Are there any new business changes for the 2022 tax year?

[Crystalclear805]

I wanted to know if there are any new tax savings to be had for small businesses in the 2022 tax year.

[VincentL]

Business Tax Changes for 2022

Families First Coronavirus Response Act

The Families First Coronavirus Response Act (FFCRA) requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19 through March 31, 2021. Businesses that made these payments are eligible for tax credits for 100 percent of the cost of sick-leave pay, family-leave pay, qualified healthcare plan expenses, and the employer’s share of FICA payroll taxes for sick-leave expenses they incurred under this act. If you qualify, it is critical to claim this tax credit for the first quarter of 2021.

Deferred Social Security Taxes

For the 2020 tax year, the Coronavirus Aid, Relief, and Economic Security (CARES) Act enables employers to defer deposits of their portion of Social Security taxes, which were due between March 27, 2020 and Dec. 31, 2020. But in 2021, half of these deferred taxes became due by Dec. 31, 2021, with the remainder coming due on Dec. 31, 2022. Consequently, if small business owners did not pay the first half on time, the IRS considered all of the deferral invalid and assessed penalties on all of the deferred taxes using the original due date.

Net Operating Rules

If any business had a net operating loss in 2018, 2019, or 2020, which is being carried into 2021, it will be limited to 80 percent of taxable income.

Employee Retention Tax Credit

The Infrastructure Investment and Jobs Act (IIJA), commonly referred to as the Bipartisan Infrastructure Bill, is a United States federal statute enacted by the 117th United States Congress and signed into law by President Joe Biden on November 15, 2021.

The act was initially a $715 billion infrastructure package that included provisions related to federal-aid highway, transit, highway safety, motor carrier, research, hazardous materials and rail programs of the Department of Transportation. After congressional negotiations, it was amended and renamed the Infrastructure Investment and Jobs Act to include funding for broadband access, clean water, and electric grid renewal. This amended version included $1.2 trillion in spending, with $550 billion being newly authorized spending on top of what Congress was planning to authorize regularly.

The Infrastructure Investment and Jobs Act canceled the 2021 fourth-quarter employee retention tax credit. If small business owners did not claim this credit for Q4, they will not be able to do so. And if entrepreneurs already claimed it, they may be penalized unless they deposited the taxes on (or before) Dec. 20, 2021, or by Jan. 31, 2022.

Charitable Contributions

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December of 2021, provides several provisions to help individuals and businesses that give to charity. The new law extends (through the end of 2021) several temporary tax changes originally enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

It is important to note that the charitable contribution rule is advantageous for taxpayers for the 2021 tax year. A C corporation can deduct donations up to 25 percent – rather than the previous 10 percent of its taxable income. To take advantage of this, a business must elect the Increased Corporate Limit on a contribution-by-contribution basis. 

In addition, businesses donating food inventory can qualify for deductions of 25 percent, which is up from 15 percent. This is applied to taxable income for C corporations. For S corporations, sole proprietorships and partnerships, it is based on aggregate net income for all trades or businesses from which the contributions are made.

Excess Business-Loss Limitation Rules

Businesses have been able to carry net operating losses back five years or carry them forward indefinitely via a temporary suspension of Tax Cuts and Jobs Act rules in 2019 and 2020. But these rules are now back in place for the 2021 tax year. As a result, taxpayers are unable to deduct losses of more than $524,000 if married and filing jointly–or $262,000 if they are single. This particular rule applies to all business income and losses, including Schedule C and pass-through entity income and losses.

And W-2 wages can no longer be used to offset the business losses. Spousal income is taxed separately and may result in a tax bill–even if the business losses are greater than the spousal income.

[MariaDG]

Oh boy!  What a great question.  If you had a business last year, then you surely know that these things are always changing.  I'll list a few things I can think of.  Other than that, my best advice is to keep the most organized records possible.  Use software if possible, get advice from an accountant if you can, and generally try to account for every dollar, and have your records categorized as best as you possibly can. And try to reach out and stay aware of possible changes, exactly as you are here today!  That way, if anything new comes up, you'll have your books in order and be ready to take advantage of it immediately. 

1. The business meals deduction is usually limited to 50%, but that limit was waived temporarily, and you can take a 100% deduction for both 2021 and 2022.  (Be aware this only applies to restaurant charges, not grocery stores etc. )

2. The mileage rate increased to 58.5 cents per mile for 2022, so be sure you are tracking every mile you drive for business.  It can really add up. 

3. If your business received a PPP loan, and then qualified for forgiveness and didn't have to pay it back, that amount will not be considered taxable income.  So that could be a significant break.  And the real bonus? You still get to take deductions for expenses paid with that PPP money you weren't taxed for.  What a deal.  (Be aware that this is for federal taxes, state rules may vary)

4.  If you repurposed things you already owned and put them in to use in your home office, you may be able to take a deduction for the current market value. 

5.  Make sure you are taking advantage of self employed retirement options, such as solo 401Ks or SEP IRAs.  These can be a great deduction.  And don't forget, if your 4th quarter is rough, you can take the deduction on your 2022 return even if you don't fund the retirement account until your tax due date.  So you may not have to come up with the money until April, or possibly even October. 

Best of luck with your business endeavors!

[MariaDG · Accepted solution]

I'd also like to add that it is now more important than ever to keep detailed books and records due to the new 1099-K reporting.

For example: If a client business pays you more than $600 for services they are required to report on a 1099-NEC. However, if they make that payment to you via paypal or credit card, it will also be reported on a 1099-K by the 3rd party payment processor. So it is possible you will receive two tax documents reporting the exact same income.  In order to avoid overreporting your income on your taxes, you will need to keep track of what income you received, from where, via what payment method. When tax filing time comes, you must input both forms, however you can add an expense to offset the 1099-NEC income by selecting 'other miscellaneous expenses' and adding 'Form 1099-K income included in Form 1099-NEC reporting' as the description. 

[Crystalclear805]

Thank you!!  This is SUPER helpful advice.  I did not know this!  Thank you!!