Top 3 Lessons Learned for Filing Business Taxes in 2022

If you’ve submitted your business tax returns before April 15, congratulations! You’ve successfully passed 2022’s tax season! On the other hand, if you’re still struggling with your financial records and IRS forms, no worries, we’re here to help! This article reveals the top 3 lessons learned for filing your business taxes in 2022. 

Update yourself on tax law changes

The first and foremost thing to remember when filing your business taxes is to educate yourself on the areas of taxation that affect you and keep yourself updated on tax rules and developments. It’s always a wise option to keep track of the current news because things change annually.

The changes listed below are in effect starting in 2022, so be aware of what they entail for your small business when submitting.

Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a financial incentive for employers who suffered lower revenues or business disruptions due to government-imposed limitations in 2020 and 2021. Businesses and certain non-profit organizations that paid employees despite the COVID-19 pandemic’s obstacles are also eligible for the ERTC, and many beneficiaries are receiving cash refunds. 

Though ERTC expired at the end of 2021, you can still claim this tax credit in 2022. Business owners have three years after the program’s closure to review wages paid after March 12, 2020, to see if they are eligible. The requirements to claim ERTC are the following: 

  • Your business recovered from a significant reduction in gross receipts
  • You haven’t claimed this credit before. 

Excess business-loss limitation

Businesses could transfer net cash outflows backward five years or forward forever in 2019 and 2020 thanks to a suspension of Tax Cuts and Jobs Act provisions. Nevertheless, those rules have been reinstated for the 2021 tax period.

This means that taxpayers cannot claim losses totaling more than $524,000 (for couples filing separately) or $262,000 (for the unmarried). This relates to business earnings and liabilities, notably Schedule C and revenue and shortfalls from pass-through entities.

Furthermore, they cannot use W-2 wages to cover business losses. Husband and wife taxes are paid separately and may result in a tax obligation even if lost income exceeds spousal earnings.

Interest expense limitation

Another tax law suspended to assist Americans during the pandemic is the accrued interest restriction rule, which will be reinstated for the 2021 tax year. This regulation restricts taxable income to the current tax year and cuts the financing costs deduction from 50% to 30% of modified tax liability.

Set up a checklist for filing your business taxes

When you run your own business, you’ll be accountable for keeping track of various critical records and tasks. It’s a good idea to establish a checklist to collect all the data you have to monitor year-round. This checklist helps you identify and collect your important documents (such as the home office or travel expenses) and keep them for tax preparation. 

Your tax status will probably be similar year to year. Even if your tax situation changes, you can still use the discipline you set in place during the year to expand on in the future. A little effort in planning and staying organized can go a long way.

File your taxes as soon as possible

It might be a good idea to schedule and have all of your papers in one place to assist you in filing early and receiving your tax refund quickly. If you are getting a refund, the earlier you file your form, the faster you will receive your refund—which means more cash on hand during this difficult time.

The sooner you file your taxes, the more time you’ll have to correct any bookkeeping problems or locate lost invoices, documents, or invoices. This additional time can go a fair distance toward reducing stress throughout what can be a stressful time of year.

Additionally, filing your taxes as soon as possible might help you overcome your financial flow. It’s critical to keep track of your 2022 quarterly tax estimate requirements since they may be changing continuously. 

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The bottom line

When filing your business taxes, remember to use Shoeboxed to save you time and hustle!

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

What Is A Tax Write-Off? 5 Most Common Write-Offs For Small Businesses

Understanding the ins and outs of tax write-offs is a massive advantage for every business owner. It helps you determine the correct amount of tax owed, and more importantly, what to write off to avoid paying any unnecessary extra money. 

This article will cover what a tax write-off is and the 5 most common tax write-offs that might benefit your business. 

Read on! 

What is a tax write-off? 

A write-off (or a tax reduction) is an expense that you can deduct from total revenue to determine the taxable income for your small business. Essentially, tax write-offs lower your taxable income, which means you will pay less tax. That’s why small business owners always try to write off as many expenses as possible.

However, write-offs must be necessary to a business’s operation and be common in the applicable industry to be qualified, according to the IRS. For example, a tax advisor can write off their business cell phone bill because taking calls helps the business operate smoothly, and it’s a common practice in the tax consulting industry. So, the cell phone expense is qualified to be deducted. 

How do small businesses write off? 

Every business, except for partnerships, needs to file an annual income tax return which will include your business write-offs. All you need to do is visit the IRS website and get the correct income tax form for your business structure. You then fill your tax write-offs in and submit the form! 

It’s also crucial to document your business spending, big or small. Your bookkeeping entries aren’t sufficient. You must keep all receipts and purchase records, whether physical or digital. This will help you stay ready if the IRS knocks at your door. 

If your piles of receipts constantly give you a headache, try Shoeboxed! Shoeboxed is a receipt scanner app that digitizes and extracts important information from your paper receipts automatically in seconds. Every single receipt will be stored and fully searchable in one secure place. Sign up for Shoeboxed to enjoy the paperless world! 

Top 5 common tax write-offs for small businesses 

The good news is most business expenses are either fully or partially deductible. Below, you’ll find a list of the top 5 write-offs commonly available that a small business owner should be aware of for the tax season.

  1. Advertising and promotion expenses

You can fully subtract the cost of advertising and promotion from your taxable income. It can be anything like:

  • Ad fees on Google or social media like Facebook, Instagram, etc.  
  • Printing costs for business cards, brochures, and flyers
  • Payment for designers to make logos, posters, etc. 
  • Software used for marketing purposes
  • Website expenses

Remember though, any expenses spent to influence legislation like lobbying or to sponsor a political campaign can’t be deducted. 

  1. Car and truck expenses 

If you use your vehicle for both business and personal reasons, you can deduct all the business-related expenses from using it.  

There are two ways to calculate your automobile expenses. You can choose whatever option gives you the most tax savings. 

  • Standard mileage rate: With this method, you just need to multiply the number of miles traveled for business by the standard rate, which is now $0.56 per mile. 
  • Actual expense method: This method entails adding up all of your vehicle’s operational costs such as gas, repairs, oil, tires, registration fees, leasing payments, and insurance charges. Multiply them by the percentage of miles you drive for business

Keep in mind that you can’t deduct the miles driven while commuting to work because they are regarded as personal commuting expenses. 

  1. Travel expenses 

A business trip eligible for traveling tax deduction has to be ordinary, necessary, and away from the entire city or area where you operate your business, regardless of where you live (aka tax home). Plus, your travel must be longer than a normal day’s work, requiring you to sleep or rest during the trip. 

The IRS approves some deductible expenses for business travel, including:

  • Travel costs to and from your destination by plane, train, bus, or car
  • Baggage and shipping 
  • Parking and toll fees
  • Cost of transportation during the business trip
  • Accommodation 
  • Dry cleaning and laundry
  • Tips
  • Meals 
  • Other similar ordinary and necessary expenses related to your business travel. (e.g., a rental fee of a hotel business center, hiring an interpreter, etc.)

Again, remember to ask for and keep all the receipts and related documents as they are the foundation for writing expenses off. 

  1. Bank fees

You may be able to deduct annual or monthly service charges, transfer fees, or overdraft fees from your bank or credit card. Also, you may be eligible to deduct transaction and merchant costs paid to third-party payment processors. For example, platforms like Stripe and PayPal fall within this category. 

Keep in mind that any fees directly tied to your personal credit cards or bank accounts aren’t deductible. That’s why it’s best to separate your business bank account from your personal one, as it’s easy to mix things up when you file a tax return and you might end up losing money. 

  1. Education costs

You can fully write off education expenses if they contribute value to your business and advance your expertise. The IRS will look into your classes or courses to decide whether they maintain or improve skills that are compulsory in your current business. If yes, they can be written off completely. 

Below are some examples of education costs: 

  • Courses to improve skills in your field
  • Seminars and webinars
  • Subscriptions to trade or professional publications in your field
  • Books 
  • Workshops 
  • Transportation expenses to and from classes

Any education costs that don’t serve your current career and business wouldn’t be qualified. 

In short, maximize your write-offs 

No one wants to pay Uncle Sam more than necessary. That’s why you really should understand tax write-offs and minimize the amount of income tax you have to pay. Don’t forget to keep good records of every transaction in case the IRS wants to audit you!. 

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Your Ultimate Guide to Travel Expenses

Keeping track of travel expenses and deductions can be so confusing that you may find yourself tempted to throw in the proverbial tax towel and forget the whole thing. Before it gets to that point, use our comprehensive guide to travel expenses to learn what to deduct, what to write-off and more.

What to deduct when you’re on the go (and how to keep track of it all)

Keeping track of travel expenses and deductions can be so confusing that you may find yourself tempted to throw in the proverbial tax towel and forget the whole thing.

But for small business owners, the write-offs you take while traveling can make the difference between owing money and getting a refund at the end of the year.

Our Ultimate Guide to Travel Expenses will teach you:

  • What counts as a deduction and what doesn’t

  • The portion of each expense that can be deducted (Newsflash: it’s not always 100%!)

  • How to keep track of it all and still enjoy your trip

Can I write this off?

US INCOME TAX FORMSExpenses vs. deductions

If you are going to create an expense report, submit it to your boss or partner, and be reimbursed for that expense on your next paycheck, the expense is not a deduction. It may very well end up being a deduction for the company come tax time, but since you’re not truly paying anything out of pocket, you can’t claim it as a write-off.

If, however, you are a small business owner and are paying out of pocket travel expenses for your hotel room, rental car and airfare, those expenses definitely qualify as deductions.

Local vs. out of town travel

Knowing the difference between local travel and out of town travel will help you determine how to calculate your travel expenses and write-offs.

The IRS considers travel expenses to be completely separate from the day-to-day costs incurred while running your business.

The van you bought for deliveries, the mileage accrued making said deliveries, parking fees and tolls are all considered transportation costs, even if you have to travel hundreds of miles on any given day.

So how does the IRS determine whether a write off is a transportation deduction or a travel deduction?

Easy. They want to know if you’re spending the night.

Out of town travel means that you’re far enough from home that an overnight stay in a hotel is a necessary business expense (and no, shacking up at your hometown’s nearest 5-star resort just because you feel like it does not count as a travel write-off).

Once that airfare is booked and a few nights at the Best Western San Diego seem imminent, you can begin tracking your expenses as travel deductions. The Shoeboxed Receipt and Mileage Tracker makes it easy to track receipts to write-off or deduct later, and it even allows you to track your mileage!

Business vs. personal

If you’re off to a conference or event in a snazzy city like Paris or Puerto Vallarta, you may be inclined to bring your significant other, spouse or family along for the ride.

Generally speaking, unless your posse is also employed by your company, none of their travel expenses will be deductible.

Let’s say you’re going to Paris for a four-day conference and you’re bringing your husband. The plan is to attend the conference for the first four days, then gallivant around Western Europe for another 10 days.

  • Your airfare is deductible, but his is not.

  • Your hotel room is deductible, but only while you are attending the conference. The remaining 10 days are considered a personal vacation and you’re on your own.

  • 50% of the cost of your meals and entertainment is deductible, but only during the conference. If you and your husband go to dinner during the business portion of your trip, half of your meal (or 25% of the bill) can be taken as a deduction. The same rules apply if you bring additional family or children.

While your hearts may be joined, your travel expenses are not. Track your deductions exactly as you would if you were traveling alone, and make sure to keep personal vacation expenses completely separate from business expenses.

Can I write all of this off?

Just because something is a write-off doesn’t mean it’s 100% deductible. Confusing?

Think of the IRS like an airline who’s forced to put you up for the night when your flight is delayed. Sure, they’ll offer you a decent hotel room and transportation to and from the airport. But what’s up with that $15 food voucher? What are you supposed to buy with that, a Snickers bar and a bottle of water?

The IRS wants you to be well-rested, but they don’t really feel like footing the entire bill for dinner at a 5-star restaurant.

In general, you may be able to deduct up to 100% of the following business expenses while traveling:

Airfare

The cost of your airfare is up to 100% tax deductible. If you decide to take a train or a bus, that counts too. Uncle Sam will even pay for those pesky baggage fees, but see below before trying to write off those pre-flight cocktails.

Yes, you can fly first class, but be ready to prove that doing so is “regular and necessary” for your business. Extremely lavish expenses tend to raise red flags.

Internet access

If you fall victim to one of the many airports or hotels that still doesn’t offer free WiFi, fret not. That 24-hour Boingo Internet pass is a deductible travel expense, as is anything you spend in the hotel business center. If you find yourself racking up printing, faxing and copying costs while traveling, those are also 100% deductible.

Transportation costs

Once you arrive in Phoenix (or Vegas, or Tahoe), you’ll probably have to leave the airport. Your rental car, cab fare and/or public transportation costs are all 100% deductible. The same goes for any extra expenses you accrue while driving the rental car like gas and tolls.

Make sure to ask for a receipt when taking a cab!

Go ahead, give him a big fat tip.
Go ahead, give him a big tip.

Hotel room

In most cases, the cost of your accommodations are 100% deductible. If it makes sense, you can certainly choose a 4 or 5-star hotel if you don’t mind fronting the initial extra cost. Just make sure your choice falls within the realm of “regular and necessary” – the IRS doesn’t accept deductions that it deems “lavish or extravagant.”

Since one person’s “lavish” is another person’s “meh,” you have some wiggle room here. If the 5-star hotel is 30 miles from your work site and you’re not only staying there, but taking a personal helicopter to and from your digs, and you’re not Bill Gates, you might want to tone it down a notch.

Hotel expenses

You tip the bell hop, you tip the valet driver, you pick up your dry cleaning and before you know it, your hotel expenses are starting to creep up towards the total cost of the room itself.

Happily, anything that costs you money while you’re in the hotel is deductible, as long as it’s regular and necessary for a typical person in your line of work.

Tip: Since it might be a little awkward to ask the bell hop for a receipt after tipping him, just make a clear note of how much you spent on the top of a related receipt from the same day.

Meals and entertainment

50% alert! 50% alert!

When calculating travel expenses from meals and entertainment, you have moved away from 100% Write-Off World, and into the Land of Half Off.

A whole lotta eating goes on while you’re traveling, and Uncle Sam understands that it’s not particularly practical to live on microwavable pizza pockets from the hotel vending machine for a week.

You can deduct up to 50% of your meals while traveling, whether you eat alone or with business associates. Be careful when calculating dinner write-offs, however. If you happen to be staying in the home town of your old college buddy, dinner with him or her is not a deduction.

Other forms of entertainment are only deductible if you can demonstrate how they are necessary for the growth of your business. Jot down the names of potential clients and business associates on the back of your receipts before scanning them to your Shoeboxed account.

If you want to write off your tickets to Wicked, go ahead – as long as you actually work in the entertainment industry, that is.

Keeping track of it all

Phew! With all of those travel expenses to keep track of, you may want to simply throw in the towel and take the standard deduction for meals and other travel write offs.

But wait! Being your own mobile bookkeeper while traveling is a breeze thanks to receipt scanning apps and portable receipt scanners.

Shoeboxed Receipt and Mileage Tracker

Our handy app (available for iOS and Android) lets you keep track of every travel expense in the blink of an eye. Just snap a picture of each receipt and let us do the rest! Shoeboxed uploads each receipt to your account, digitizes the data for editing, and lets you recycle that paper scrap before it can begin collecting dust in your carry on.

Fujitsu ScanSnap

What if you acquire an exorbitant amount of receipts while traveling, or you have a ton of paper that needs to be digitized while you’re on the go?

The Fujitsu ScanSnap scans stacks of paper receipts and large documents in a snap! With its USB port and ability to create editable Word and Excel files, your long distance work site will feel like a home office offshoot. At just 12 ounces and 34 inches long, you’ll be able to slide the ScanSnap into your carry on and focus on what really matters – finishing that final Words with Friends move before the flight attendant makes you turn off your phone.

Now that you’re a travel expense expert, get out there are start tracking those write-offs already!

References:

1.  http://www.irs.gov/publications/p463/ch04.html

2. http://www.irs.gov/taxtopics/tc511.html

photo credits: businesstravelalmanac.com, www.blogto.com