Small employers have faced unprecedented times over the past few years. Fortunately, Congress has passed tax incentives for small business owners to take advantage of this critical situation.
For example, business owners can take advantage of payroll credits to keep employees employed. They also have one final year to cover all business meal expenses. And those who bought a sport utility vehicle could get more depreciation on their 2022 tax return.
As small businesses begin preparing their tax returns, here are three tax breaks owners should consider this year.
Employee retention credit
Eligible small business owners can make retroactive claims Employee Retention Credit (ERC) on quarterly federal tax returns, Forms 941 and 941X, this season for wages paid between March 12, 2020 and December 31, 2021 (September 20, 2021 for non-starter recovery businesses). Employers may have to amend forms filed with the IRS to claim the credits. Employers can claim up to $26,000 per worker on payroll during this period.
In general, businesses can apply if they can demonstrate that COVID-19 has impacted their business revenue, because they “closed or due to a government shutdown, or was last supply chain issues,” said Roger Harris, president of Padgett Business Services and a IRS Subject Expert.
The Coronavirus Aid, Relief and Economic Security (CARES) Act introduced this credit in 2020 to incentivize businesses to keep workers on their payroll during the coronavirus pandemic. epidemic. The maximum credit has changed from $5,000 annually per employee in 2020 to $7,000 quarterly per employee in 2021.
However, claiming the credits was a struggle for some, as many of the rules were updated after the eligibility period. Many small businesses have had to amend payroll taxes and business returns during the claim process.
“Some retroactive laws require amended returns to require ERC, which must be filed on paper and thus become part of the IRS backlog,” Harris said. “Then, when the money is received, the business must amend the tax return for the years they received the ERC credit and reduce the wage costs claimed on the original return by the amount of the credit received.”
The deadline for ERC is three years and four months after the term of the credit, “because ERC is required on Form 941 or 941X, The statute of limitations for such forms begins April 15 of the following year“Harris said.
While credits for 2020 have until April 15, 2024, to claim the credits, Harris shared that the process could be delayed.
“We have to wait for the IRS, unfortunately most forms have to be filed on paper. So now we had to wait for [the IRS] to open envelopes to handle money,” Harris said.
SUV depreciation
Small business owners who purchased a sport utility vehicle (SUV) with a total vehicle weight of between 6,000 and 14,000 pounds for business purposes by 2022 can choose between two very generous depreciation methods this tax year.
The first is a 100% bonus depreciation that will begin decommissioning in 2023, and the second is a so-called part 179 depreciation, which allows SUVs to depreciate $27,000 deductible. This amount has been adjusted for inflation from $26,200 last year.
“So inflation has finally caught up and [the IRS] raised that to $27,000,” Kathryn Keane, a registered agent and member of the National Institute of Tax Practice, told Yahoo Finance. small businesses when they’re looking to buy a vehicle.”
On the other hand, businesses can claim 100% of the final depreciation on their 2022 tax returns before the regulation begins to expire next year. This generous benefit allows for a full deduction on purchased SUVs.
While this may seem like the right way to go, Keane suggests that small business owners may want to opt for section 179 depreciation with a smaller upfront deduction if they live in states that don’t have bonus depreciation.
“Section 179 is generally preferred in states that do not allow bonus amortization,” says Keane. “You always want to check your status because not every status really matches section 179.”
“In New York, they don’t like a sport utility vehicle at all,” she added.
If the method of depreciation varies between state and federal, employers should document the methods used for each jurisdiction.
The previous year 100% deduction of business meals
Small business owners can deduct total work-related meal expenses one last time on their 2022 tax return before the tax rule reverts to a general deduction of 50% of meal costs next year. .
“In 2021 and 2022, we have the ability to deduct 100% of meals if they are provided by a restaurant,” Kean said. “It’s a benefit.”
Requirements to qualify for the enhanced meal reduction include “meals must be from the restaurant” and “business owners or employees must be present”, according to the IRS website.
The upgraded deduction helped the restaurant industry recover during the COVID-19 pandemic, and it will now cease operations in 2023.
“I think that’s what kept a lot of businesses alive because so many people were slow to pull out,” Keane said. “Hopefully that won’t have an adverse impact on our small business restaurants out there.”
“I really hope that they extend it for another year,” she added.
Rebecca is a reporter for Yahoo Finance.
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