IRS Small Business Week: Tax Benefits You Should Consider in 2022
The first week of May — from May 1 through May 7, 2022 — is National Small Business Week in the U.S. The theme of this year’s celebration is “Building a Better America through Entrepreneurship.” With this in mind, the Internal Revenue Service recently issued a news release detailing enhanced business tax benefits for 2022.
The news release details tax deductions and possible savings in three key areas: restaurant meals, home office expenses, and other tax benefits.
Full Business Meal Tax Deductions for 2021 and 2022
Among the benefits that could represent significant savings for some business owners is an enhanced business meal deduction. New for the 2021 and 2022 tax years, businesses can “generally deduct the full cost of business-related food and beverages purchased from a restaurant,” IRS.gov stated.
In the recent past, businesses could only deduct up to 50% of the cost of the meal.
To qualify for the deduction, according to IRS.gov:
- The business owner or an employee must be present when food and beverages are provided.
- The expense cannot be considered “lavish or extravagant” by the IRS.
Purchases from grocery stores, convenience stores, and employer-operated eating facilities do not qualify for the tax deduction.
Home Office Tax Deduction
The IRS news release reminds business owners that they might be eligible to claim the home office deduction. There are two ways to file for this business deduction — as long as the business owner is using a room or distinguishable portion of their home for business use.
Taxpayers can file by attaching Form 8829, Expenses for Business Use of Your Home, to their tax return. The form helps calculate a percentage of indirect expenses including real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, and maintenance and repairs. Direct business expenses, such as for office equipment, are typically fully deductible.
Sole proprietors may file a simplified form for the home office deduction using a 6-line worksheet on their Schedule C form. This method gives business owners a deduction of $5 per square foot, up to $1,500. Business owners using the simplified method can claim allowable mortgage interest, property taxes, and casualty losses as itemized deductions on Schedule A, but cannot depreciate their home office investment.
Other Tax Deductions and Benefits for 2022
The IRS news release also reminds small business owners and independent contractors that they may be eligible to deduct start-up costs for their business, other business expenses not exceeding the gross income of the business, and health insurance costs.
Some qualifying start-up costs eligible for tax deductions include advertising, salaries and wages for new employees in training before the business has opened, and travel and other costs incurred while establishing the business. Salaries and fees for executives, consultants, and professional service providers hired to help start the business may also fall under the category of eligible deductions.
Self-employed individuals may be able to deduct health insurance premiums for 2021 and 2022. TurboTax points out that you should enter health insurance write-offs on page 1 of Form 1040. This deduction reduces your adjusted gross income, which can put you into a lower tax bracket or minimize the affect of phase-out rules, which would otherwise disqualify you for certain tax credits.
IRS.gov recommends small business owners and sole proprietors review Publication 535, Business Expenses, to find additional business tax deductions. Hiring a tax professional that specializes in small businesses can also help ensure that you are claiming every deduction you can to reduce your overall tax bill.