The fourth quarter is almost coming to an end, and it’s time for some proactive tax planning.
Since the tax code changes every so often, it’s crucial to stay up to date with the changes.
For small business owners, tax planning shouldn’t be a once-per-year exercise aimed at paying Uncle Sam his dues. Tax planning should be an ongoing process, and good tax services are a valuable asset to your businesses.
It’s always a good idea to meet with your tax advisor every quarter so you can take full advantage of all the provisions, credits, and deductions that are available to you.
That said, tax season is coming; here’s what you need to know for 2022:
1. You Can Still Claim the Employee Retention Tax Credit Due to Covid-19
The Employee Retention Credit (ERC) was established with the intention to help businesses to avoid layoffs during the Covid-19 crisis.
The American Rescue Plan Act set up in 2021 (ARPA) has extended the ERC for wages paid beyond June 30th, 2021, but before Jan 2022.
The maximum ERC you can claim per employee has also been extended from $20,000 to $28,000.
In addition, any limitations placed on businesses that received the Paycheck Protection Program (PPP) loans have also been removed. As such, you can now get the ERC even if you received a PPP loan.
2. Review Your Business Retirement Plan
Establishing a retirement plan is one of the best ways to slash small business taxes. A retirement plan has lots of benefits for you and your employees, including significant tax incentives.
For one, your assets in the plan grow tax-free, and employer contributions are tax-deductible.
You can also offset the costs of opening up the accounts through the Retirement Plans Startup Costs Tax Credit.
Two retirement plans available to small business owners include the SEP IRA and the Solo 401(k):
SEP-IRA
The SEP-IRA allows you to contribute 20% of your self-employment earnings.
The maximum limit is capped at $58,000 (as of 2021) into a retirement account.
The SEP-IRA has no deadline, which means you can set it up today and still receive the benefits when you file your taxes in 2022.
Solo 401(k)
As for the Solo 401(k), it allows for pre-tax contributions, which can reduce your small business taxes.
Contributions limits have increased for 2022 to a total of $61,000.
Small business owners over the age of 50 are still allowed a $6,500 catch-up contribution, bringing the total amount you can deduct to $67,500.
3. Did You Work From Home This Year?
You may be eligible for the home office deduction. A home office deduction is a tax break that can save you hundreds, or even thousands, of dollars in taxes.
It’s crucial to note that the home office deduction does not apply to individuals who only earn W-2 income.
To qualify, your home office must be used “exclusively and regularly” as your principal place of business.
If your home office is not in a separate room, it’s important to demarcate the place and use it specifically for business purposes.
If you already pay for tax services, take the time to discuss the home office deduction with your tax advisor to make sure you leverage this tax deduction to the fullest.
4. Employee Retention Tax Credit (ERTC) Due to Qualified Disasters
Was your business affected by either Hurricane Ida or Hurricane Nicholas? If so, you might want to prepare your records.
In the past, the IRS has allowed businesses operating in qualified disaster zones to apply the ERTC.
The ERTC tax credit is designed to encourage businesses to retain their employees on payroll.
You can apply the ERTC for qualified wages paid to employees (up to $33,000 per employee) from March 13th, 2020, to Dec 31st, 2021. It’s also possible to retroactively claim the credit against past quarters.
The ERTC is available to businesses of all sizes since there is no cap on the number of employees. Consult with your tax advisor to see if you can take advantage of this refundable tax credit.
Resources for Year-End Tax Planning
The 2021 tax year is gearing up to be just as complicated as the 2020 tax year. Working with a tax planning professional can help you stay ahead of the curve.
The tax code is ever-evolving; thereby, you run the risk of not filing a form that did not previously exist. Working with a professional means you never have to worry about changes since it’s their job to keep up with changes to the tax code.
Tax services enable you to execute a tax plan that’s tailored to your business and its needs.
There’s no need to stress every tax season. Let a tax expert handle all your tax preparation and tax planning requirements.
