During the 2022 tax year, small businesses did not face major changes in tax laws. However, there are several things small business owners should understand when it is time to file their business tax returns for the year. One thing that is critical for small businesses is to ensure they always make their estimated tax payments on time each quarter and understand their tax liability. Here are some of the tax laws small businesses need to understand for the 2022 tax year and how they might affect their tax returns when it is time to file from TMD Accounting.
Small Business Tax Deduction
Partnerships, sole proprietorships, LLCs, and S-corporations are all pass-through entities that can benefit from the small business tax deduction. For the tax year 2022, the owners of small pass-through companies can claim a deduction of up to 20% on their portions of the income earned by their business up to $182,500 for single filers or $364,200 for joint filers. If the business’s qualified income exceeds the threshold, limitations will be applied. However, companies with significant capital expenditures and those that employ a lot of employees might still be able to benefit from the small business tax deduction.
Standard Tax Deduction
Small business owners that do not itemize their expenses can claim the standard deduction on their returns. in 2022, the standard deduction for individual filers is $12,950. Joint filers can claim a standard deduction of $25,900.
Small business owners might benefit from the estate tax exemption, which is $12.06 million for individual filers and $24.12 million for those who file jointly in 2022. The increased estate tax exemption offers protection to a greater number of small business owners who have accumulated substantial assets and want to avoid potential tax issues when they pass away and leave their estates to their families.
Deduction for Expensing Equipment
Small business owners can immediately deduct the costs of purchasing business equipment up to a maximum deduction of $1.08 million in 2022. The spending cap for equipment purchases in 2022 is $2.7 million under Section 179. This tax relief is permanent.
Certain assets that depreciate over time might be eligible for bonus expensing in 2022. This involves expensing the entire purchase cost at once instead of only a fraction of the cost per year. The ability to benefit from bonus expensing will be phased out in 2024.
Tax Credit for Paid Family and Medical Leave
Under the Tax Cuts and Jobs Act, businesses that provide paid family and medical leave as a benefit for their employees can claim a tax credit. Under the Consolidated Appropriations Act of 2022, the credit was extended through 2025.
Deferred Social Security Taxes Due
In 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This law allowed employers to defer the employer portion of their Social Security taxes due between March 27, 2020, and Dec. 31, 2020. Businesses that benefited from these deferments had to pay one-half of the deferred amounts no later than Dec. 31, 2021. Those businesses also must pay the remaining one-half of the deferred amounts no later than Dec. 31, 2022. If you don’t pay the deferred amounts on time, your business will face assessed penalties on the total amount of the deferred taxes.
What to Do
As a small business owner, you likely have learned that tax preparation for small businesses is a year-round process. This makes it important for you to regularly meet with your accountant and bookkeeper and provide them with accurate financial records each month. Doing so allows your small business accounting services provider to develop a good tax strategy for your business and avoid potentially negative surprises.
Make Sure to Keep Your Tax Records for the Right Amount of Time
Make sure that you understand the tax return retention requirements in your state. While most states require businesses to keep their records for seven years, some businesses retain their records for longer periods in case they are audited. Talk to your accounting professional to learn about your tax retention requirements in the jurisdiction in which your business operates.
Have a Separate Account for Taxes
If your business is new and isn’t earning much revenue yet, you might not think you need to open a separate account for taxes. However, having a separate account for business taxes can help your tax filing process to be simpler and establish good tax habits that can protect your business’s future health.
On average, around 30% of your profits will go to taxes of some type. Open a separate account for your taxes. When you complete your account reconciliations and learn your profit amounts, move 30% of that amount to your tax account. Setting aside 30% of your monthly profits in a tax account can help your business avoid huge tax bills when it’s time to file your tax return.
Find an Accountant for My Small Business
Small businesses should keep in mind how tax laws affect them year-round. Planning for taxes can help to minimize how much you might have to pay. Working with an experienced accounting professional at TMD Accounting can help you develop a sound tax planning strategy to reduce your taxes and ensure you comply with all of the laws that apply to your business. To learn more, contact us today to schedule an appointment at 1-856-228-2205.