One way to lower your 2022 tax bill is to take full advantage of any tax deductions. Yes, they’re constantly changing, but we’ve compiled a list of some 2022 tax deductions that are often overlooked.
Using these can put some money back into your coffers, and who doesn’t like the sound of that?
100% Deduction for Business Meals
Quick — treat your customers and employees to lunch or dinner before the end of the year. You can gain some goodwill, and get a tax break, too.
Due to a COVID-19 relief law, in 2021 and 2022 only, businesses can deduct 100% of business-related restaurant food and beverage purchases. Typically, the tax deduction limit is 50% of the cost of the meal.
In order to qualify for the 100% deduction, the business owner or an employee must be present when food or beverages are supplied. The expense must be “reasonable.”
The definition of restaurants for this purpose is “businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.”
Deductions for Holiday Expenses
If you show appreciation and thanks to employees and customers during the holiday season, you’ll get tax deductions, too.
Holiday parties in 2022 (for customers, employees or both) are 100% deductible, thanks to the COVID-relief enhanced deduction mentioned above.
You also can deduct up to $25 of each customer gift annually on your tax returns. However, the $25 limit is for gifts to individuals. If you give a gift to a company (such as a gift basket for all team members to share), there is no set limit, as long as it is “reasonable.”
Gifts to employees of cash or gift cards are taxable to employees and deductible on your taxes. To help employees avoid taxes and get a business deduction, consider getting “de minimis,” or small-value non-cash gifts for employees.
These can include holiday pies or turkeys, gift baskets, sports tickets and more. There is no limit on what you can spend and deduct, but most businesses informally use $75 as the limit.
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Retirement Plan Deductions
Saving for your retirement and helping employees save for theirs is not only important for everyone, but it can help lower your taxes by increasing your 2022 tax deductions.
There are a variety of plan options available to dentists, home improvement companies, law practices and other service companies.
One of the most common plans is a Simplified Employee Pension Plan (SEP IRA). In 2022, this plan allowed small business owners to defer up to $61,000 or 25% of an employee’s compensation to retirement savings. Contributions to the SEP IRA can only be made by the employer.
Other retirement plans allow employees to make contributions, including a SIMPLE IRA and a SIMPLE 401(k).
All the plans have different requirements and rules. Check with your financial advisor or accountant to determine the best option for your business.
Note: If you didn’t make a contribution in 2022, you still have until you file taxes in 2023 to make a 2022 SEP IRA contribution.
Equipment and Property Depreciation
If you own property or equipment used for your business, you may be eligible for a larger depreciation deduction due to the Tax Cuts and Job Act (TCJA).
“The TCJA included a provision that allows business owners to take 100% bonus depreciation, which means they can deduct the full price of the asset in the first year,” says Bill Hampton, CEO of Hampton Tax and Financial Services, in Atlanta, GA.
“No other depreciation would be available for that asset in subsequent years,” he explains.
Unless the law changes, the bonus depreciation percentage will decrease by 20 points each year over the next few years until it eventually phases out completely in 2027.
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Your Kids on the Payroll
Instead of being glued to their phones during holiday breaks and other free time, have children under 18 years old work in your business. They’ll get great experience and make money, and you’ll get a 2022 tax deduction.
If you hire your kids as employees to do actual work in your business for a reasonable wage (helping with office work, for example), you can deduct their salaries from your business income as a business expense. Doing so lowers your taxable income.
2022 Tax Deductions to Ring in 2023
Spending strategically at the end of the year can help improve relationships with your customers and employees, and even your children.
Taking advantage of tax deductions, especially ones related to COVID-19 relief, is also a smart move.
Bundled together, all these tax deductions will help set you up for a strong 2023. As always, consult your financial advisor to make the best moves for you and your business.
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