According to the Tax Foundation, small businesses pay or remit more than 93% of all U.S. taxes. At the same time, small employers can count on a long list potential deductions to reduce the financial burden. To get you started on your tax preparation for your 2022 taxes and beyond, here is the mega-list of standard deductions and additional tax credits to consider:
There are several types of deductions that business owners can leverage for their taxes. The specific amounts you can deduct will depend on your specific business. But it’s important to leave no stone unturned when preparing for April.
Costs associated with marketing, advertising, and otherwise promoting your business are all tax-deductible. This includes the following expenses:
Unfortunately, sometimes clients don’t pay invoices or pay back their loans, thus creating bad debt. However, if these debts can be directly tied to a business expense, these expenses can be used as deductions.
Contributions to a 501(c)(3) non-profit can be used as a tax deduction. However, you will need to ensure you get a donation receipt from said organization.
You can deduct certain expenses that go into manufacturing or selling products. This includes the cost of raw materials, labor, and inventory.
It’s possible to deduct depreciation as well, and this applies to furniture, equipment, and any other business asset that loses its value over time.
There are a few different ways to calculate depreciation, and you’ll want to review options with your accountant to see which one is best for you this year. Some of the methods include:
After the standard deductions, many business owners can also take advantage of specific tax credits. It’s important to remember that many tax credits require strict eligibility requirements and have deduction limits. But if you qualify, these options can be a great way to save.
With the Americans with Disabilities Act (ADA), employers are encouraged to make their workplace accessible for customers and employees. If you make less than $1 million per year or have fewer than 30 full-time employees, you could potentially qualify for up to $10,250 in credits for expenses related to accessibility. Check out Form 8826 for specific instructions.
If you have employees that took FMLA leave during the year, you may be eligible for a 12.5% to 25% tax credit. There are several eligibility requirements, which you can see on the IRS site under Form 8994.
Small businesses can still apply for an ERC credit until 2024 using Form 941.
Form 3800 gives employers a general application for multiple tax credits. You can think of this form as a general overview for your specific business credit deductions, since you will need to keep separate accounting for each credit. Some included opportunities on this form are the work opportunity credit, new markets credit, and biodiesel fuel credit.
Businesses focused on R&D activities may be able to get 20% of their activities covered under
Listed under Form 8941, small employers can get a credit up to 50% of the healthcare premiums paid for employees. To qualify, employers must use the SHOP Marketplace, employee fewer than 25 employees, and the average wage must be less than $56,000.
If you are a start-up, you may be eligible for this credit, which covers $500 or 50% of your start-up costs during the first 3 years of your business. Eligible businesses have fewer than 100 employees, their workers earn at least $5,000, and they do not have a 401(k)-qualifying plan for 3 years. Get the full details under Form 8881.
If you have hired people who have been incarcerated, unemployed veterans, long-term family assistance recipients, or youth in empowerment zones, you may be eligible for this credit under Form 5884. The specific credits are calculated based on employee wages, so you’ll want to discuss this topic more with your tax professional.
The Inflation Reduction Act of 2022 aims to provide some relief during the 2023 tax season. In addition to substantive increases in the income bracket, many credit amounts were increased. Some examples include:
Before tax season gets too hot, there are a few things that small business owners can do to prep for a seamless filing and max their deductions: