Tax season can be stressful for business owners, and the prospect of owing the government money is not appealing. That is why business owners appreciate tax breaks. The tax deductions 2022 are frequently overlooked by business owners, which can save your company money. The Internal Revenue Service defines deductible expenses as ordinary and necessary business costs. Of course, the agency backs up that ambiguous phrase with a mountain of deductible expense rules. The five listed below necessitate that you remain tax-aware throughout the year. Keeping detailed records of your daily expenses can result in significant tax savings.
Deduct Your Medical Premiums:
As a business owner who meets the above criteria, you can claim a $10,000 income tax break but not a break from the self-employment tax, which remains at $60,000 in taxable income. If your spouse works for your company, you can get both. You can buy a plan in your spouse's name that covers the two of you and your dependents. Because this person is both an employee and your spouse, you can deduct the full $10,000 in payments from your business income tax and self-employment tax, assuming you file jointly.
Change Your Company's Structure:
You don't have the benefit of an employer paying a portion of your taxes as a small business owner. You must deliver the full amount of Social Security and Medicare taxes. You have to still shell out those taxes if your corporation is taxed as a limited liability corporation. In a number of cases, you may be able to get rid of the employer-half of those two tax everyday jobs. This might be a intelligent choice for a little businesses. While there are many factors to consider when making this switch, such as paying yourself a reasonable salary and other risks, it can be a good way to reduce your taxable liability.
Plan Your Major Expenses:
Individuals' tax brackets can vary significantly by up to 10%, depending on their taxable income. At the federal level, the corporate tax rate is currently 21%. You check your taxable income several weeks before the end of the fiscal year and discover that it is approximately $87,000 so far. Assume your business is a limited liability company. That is, you must pay taxes on your share of the profits. You must purchase new equipment for a total cost of $15,000. If you make those purchases now, your taxable income will be reduced to around $72,000. The higher figure places you in the 24% tax bracket in 2021 and 2022. The lower figure falls within the 22% tax bracket. You can maximize your deductions and save money yearly if you plan for high-end purchases ahead of time.
Deduct Your Travel Expenses
Many business owners accumulate points on their travel miles cards to save money on vacation flights later. This is a blunder. Business travel expenses are fully deductible as an expense, and personal travel expenses are not included. The better option is to save your frequent flyer points for vacation travel and deduct the full cost of your business trips.
Use Your Cellphone and the Internet for Work:
Assume you use your phone for 30,000 minutes per year for personal and business purposes. For the average workweek, you spend about 60 minutes daily on business calls. According to the numbers in this scenario, you could deduct more than half of your annual personal cell phone costs as a business expense. The same can be said for your internet bill. You can remove the cost of the percentage of your business-related usage. Getting a business phone number that routes to your phone will make incoming calls easier to separate and document. Assuming a $100 monthly phone bill and a 50% tax deduction 2022, you could save an additional $500 in deductions.
Bottom Line:
Finally, it takes meticulous record-keeping to calculate your costs and prove their accuracy if an audit is required. You can even go a step further and plan your major business expenditures to maximize your tax benefits.
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