As the doors of small businesses begin to open, the impact of COVID-19 is still severely affecting the income and success of many owners. It may take time to get your business back to where you want it, BUT in the meantime, do not forget to take advantage of government grants and tax deductions provided for small businesses. As many tax deductions will be ending this upcoming tax season of 2022, you should get ahead of the new COVID tax reforms that are applicable to your business. The new tax laws will help your business get back on track by significantly lowering your costs through new deductions and exemptions.
You are likely familiar with many tax deductions such as overhead costs, travel expenses, marketing, and so on. However, COVID-Relief Acts have not only changed some of those basic tax deductions BUT added a few more to help your business during trying times.
Here Are Four Big Deductions You Should Remember!
1. Food and Restaurant Deduction, Business Travel Deduction
As you may know, meals and restaurant expenses are deductible up to 50% when being used for business purposes. However, they are now 100% deductible with the new COVID guidelines. This will make a large impact on your upcoming taxes so MAKE SURE you do not forget the percentage change in your deductions.
2. Employee Retention Credit
This deduction is focused more on small businesses that have employees who needed either needed time off due to COVID-related reasons or for a cut in hours. Many businesses had a decrease in sales making it very hard to keep employees on the payroll. Likewise, it was hard to conduct business if your employees were gone due to COVID. This deduction can help cover up to 70% of employees payroll wages (capping at $10,000 per employee), for small businesses that have experienced a 20% loss of gross receipts compared to pre-COVID taxes. If you experienced trouble keeping your employees on payroll or are taking a large financial hit, MAKE SURE to claim this deduction for the upcoming tax season.
3. Accelerate Depreciation
An issue that came along with COVID was the need to improve the safety guidelines of your business to comply with CDC regulations. In order to provide more funding to place in other areas of the business, the IRS implemented an accelerated depreciation deduction for applicable items. Usually, depreciation works in a straight line, meaning the depreciation is the cost of the item divided by its useful years and that is what you may deduct annually. However, under the accelerated depreciation you are able to deduct two times the depreciation. For example, if you can deduct $1000 per year, you may now deduct $2000. When you put this over all of your depreciated items, it can save you quite a bit of excess funds by the end of the tax season.
4. Deferment of Loans/Interest
Loans and interest rates are something every business owner dreads, especially during COVID. As many experience a decrease in business, it leaves to question “How am I supposed to pay for my loans?!” Well, with this deduction, it pauses your accruing interest and allows you to defer your monthly loan payments for up to three months. This should help significantly during tax season as it is one less thing to worry about!
COVID has been detrimental too many small businesses, and in many cases has shut down businesses completely. However, these tax deductions may be a saving grace for you during tax season, and one more way that can keep your business running smoothly. So, keep this blog saved and ready to go when you start to prepare taxes for the upcoming year.
THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.
