Top Small Business Tax Deductions to Look Out for in 2022
As an entrepreneur, you know that running a small business is demanding, and you are always looking for ways to maximize revenue and minimize expenses. One effective way to save on expenses is by taking advantage of the numerous tax deductions that are available for small businesses. These deductions, if utilized properly, can help you significantly reduce your tax bill.
In this article, we highlight some of the top small business tax deductions that you should be aware of in 2022.
1. Section 179 Deduction
The Section 179 deduction allows you to deduct the full purchase price of qualifying equipment and software that you buy or finance for the tax year. This deduction is especially useful for small businesses that require expensive equipment for their operations.
In 2022, small businesses can take up to $1,050,000 in deductions, which is an increase from the $1,040,000 limit in 2021.
2. Qualified Business Income Deduction
The qualified business income (QBI) deduction, also known as the pass-through deduction, is a relatively new tax deduction that became effective in 2018. This deduction allows small business owners to deduct up to 20% of their qualified business income when filing their taxes.
To qualify for this deduction, a taxpayer’s taxable income must be below certain thresholds. For 2022, the threshold for single filers is $164,900, while married couples filing jointly have a threshold of $329,800.
3. Home Office Deduction
If you run your small business from your home, you may be eligible for a home office deduction. The home office deduction allows you to deduct expenses related to the business use of your home, such as rent or mortgage payments, utilities, and home insurance.
To qualify for this deduction, you must use a part of your home exclusively and regularly for business purposes. You may deduct a portion of your actual expenses or use a simplified method of $5 per square foot, up to a maximum of 300 square feet.
4. Business Travel Deduction
If you travel for business purposes, you may be eligible for a business travel deduction. This deduction allows you to deduct expenses related to transportation, lodging, and meals while away on business.
However, it’s important to note that the travel must be ordinary and necessary for your business. In addition, you must keep a detailed record of your expenses, including receipts, to qualify for the deduction.
5. Retirement Plan Contributions
Small business owners can also deduct contributions to retirement plans, such as a 401(k) or SEP IRA. These deductions not only help reduce your tax bill but also provide a way to save for retirement.
In 2022, the maximum contribution limit for 401(k) plans is $20,500 for individuals under 50 and $27,000 for those over 50, while the contribution limit for SEP IRA plans is the lesser of 25% of your compensation or $61,000.
In conclusion, small business owners should pay close attention to tax deductions to help reduce their tax bills. These deductions can provide significant savings and help you keep more money in your pocket. Be sure to consult with a tax professional to ensure that you are taking advantage of all the deductions available to you.
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