This is the second post in our blog series on Business Tax Deductions in 2022. This multi-article blog series focuses on tax-deductible expenses you can leverage to reduce the tax bill in your business.
Understandably, tax season is the most dreaded time of the year for business owners. Reducing your tax burden as much as possible while still staying in compliance is the ultimate goal. In the first part of the series, we explained tax deductions, new changes you can expect in 2022, and 8 business expenses you can deduct from your taxable income.
The last thing you want to do is leave money on the table by paying more taxes than you should. There are many tax deductions that most business owners are unaware of. In this second part of the series, we will continue to the list of business expenses you can deduct from your taxable income.
Fees from your bank
This tax deduction is one of the most important reasons your business banking accounts and credit cards should be separate from personal accounts. Business charges such as annual or monthly service charges, overdraft fees, transfer fees, as well as third-party merchant or transaction fees are deductible.
Business meals and food
There are instances in which meals associated with doing business are eligible for tax deductions. To qualify for a 100% tax deduction, the following must apply:
- Food provided for a company-wide event
- Individual meals as a part of doing business
- Business meals with clients
All food and meals claimed as a tax deduction must be reasonable and not outrageously expensive or lavish.
Independent contract labor
If your business hires third-party contractors throughout the calendar year, their fees are 100% deductible. To be eligible for this tax deduction:
- The contractor cannot be an employee of your business
- The services provided must be for your business and not be personal services
It is essential to keep in mind that if any contractors provide $600 or more of services to your business, they must be provided with a 1099-NEC form.
Depreciation of assets
Business assets such as equipment, machinery, furniture, computers, etc., can be depreciated. You can claim 100% of the depreciated value immediately, over a period of years (e.g., 5 or 7 years). To be eligible for this tax deduction, you must:
- Own the asset
- Have an active role in the workings of your business
- Have assets that are expected to last more than one year
Continuing educational costs
Providing continuing education opportunities for your employees is 100% deductible. This includes:
- Workshops
- Seminars
- Webinars
- Professional publication subscriptions
- Certifications
- Advanced degrees
The crucial thing to keep in mind is that in order for the expense to be eligible, the education must improve the employee’s skills as it pertains to your business. For example, if you operate a landscape business but an employee is receiving an education in HVAC, it is not tax-deductible for your business. However, if that same employee was pursuing an advanced degree in landscaping, it is 100% tax-deductible.
Employee and client gifts
Believe it or not, if you choose to provide gifts company-wide or to clients, then it is 100% deductible up to $25 per person. The primary contingency is that gifts have to be physical, tangible items. You cannot claim entertainment gifts such as concerts. Take advantage of this tax-deduction if you give holiday gifts.
Home office expenses
If you have a home office and operate your business, at least part-time out of your house (e.g., paperwork in the evenings), then you can take this deduction. Examples of expenses include:
- Computer
- Desk
- Printer
- Chair
- Fax machine
- Office supplies
Anything that you use in your home office that plays an active role in the operation of your business.
Business moving expenses
If your business moves locations, you can deduct moving expenses from your taxable income. Qualifying expenses include:
- Transportation of equipment and assets
- Supplies
- Inventory
- Furniture
The costs are 100% deductible and can help relieve the financial burden of making a business move.
Retirement accounts
As a business owner, it is up to you to fund your retirement plan. That’s the bad news. The good news is that your contributions are 100% deductible. In order to be eligible, all retirement accounts must meet IRS regulations. Examples of qualifying retirement accounts include:
- 401K
- Simple IRA
- Roth IRA
Before you set up a retirement account, be sure that it is eligible for this tax deduction so that you are making the most of your hard-earned money.
Business taxes and licenses
There are certain business taxes and licenses that are 100% deductible. Qualifying taxes and licenses include:
- Business licenses
- Real estate taxes
- Sales taxes
- Fuel taxes
- Payroll taxes
All taxes and licenses must be business-related and not personal to qualify for this deduction.
Phone and internet services
Phone and internet services are tax-deductible. These services at your business’s office are 100% deductible. However, if you use your cell phone and home internet for work and personal use, you can only deduct the percentage that these services are used for work. You are not allowed to claim the personal use of your cell phone and internet services.
It is important to keep detailed records if you plan to take this tax deduction.
Business travel expenses
In order for a trip to be considered “business travel,” the employee must travel outside of the city where your business resides. Travel expenses are 100% deductible. Qualifying expenses include:
- Meals
- Overnight accommodations
- laundry
- Shipping of luggage, materials, and supplies
- Parking fees
- Transportation
In order to claim this deduction, it is vital to keep itemized records and receipts from every business trip.
Let us handle worry about tax deductions while you run your business!
You have a business to run and do not have time to worry about tax deductions. It can be overwhelming and confusing to figure out which tax deductions your business qualifies for and make sure you reduce your taxes as much as possible. This is what we are here for. As the premier tax and financial services in Indiana, Foncannon always stays up-to-date on the latest tax regulations. Have peace of mind knowing that we will maximize your deductions and reduce your payment. Give us a call today, and let us show you how we can relieve your business’s financial tax burden.