something that is often overlooked by this group of taxpayers and is completely legal,” DiMercurio says. He cautions that you should have the original receipts or proof of purchase on hand just in case.
6. Get yourself organised now in anticipation of new paperwork in 2022.
While self-employed individuals already receive a Form 1099-NEC from clients who pay them at least $600 annually, another tax form may start appearing in 2022 if those clients use Venmo, PayPal, or similar payment platforms to send the money.
They will receive a 1099-NEC from the person they did independent contractor work for, and then from the payment processor—if it was paid by credit card or some electronic means—they’re also going to receive a 1099-K for the same transaction,” Luscombe notes.
In 2022, small business owners will have to be even more organised because of this. To avoid double-reporting, “it’s going to be a lot more paper and sorting out,” he says.
It’s important to take bookkeeping seriously. “If you’re doing anything else besides working on your business, it’s probably tax-deductible,” says DiMercurio. In the right circumstances, even a few cups of coffee can be tax-deductible, and that can add up to significant tax savings, he says.
Make sure to keep receipts and use accounting software to keep track of your expenses. In addition, refrain from making untruths seem more plausible. Tax evasion is a serious crime that should be treated as such. It’s not a good idea to argue for a deduction or credit if you can’t do so without chuckling, Tucker says.