10 Tips for Small Business Taxes in 2022

In this article, you’ll learn:

• The types of taxes your small business may have to pay
• Tips for easier tax reporting
• How to lower your tax liability and maximize your profits

Small business taxes are probably one of the most stressful responsibilities business owners face. The fact that tax laws and codes are constantly evolving adds to the burden and pressure of ensuring that your company pays the correct amount of small business tax. Although taxes are complicated, there are ways to lower your anxieties and your tax bill and stay ahead of the game for the next tax season. Here are some tips on how small business owners can leverage the tax laws for their small business taxes in 2022.

What types of taxes do small businesses have to pay?

The types of taxes your small business will have to pay will depend primarily on the structure of your business.

The five main types of small business taxes are income tax, estimated tax, self-employment tax, excise tax, and employer tax.

Business owners typically have to pay estimated quarterly taxes from their business earnings and then file their year-end taxes once a year.

Taxes for self-employed business owners in 2022 stood at 15.3%, with 12.4% of the rate going towards Social Security taxes and 2.9% allocated toward Medicare. Self-employment taxes are calculated on net earnings or profits.

Employer taxes are also known as payroll taxes and are applicable only if you have employees. With employer taxes, federal income tax, Social Security deductions, Medicare, and federal unemployment taxes are withheld and deducted from your employees’ wages.

Excise taxes only apply for certain types of small businesses, such as fuel, alcohol and tobacco businesses, airlines, indoor tanning salons, tire businesses, and highway tractor and heavy truck distributors and suppliers.

Some small businesses are also responsible for paying local and state taxes, depending on the tax codes where the business is located.

Consult your accountant, visit the IRS.gov website, or check with your state’s taxing authority to learn which taxes apply to your small business.

10 Tips for Small Business Taxes in 2022

As a small business owner, maximizing revenue and profits and minimizing expenses is always foremost in your mind. Anything you can do to lower your tax liability while complying with IRS tax laws can only help you reap the benefits and save money.

Thankfully, there are tax benefits and measures your small business can take advantage of.

Stay up-to-date on new tax rules.

One of the most important things you can do as far as small business taxes are concerned is to stay educated about the latest tax codes.

For instance, the Tax Cuts and Jobs Act changed many rules about depreciation, deductions, and tax credits affecting small businesses.

The IRS is constantly updating and changing its tax rules. You may need to consult your CPA or accountant to understand how the latest tax changes can impact your small business.

New or evolving tax laws can impact which tax forms you need to file, what kind of deductions you can take, how you can earn tax credits, etc.

Once you understand the tax laws that affect your business, you’ll be better able to file an accurate tax return and take advantage of laws that can save your small business money.

The last thing you want is to fly blind where your taxes are concerned. You could end up paying thousands more in taxes or, worse, violate IRS tax rules and end up with fees and penalties.

Maximize your small business tax return by leveraging deductions.

Undoubtedly, you want to leverage every small business tax deduction the IRS allows.

For instance, in 2022, the IRS upped business meal deductions, allowing you to claim 100% of those expenses for meals and drinks from restaurants, including takeout and delivery.

So if you decide to treat your employees to lunch while you’re all brainstorming on ways to bring new clients on board, it’s 100% deductible.

Other items that qualify as small business tax deductions are:

• Qualified business income. The new tax law allows most small business owners to deduct 20% of their income from their business tax returns. But there are income limits, so you’ll want to check with your CPA to see if you qualify.
• Business-related use of your car. This includes mileage rate deductions for miles driven just for business and operating expenses (i.e., repairs, insurance, gas, registration fees, etc.) for vehicles driven solely for business use.
• Office expenses. Rental payments, utilities, mortgage interest, office supplies, advertising and marketing, repairs, computers, office equipment, and furniture qualify as office expenses.
• Home office deductions. Many home office deductions are similar to regular office deductions. But there are some stipulations and differences. Your home office must also be the primary location where you conduct your business.
• Business-related travel expenses. This includes airline tickets, car rentals, hotel bookings, etc.
• Compensation to employees or contract workers. Workers’ salaries, commissions, bonuses, contributions to retirement plans, etc., are tax-deductible.
• You can deduct up to $10,000 in local and state income taxes, real estate taxes, sales taxes, personal property taxes, franchise taxes, excise taxes, a portion of self-employment tax, and occupational taxes. The exception is federal income tax, which is not tax-deductible.
• Interest from business loans. This includes lines of credit and commercial mortgage loans.
• Business insurance premiums. Liability insurance, commercial mortgage insurance, business owner’s policy, flood insurance, etc., can be deducted from your small business tax returns.

Take a proactive stance on tax deductions.

Small business tax deductions should never be an afterthought. Many small business owners make the mistake of getting anxious about their taxes towards the end of the year when they’re more worried about how much their tax liability will be after they file an income tax return.

It’s always best to be proactive where small business taxes are concerned. That means considering the tax ramifications of everything your business does from the first day of the year.

You’ll want to ensure that you have the best bookkeeping system available and keep detailed and accurate receipts for anything you intend to deduct.

That way, filing taxes will be a breeze, and if you should be audited down the road, you’ll have everything you need at hand.

Take advantage of retirement options.

Beginning a retirement savings plan at your business isn’t as difficult as you may think. The best part is that there are tax advantages to you as an employer.

Your small business will also attract higher caliber employees and retain them because they’ll reap the tax benefits of a retirement plan as well.

As for the advantages that relate to you, any contribution your business makes can be deducted from your income. If you contribute a significant amount of your salary to a retirement plan such as a 401K account, you may end up in a lower tax bracket and have a lower tax liability.

At the same time, any amounts you contribute to your own retirement plan will accumulate and be there when you decide to stop working.

The IRS also allows some employers to receive and claim a tax credit to help with some of the costs of starting a qualified 401K plan, SEP retirement plan, or SIMPLE IRA.

If you meet IRS eligibility requirements, you can claim up to 50% of your startup costs, with a maximum of $5,000 for the first three years of the plan. Any tax break you receive will reduce the tax you owe.

Implement a good bookkeeping system.

It’s a good idea to maintain accurate and up-to-date recordkeeping of every transaction your business is involved in, particularly of anything you intend to write off on your taxes.

As your first rule of thumb, you’ll want to keep all of your personal finances separate from your business finances. You should have a dedicated bank account and credit card for your small business and use it only for business expenses. That way, everything is in one place when it comes time to file your taxes. It’ll also make things a lot easier and on the up and up should Uncle Sam decide to audit your business.

An organized, efficient, and chronological system of your business’s accounting records, including its receipts, invoices, and expenses, is prudent. Most small businesses today keep electronic accounting records, but some have both paper and paperless records in case one or the other is lost or destroyed.

Your business’s accounting or financial records are also vital to have on hand when applying for a business loan. Having everything you need at your fingertips when seeking funding will make the process much easier.

You’ll want to make efficient bookkeeping a priority every day of the year rather than waiting until crunch time at the end of the year like many businesses do. Many small business owners find that accounting software or outsourcing accounting tasks makes the process much more seamless.

File and pay your small business taxes on time.

Different types of taxes have different due dates. Some small business taxes are paid quarterly, while others are due annually.

It’s very important to file and make your tax payments on time. If you can’t meet your tax obligations or complete a tax filing by the deadline, you should file for a tax extension.

Otherwise, the IRS or your local or state taxing authority is likely to charge you additional interest and penalties on the total tax that is owed. It’s also possible to avoid interest and penalties if you file for an extension but pay your estimated taxes.

This is another area where the advice of a tax professional can help guide you in the right direction.

Take the health care tax credit.

Under this tax rule, you can take this credit if you pay 50% or more of an employee’s health insurance premium costs for a qualified health plan through the Small Business Health Options Marketplace.

There are stipulations and limitations to applying for the health care credit. You can’t have more than 25 full-time employees, and they can’t earn more than the IRS’s inflation-adjusted wage limits, which in 2017 was $53,000.

Your employees’ dependents or family health care coverage also aren’t included in the credit.

Deduct depreciation on eligible purchases.

It used to be that when a business had depreciated property expenses or certain types of equipment, a business owner could only write off part of the depreciation each year that spanned over the useable life of the asset.

But the IRS has changed the rules for depreciation deductions and as of 2022, allows a business to deduct 100% of the total cost of eligible assets for the first year they’re in use.

Structure your business as a pass-through entity.

Small businesses typically have more tax advantages when they’re structured as a pass-through entity. It’s worth noting that the majority of small businesses in the U.S. are structured as pass-through businesses because of the tremendous tax benefits it offers.

When structured as a pass-through business, the business owner and the business are considered to be one taxpayer, helping you to avoid being taxed twice. This typically means more tax savings for business owners.

Your company’s taxable income is passed on to your personal tax return and assessed at the individual tax rate.

Sole proprietorships, limited liability companies (LLCs), partnerships, and S-corporations are all considered pass-through entities.

Get help from a tax expert.

It can’t be overstated that getting help from a tax expert or CPA is crucial when it comes to small business taxes. Taxes are their wheelhouse while running your business is yours.

An accountant or tax attorney is required to stay up-to-date on all tax codes and changes. They understand IRS laws pertaining to your small business and can advise you on the best way to structure your company.

Outsourcing your tax preparation responsibilities is also a good idea as it allows you to focus on doing what you excel at – running your business.

Final Thoughts

Knowledge is power when it comes to small business taxes. Tax time doesn’t have to be complicated and daunting. Being proactive about small business taxes in 2022 will lower the pressure on meeting your tax obligations.

Utilizing some of these tax tips will go a long way in helping you manage your tax liabilities for the coming tax year.

Understanding tax laws, leveraging deductions available to you, and lowering your taxable income can amount to more profit for your small business. Moreover, a sound bookkeeping system can help ensure accurate and timely tax reporting and filing, keeping you in good standing with the IRS.

Having your taxes and financials in order will also make the process smoother when applying for a business loan, as Sarah Dhar advises. Sarah came to Biz2Credit for commercial funding to open a boutique hotel. Biz2Credit was able to loan her capital quickly because she understood the importance of being able to provide important financial records for the loan process.