(NerdWallet) – Taxes are complex, and for small business owners, freelancers, and people with side gigs, they’re even more complex — especially now, as filers consider the tax effects of relief programs. small businesses and rule changes.
But these new twists can create opportunities for tax savings, according to three tax experts. Here are seven things they say entrepreneurs and freelancers can do to reduce their tax bills and anxiety this production season and into the year ahead.
1. Don’t Sweat That PPP Money
If your business received a loan under the Paycheck Protection Program, or PPP, and you qualify for a rebate, the IRS generally doesn’t consider the money to be part of your gross income. Also, on your federal income tax return, you can usually deduct business expenses you paid with the loan money.
“The IRS has been clear,” says Meredith Tucker, who leads the business services group at accounting firm Kaufman Rossin in Fort Lauderdale, Florida.
However, state-level tax rules may have a different stance on taxing PPPs, so be sure to consult with a qualified tax professional.
For 2021 and 2022, the business meal deduction increases from 50% to 100% if the food and beverages come from a restaurant.
“This can include takeout and delivery. There’s no need to eat it on the spot,” says Mark Luscombe, federal tax analyst for Wolters Kluwer Tax & Accounting.
But make sure your business meals come from a restaurant. “You can’t get a deli platter from a grocery store and have it qualify,” he adds.
3. Watch that odometer
If you are self-employed, you can benefit from a tax deduction for each kilometer driven for professional purposes. In 2021 the rate was 56 cents per mile, and in 2022 the rate increased to 58.5 cents per mile. This means that a 20-mile trip to meet a client can result in a deduction of around $12 this tax year.
But don’t guess here; the IRS may ask you to substantiate your mileage. “The important thing, especially if you don’t have an exclusive vehicle used just for business, is to keep a diary,” says Luscombe.
4. Capitalize on special retirement options
There are special tax benefits for retirement savings if you are self-employed. Solo 401(k), also known as single participant 401(k), are an example of IRS-blessed retirement accounts designed for the self-employed. They mimic many features of an employer-sponsored 401(k), including the ability to earn money before taxes.
SEP IRAs are another option, and you have more time to contribute, especially if you get a tax extension, Tucker says.
“You can take advantage of the deduction on your 2021 taxes and not have to fund the retirement account until the extended filing due date, which could be September or October,” she says.
5. Look at what’s in your home office
The home office deduction is a popular way to get tax relief on rent, utilities, and other home-related expenses, but a home office can yield other tax breaks as well. If you commandeered an old table, computer or chair in 2021 for your home office and haven’t already claimed it as a business expense, you may be able to deduct its current market value, says Sean DiMercurio , a certified public accountant at DiMercurio. Consultants in Orlando, Florida.
For example, if you bought a laptop for $3,000 two years ago and it is now worth $1,250, you may be able to claim a $1,250 deduction if you started using that laptop. for your business this year, he says.
“It’s something that this group of taxpayers often lacks and is completely allowed,” says DiMercurio. Make sure you have receipts or proof of the original purchase, he adds.
6. Prepare now for new documents in 2022
Self-employed people already receive a 1099-NEC form from customers who pay them at least $600 a year, but if those customers use Venmo, PayPal, or a similar payment platform to send money, another tax form may start coming in. appear for 2022.
“They’re going to get a 1099-NEC from the person they worked for as an independent contractor, and then from the payment processor – if it was paid by credit card or electronically – they’re also going to get a 1099 – K for the same transaction,” says Luscombe.
That means small business owners will need to be more organized in 2022. “It’s going to be a lot more paperwork and sorting – making sure you’re not double-reporting your income either,” he says.
7. Get serious about accounting
“If you eat, sleep, drink or think about your business, chances are what you’re doing is tax deductible,” DiMercurio says. Even a few cups of coffee can be tax deductible under the right circumstances, and that can add up to big tax savings, he says.
But be sure to keep receipts and use accounting software so you have good records. Also, don’t stretch the truth. Tax evasion is a crime. “If you can’t argue for a deduction or a credit without laughing… chances are it’s not really good,” Tucker says.