You may be currently scrambling to finish your business’s taxes for 2021. However, new guidelines have been released for 2022 and I want you to be prepared. After all, when it comes to deductions, you want to make sure you are claiming what you should for your business! Some of the changes, including tax credits, may appear small, but they will add up over time. There are also the usual guidelines to review, so you never need to question your business’s tax rate, other tax payments, or when your taxes are due. You may want to keep this tax information guide for small businesses handy and refer to it throughout the year.
Tax Information Guide for Small Businesses
Small Business Tax Rates Per Type of Business
As a small business, you may find yourself listed as a corporation, S-Corp, or LLC. The taxes you need to pay are dependent on the type of business you have. Federal income taxes on a C Corporation normally have a flat rate of 21%, but that has only been since 2018. Prior to that, the rate fluctuated from year to year.
For S-Corps, the tax rate is normally 37%, because it is completed through an individual’s tax return. And for an LLC, the tax rate is dependent on whether it is a sole proprietorship or a partnership. These businesses can also choose to be taxed as an S-Corp or a C-Corp as well.
Other Small Business Taxes
There are other small businesses taxes that must be paid by business owners each year. Those taxes include payroll taxes, excise taxes, state corporate income tax, sales tax, and property taxes.
Tax Changes for Small Businesses in 2022
Business Interest Expense
The business interest expense deduction limitation has changed since the Tax Cuts and Jobs Act 2017 was created. The revised section, Section 163(j), states for 2022, the gross receipts for a small business can’t be higher than $27 million. The amount of your small business’s deduction cannot exceed the sum of the business interest income, be higher than 30% of the adjusted taxable income, and be part of the floor plan financing interest.
Keep in mind, the adjusted taxable income, ATI, is back to the normal value for 2022. This is different from the 2021 tax year when depreciation, depletion, and amortization were added into the ATI.
Section 179 Deduction
Small businesses can deduct even more on new and used equipment that is purchased during 2022. The deductible amount is $30,000 higher than it was in 2021, making it $1,080,000 this year. Writing off the full amount of a qualified purchase for your business can lead to major tax savings.
Mileage
Keeping a log of miles you have driven for work is an excellent idea if you do not have a dedicated work vehicle. This will ensure you are ready if the IRS happens to question the mileage deduction your small business is claiming. While the mileage rate deduction fluctuates each year, 2022 brings in 58.5 cents per mile. This is 2.5 cents higher than the mileage rate in 2021.
Business Meals
Normally, business meals are only deducted at 50%, as long as the food and drinks were from a restaurant. However, that changed to 100% back in 2021 and that change continues for 2022. Takeout and delivery are also included within the business meal deduction. The only caveat is that all meals must be from a restaurant. Deli meals and grab-and-go options from a grocery store or convenient store do not qualify.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit is back again in 2022 and as of now, will stay in place until December 31, 2025. To obtain this tax credit, your small business will need to hire an employee from one of ten designated groups. Those groups include qualified veterans, summer youth employees, and long-term unemployed recipients.
As of now, the tax credit is equal to 40% of the first $6,000 in wages paid to an employee who meets the criteria. If you are hiring a part-time employee, you can receive 25%, as long as the employee works for at least 125 hours, but not more than 400 hours.
New Rule for Small Businesses Utilizing Freelancers and Contractors
Any business, small or large, that utilizes freelancers or contractors must be aware of a new rule that goes into effect for 2022. If you pay them more than $600 during the course of a year, you must make sure you send them a 1099-MISC or 1099-NEC form. You probably have been issuing these forms all along. But if you paid them via Paypal or another digital payment service, you weren’t required to.
This all changes in 2022. And your freelancers and contractors may get a little confused at first, because their digital payment service will also be issuing them a 1099-K form.
While this doesn’t truly need to be on your radar until January of 2023, I thought it was best to mention it now. This way you can be prepared with all of the information you need to have the forms filled out when they are required.
When to File Small Business Taxes
Small business owners must file their taxes quarterly each year. Those dates are on the 15th of April, June, September, and December for corporations. Other types of small businesses have the same dates, with the exception being January 15th instead of December 15th.
The payments sent in are normally estimated tax amounts, with the exception being the one made in April when actual taxes are due.
This tax information guide for small businesses should answer many questions you have about taxes and your business. Of course, if you have any questions, you can always contact the office to set up a time to connect.