Small businesses are the backbone of any economy, and the US is no exception. To encourage their growth and development, governments often offer tax breaks and incentives to small business owners. For 2022, there are several new tax deductions that can be taken advantage of. This article will outline some of the key deductions and what small business owners need to know to make the most of them.
The first new tax deduction for 2022 is the Employee Retention Credit. This credit was introduced in 2020 as a response to the COVID-19 pandemic and has been extended into 2022. The credit allows businesses to claim a 70% refundable credit on employment taxes of up to $10,000 per employee. To qualify for the credit, a business must have experienced a significant decline in gross receipts or been forced to partially or fully shut down due to pandemic-related restrictions.
The second new tax deduction is the Work Opportunity Tax Credit (WOTC). This credit is designed to encourage employers to hire individuals from certain target groups, such as those who have been unemployed for a long period of time, ex-felons, and veterans. The WOTC can provide employers with a credit of up to $9,600 per eligible new hire.
The third deduction is a continuation of the Section 179 deduction. This deduction allows businesses to deduct the full cost of qualifying equipment and property purchases in the year they are made, rather than depreciating the cost over several years. For 2022, the maximum deduction allowed is $1,050,000.
The fourth deduction is extended bonus depreciation. This deduction allows businesses to deduct 100% of the cost of qualifying property in the year it is purchased. For 2022, this deduction will be available for property placed in service before January 1, 2024.
Finally, a key deduction for small businesses is the Qualified Business Income (QBI) deduction. This deduction allows sole proprietors, partnerships, and S corporations to deduct up to 20% of their qualified business income. To qualify, businesses must meet certain income thresholds and have income from a qualified business.
In conclusion, small business owners should take advantage of the new tax deductions available for 2022. These deductions can save businesses significant amounts of money and provide an incentive to invest in equipment and personnel. By understanding the various deductions available and working with a knowledgeable tax advisor, small business owners can maximize their tax savings and increase profits in the coming year.
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