One of the key difficulties associated with saving money is succumbing to instant gratification. To address this, wait at least 30 days before making major purchases. Doing this will force your brain to resist impulse shopping while also giving you ample time for research purposes.
Tax deductions (also called “tax write-offs”) help lower taxable income, and therefore reduce how much in taxes are due at year’s end. Here are the top deductions for small businesses to reduce taxes for 2022.
1. Health Insurance Premiums
Small business owners that offer their employees health benefits may claim these premium costs as tax deductions, just like businesses who pay for medical, dental and qualifying long-term care coverage themselves.
The Patient Protection and Affordable Care Act also offers small businesses healthcare tax credits to help offset the cost of providing employee insurance, which vary based on business size and premium costs for employees.
Employers may find additional value in exploring a “shared responsibility payment.” These arrangements serve as an alternative to traditional health insurance coverage and can be obtained from organizations such as Samaritan’s Purse, Solidarity HealthShare or Medi-Share.
2. Business Bank Account Fees
An essential tool for running any business, a bank account is essential in managing funds and improving accounting measures. Most accounts come with monthly fees of $12 to $30 depending on which bank it’s opened with.
Fees paid for wire transfers and international transactions may also be deducted, while entertainment expenses and employee perks such as gifts or bonuses may also be deducted. Deductions claimable are key in small businesses as more can help lower taxable income; it is therefore crucial that expenses are kept track of throughout the year.
3. Business Meals
Since decades, business owners have been allowed to deduct some of the costs associated with meals with customers, clients, and other business associates as deductions from income taxes. A meal may only qualify if it relates to active trading activity and features relevant business discussions prior to or during eating.
In 2021 and 2022, to assist restaurant businesses during COVID-19, the Consolidated Appropriations Act reinstated a 100% deduction for meals purchased from restaurants (as part of COVID). After 2023 this will revert to 50%. To maximize this deduction, keep receipts and use an expense tracker such as Bonsai Tax for independent contractors or 1099 workers.
4. Advertising Expenses
Marketing expenses such as business cards, social media ads and billboards may all qualify for deduction on your tax return. Before taking this step however, consult a certified tax expert in order to make sure the expenses you wish to deduct qualify as eligible deductions.
Maintaining accurate records is essential to successfully claiming any deductions. A general guideline suggests that any expense incurred for your small business likely qualifies for deduction, provided it meets IRS definition of an ordinary and necessary business expense – this could include paintbrushes for an artist, electricity bills for home offices or paint brushes used for art creation.
5. R&D Expenses
Research and experimentation costs (also known as R&D costs) are expenses incurred when businesses seek information to remove uncertainty about creating or improving products or services. Only costs which directly result in new or enhanced business components qualify as R&D expenses.
Typically, amortization expenses must be spread out over 60 months before they can be deducted as regular expenses. However, some lawmakers have proposed legislation allowing companies to choose whether or not to switch from amortization to regular deductions; the bill has yet to be approved for voting.
6. Cleaning Services
If your business utilizes cleaning services such as maid services, such as maid service or maid-for-hire options, their costs can be deducted from its tax return. Furthermore, expenses related to products like sprays, rags and soap can also be tax-deductible.
House cleaners who operate as independent contractors must constantly travel between customer homes, meetings, and walksthroughs – as well as all travel costs being tax deductible in some countries such as the USA.
Home office deductions can be calculated using either the standard method or simplified option, with the latter offering you $5 deduction per square foot of home used for business, according to an IRS guide. Consult an accountant about which approach is appropriate for you.