These tips will work for Fashion-based SMBs as well.
According to three tax professionals, these new twists and turns can provide some tax-saving opportunities. There are seven things entrepreneurs and freelance workers can do in the coming year to reduce business expenses in the form of tax bills and anxiety.
PPP MONEY IS NOT TO BE SWEATED
In general, the IRS does not consider the money part of your gross income if your business received a loan through the Paycheck Protection Program or PPP. Generally, you can also deduct business expenses paid with loan money on your federal tax return.
?The IRS has been clear?
Be sure to consult a qualified tax advisor if state tax rules differ regarding PPP taxability.
Consume plenty of food
In 2021 and 2022, the deduction for business meals from a restaurant will increase from 50% to 100%. “That includes takeout and delivery.” It is not necessary to consume the food on the premises.
Don’t forget to eat at a restaurant for your business meals. Deli trays from grocery stores do not qualify.
Keep an eye on the ODOMETER
Whenever you drive for business purposes, you can claim a tax deduction. By 2022, the rate increased to 58.5 cents per mile, up from 56 cents in 2021. So a trip of 20 miles to meet a client might get you a deduction of about $12 this tax year.
You may have to explain your mileage if the IRS asks. Keeping a log is essential, especially if you don’t have an exclusive vehicle used exclusively for business.
BENEFIT FROM SPECIAL RETIREMENT OPTIONS
When you work for yourself, you may qualify for special tax breaks. An example of an IRS-approved retirement account for self-employed people is a solo 401(k) or one-participant 401(k). Employer-sponsored 401(k) plans have many of the same features, such as the ability to put away money pre-tax.
In addition to SEP IRAs, extend your tax deadline if you are getting a tax extension. The deduction can be taken on your 2021 taxes, but the retirement account does not need to be funded until the extended due date of the return, which may be in September or October.
TAKE A PEEK AT YOUR HOME OFFICE
Home offices are a popular way for people to get a tax break on rent, utilities, and other house-related expenses, but they can also produce other tax breaks. You may be able to deduct the current market value of an old computer, desk, or chair you commandeered for your home office in 2021.
If you purchased a laptop for $3,000 two years ago and now it’s worth $1250, you may be able to claim a $1250 deduction if you use it for business this year. Such an allowance is often overlooked by taxpayers of this group, but it is completely legal. Make sure you have your receipts or proof of your original purchase, he advises.
WELL BEFORE Mid-2022, BE READY TO READ NEW PAPERWORK
Clients who pay self-employed people at least $600 a year receive a Form 1099-NEC, but if they use Venmo, PayPal, or similar payment methods to send the money, another tax form may be appearing in 2022.
The independent contractor will receive a 1099-NEC from the person for whom they did the work, and if it was paid by credit card or other electronic means, they will receive a 1099-K as well.
In 2022, small business owners will need to be extra organized. There will be a lot more paper and sorting – as well as making sure you’re not reporting income twice.
BOOKKEEPING IS VERY IMPORTANT
If you eat, sleep, drink, or think about your business, you may be eligible for a tax deduction. Several cups of coffee can be tax-deductible under the right circumstances, resulting in significant tax savings.
Maintain good records by keeping receipts and using accounting software. You should also avoid stretching the truth. Avoiding taxes is illegal. If you can’t make an argument for a credit or deduction without laughing, chances are it won’t go through.
The tax system is complex, and for small-business owners, freelancers, and people with side gigs it is even more complicated – especially as small-business relief programs and rule changes take effect.