2022 Tax Season: What to Look Out For
On January 24th, the Internal Revenue Service (IRS) announced the start of tax season. Now, the agency can accept federal income tax returns for 2021. With tax season officially in progress, the April deadline is quickly approaching. Organizing tax filing information well in advance, and understanding any tax changes for filing this year sets you and your business up for success. Avoid filing taxes last minute as you may make errors that can flag your business for an Internal Revenue Service (IRS) audit.
Before filling out your business’ tax return, we’ve put together tips to help you successfully file this year.
Tax Return Due Date
Each year, taxes are due April 15th. The date is unflinching unless it falls on a weekend. This year, the deadline is extended to April 18th for the majority of taxpayers because the 15th lands on Emancipation Day celebrated in Washington D.C. However, we do not recommend waiting until then to start assembling and filing your taxes.
The following are the approved extensions to the April 18th deadline:
- April 19th for taxpayers in Main and Massachusetts to observe Patriots’ Day
- May 16th for the victims of tornados in Illinois, Tennessee, and Kentucky
- May 16th for the victims of wildfires in Colorado
- October 17th for taxpayers requesting an extension
PPP Loan Deductibles
Small business owners who applied for PPP loan forgiveness may need to look into different tax deduction strategies. Claiming PPP funds depends on if they were forgiven or not. Businesses that had PPP loans forgiven are not eligible to claim deductibles on their taxes because it is essentially “double-dipping.” However, businesses that did not have PPP loans forgiven can claim the expenses on their tax forms this year.
Claim All Reported Income
When reviewing your business’ tax returns, IRS matches what you reported as income to the 1099 – MISC forms your independent contractors fill out. IRS has a copy of the 1099-MISC forms your business receives and will cross check accurate reporting is made. If they find an error between the filings, the agency may flag you for an audit.
Taxable and Nontaxable Employee Benefits
Some employee benefits that employers give are considered taxable while others are considered non taxable benefits. All help retain top talent but come tax season, providing benefits that don’t cost your employees more when filing is a financially beneficial opportunity.
IRS considers taxable benefits as:
- Vacation expenses
- Bonuses
Non-taxable benefits include:
- Accident and health benefits
- Educational assistants
- Employee discounts
- Meals
Classify your business correctly
The various business classifications are taxed differently. Misclassifying your own business can lead to overpaying, or underpaying taxes. If the agency finds an underpayment of taxes, they will most likely open up an audit against your business.
Different business classifications include:
- Sole proprietorships
- Corporations
- S Corporations
- Partnerships
- Limited Liability Company (LLC)
Charitable contributions
Businesses that give charitable donations help the community and can use their contributions towards tax deductions. The size of your business determines how much in charitable deductions you’re able to file.
Qualified Business Income Deductions
After 2017, IRS implemented the qualified business income deduction. This deduction states, “many owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for a qualified business income (QBI) deduction.”
Through this change, certain business entities can deduct up to 20% of business income along with 20% for qualified real estate investments on filings.
Transportation Costs
Businesses who use company car vehicles can use it as a deduction as well. If the vehicle is solely used as a company car, the entire cost can be used towards deductions. However, if the vehicle is split between personal use and business use, only the business use can be deducted.
Deductions can be calculated through:
- Standard Mileage Rate
- Actual expenses
Keep Organized Records
Having the receipts for business expenses makes claiming it as a deduction a smoother process. Not every expense claimed as a deduction needs the receipt to back it up, but it helps, especially if IRS decides to open up an audit against your business.
Tips to Make Filing Easier This Year
Staying up to date on new tax updates is a great starting point to making filing easier this year. Another way you can make filing taxes as streamlined as possible is this year is to:
- Gather and organize your tax records ahead of time
- Accurately report income and expenses
- Make sure you’ve withheld enough
Planning for tax season ahead of time gives you the opportunity to file the most accurate returns possible. In doing so, you avoid triggering an IRS audit. If you are worried about flagging an IRS audit when submitting your business’s tax returns, read our article on six triggers of an IRS audit here.
