The IRS processed nearly 168 million tax returns in 2021. With the 2022 tax season in full swing, businesses and individuals alike are gathering the necessary information to file their returns.
But is there an easier way? How can tax planning help your business to be better prepared for 2022 taxes?
Keep reading to learn more about the 2022 tax season and businesses taxes. And discover how effective accounting and bookkeeping practices can help you better plan next year.
2022 Tax Season For Businesses 101
Each year, tax laws change and update, leaving many businesses wondering how to maximize their deductions and credits. Well, 2022 is no different and has a lot of information to retain!
The COVID-19 pandemic changed a lot of things for the 2020 tax year. And some of those changes rolled over into the 2021 tax year.
With changing deadlines and new credits, the 2022 tax season is complex. Discover more about the important topics of the 2022 tax season below.
2022 Tax Season–Important Topics
When planning your business operations for tax season, there are a lot of moving parts to consider and remember. How do you plan to meet every deadline? What credits are you qualified for to reduce tax liability?
What deductions can your type of business take? Do you need an extension? How can you get one?
Here are the most important topics:
- Important dates to remember
- Consequences of filing late
- How to request an extension
- Advantages of filing early
- Small business deductions
- Partnership and S corporation deductions
- Business tax credits
To learn more about each of these topics, see the sections below.
Important Dates to Remember
The 2022 tax season has a lot of different dates that are important. We’ve outlined the most important dates for businesses below.
The deadline to file employee W-2s is January 31, 2022. The deadline to submit 1099-NEC forms for contracted workers to the IRS is January 31, 2022. Paper 1099-MISC forms are due to the IRS on February 28, 2022, and e-file forms are due March 31, 2022.
The deadline to file 2022 taxes is April 18, 2022. The usual date, April 15th, is on Good Friday this year, so the IRS delayed the filing date. This is for sole proprietors, LLCs, and C corporations.
Business taxes for S corporations and partnerships are due March 15, 2022.
Corporation taxes are due April 18, 2022.
2022 Quarterly Taxes
The following schedule is for paying your 2022 taxes for income earned in 2022.
- Taxes for income earned from 1/1 to 3/31 are due 4/18
- Taxes for income earned 4/1 to 5/31 are due 6/15
- Taxes for income earned 6/1 to 8/31 are due 9/15
- Taxes for income earned 9/1 to 12/31 are due 1/16/23
Paying your estimated taxes on time can help your business avoid fees and a big tax bill during tax season.
For partnerships and S corporations that get an extension, the date is September 15, 2022.
Individuals, LLC, C corporations, and sole proprietors that get an extension will have taxes due October 17, 2022.
Consequences of Filing Late
Not only will you face penalties with the IRS, but you will also collect additional fees. Missing the deadline to file and pay your taxes results in a fee equal to 5% of the unpaid tax per month you are late. For large tax bills, this can add up very quickly.
How to Request an Extension
The IRS offers the option to extend the date to file 2022 taxes by six months. This extension only applies to filing taxes. If you owe money to the IRS, the regular date still applies.
If you need to request an extension, you can file form 4868 or form 7004, depending on your business setup.
Advantages to Filing Early
Not only will you avoid any late interest fees or the need for an extension, but filing early will help to eliminate errors. Oftentimes, when rushing to meet a deadline, people can miss a step or make an avoidable error.
By filing early, you aren’t rushed for time! And if you do make an error, you have time to file an amendment in the appropriate timeframe. It will also reduce unnecessary stress in the long run.
If you owe the IRS, filing early will give you time to set up a payment plan. Or give you enough time to collect the funds before the deadline. The amount owed isn’t due until the filing deadline.
Business Deductions–Small Businesses
There are various deductions available for small businesses. A percentage of business expenses are included for all types of businesses. But small businesses can also take other deductions, depending on the type of business they have.
A few deductions include:
- Business meals
- Home office
- Business insurance premiums
- Legal and professional fees
- Real estate taxes
- Business education
- Business travel
- Business vehicles
- Health insurance
- Charitable contributions
- Retirement contributions
- Marketing and advertising
Are you unsure if your small business can claim certain expenses? You can book a free consultation today to talk to a tax planning expert! And get all of your questions answered.
Business Deductions–Partnerships and S Corps
Many of the deductions small businesses can use are the same for partnerships or S corporations. Expenses, meals, vehicles, equipment, and more are all eligible deductions for all types of businesses.
For a full list of business deductions, see IRS 535 publication.
Business Tax Credits
The IRS offers many different types of credits for various industries. Some of these credits apply to any type of business, while others are very specific to the industry they are in.
Some credits are available every year, while others are newer and implemented due to the COVID-19 pandemic. Some of those credits are expiring for the 2022 tax season and only apply to portions of 2021. It’s important to understand what qualifies you for each credit before trying to take it.
A few available credits in 2022:
- Employer-provided childcare
- Work opportunity
- Small business health insurance premiums
- Social security and Medicare taxes paid on tips
- Employer-paid family and medical leave
- Research and development increase
- Low-income housing
- Small employer pension plan setup and administration cost
- Employee retention
- Families First Coronavirus Response Act
Read more about each credit and qualifications below.
If your company offers employer-provided childcare, you can claim a 25% credit for expenses incurred. It also offers a 10% credit for expenses paid for referral services or additional resources. The credit is limited to $150,000 per year.
This is a credit to encourage businesses to hire from specific, targeted groups. The targeted groups include:
- Qualified IV-A recipients
- Qualified veterans
- Qualified ex-felons
- Vocational rehabilitation referral
- Summer youth employee
- SNAP recipients
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
The wages paid in the first and second years of employment may qualify. To qualify, you have to receive certification for each eligible employee from your state’s workforce agency.
Small Business Health Insurance Premiums
This credit is available to small businesses for two consecutive years. The business must have 25 or fewer employees to qualify. It is a credit for a portion of the premiums paid for a qualified marketplace healthcare plan for employees.
Tax-exempt small businesses can claim 35% of the premiums paid. Other small businesses can claim 50% of the premiums paid.
Social Security and Medicare Taxes Paid on Tips
This is a credit for the food and beverage industry. For any Medicare and Social Security taxes paid for tipped wages, you can claim a credit for the company’s paid portion. Your company cannot claim the employee’s portion.
If any of the tips made by employees are used to meet minimum wage requirements, that amount does not qualify for the credit.
Employer-Paid Family and Medical Leave
This credit is for companies that have a written policy stating all qualifying employees get at least two weeks of paid family and medical leave. The policy must also state that employees will also receive at least 50% of their wages during the leave.
The credit is a percentage of the wages paid to employees taking family and medical leave. It is generally between 12.5% and 25% of qualified wages paid.
Research and Development Increase
This credit is for companies that actively increase their technology-related research. Qualified research must meet the requirements of a section 174 expense. Corporations without publicly traded stock, partnerships, and sole proprietorships are eligible for this credit.
Companies can’t have more than $50 in gross receipts for five years before claiming this credit. Or a company is a startup business with less than $5 million in revenue over a five-year period. It is used to help offset payroll and tax liabilities.
You can apply up to $250,000 of the credit for payroll tax liabilities. You can also claim the credit against the employer portion of social security taxes paid.
This is a credit for businesses that own a low-income housing facility. The facilities have to pass a qualifying test to claim the credit. This credit has a 15-year compliance stipulation.
Small Employer Pension Plan Startup Costs
There are some tax benefits available for businesses that set up pension plans for their employees. When establishing this benefit, the price can get costly. The IRS offers a credit to help offset this cost for small businesses.
This credit is also available for administering qualified pension plans.
This credit is for the first three quarters of 2021. It offers a refundable credit for qualified wages paid to full-time employees. For the 2021 year, the credit is $28,000 per qualified employee.
Businesses had to have a full or partial shutdown during COVID-19. Or had a 20% decline in gross receipts. You can also use this credit for wages not covered by Payment Protection Program loans.
Families First Coronavirus Response Act
This credit is valid from January 1, 2021, to September 30, 2021. It is an additional credit for offering leave to employees related to COVID-19.
This credit covers family and sick leave related to COVID-19, such as isolation due to exposure or having contracted COVID-19.
This credit also applies to funds paid to employees who had to miss work to care for a loved one with COVID-19. Employees who missed work to care for children during the school closures and were paid for leave are also covered under this credit.
What is Tax Planning?
Tax planning is the planning a business does to reduce its tax liability legally. There are several types of tax planning, including short and long-term. Effective tax planning can save businesses money while also fulfilling taxes.
By hiring a professional expert in tax planning, you can ensure your business is maximizing all credits and deductions available. Tax planning experts look at your accounting and financial records, identifying ways to minimize your business’s tax liability while creating new ways to grow your business.
With so many credits available to businesses, there are a lot of ways businesses could be bettering their operations while also saving at tax time. A tax planning expert will make sure your business meets all Generally Accepted Accounting Principles (GAAP) while saving the most amount of money.
What Are Generally Accepted Accounting Principles?
Generally Accepted Accounting Principles are the standards, processes, and guidelines set by the accounting board for public US businesses. These guidelines must be followed by all businesses when creating their financial statements.
GAAP standards are to ensure financial statements are complete and consistent. These standards are a way to streamline financial information so it’s easier for everyone to understand.
There are 10 key concepts associated with GAAP. And your company’s accounting team should understand these completely. This is to make sure your company doesn’t incur fees and penalties associated with incorrect documents.
Tax Planning Tips
Now that you understand what tax planning is, you may be wondering how you can use the concept to benefit your company the most. A few tips include:
- Staying updated on tax laws
- Researching credits and planning around them
- Optimizing your business’s legal structure
- Offering retirement plans
- Writing off bad debt
- Investing in your company through improvements
- Giving bonuses to your employees
- Donate to charity
The following tax planning tips are to help your organization better plan for the next tax season.
Stay Up To Date on Tax Laws
Tax laws change all the time. Every year and sometimes several times each year. It’s important you stay updated on the changing laws so you know exactly how to maximize your earnings while controlling your tax liability.
If you aren’t sure how to understand tax law or if it’s too overwhelming, you may want to obtain a tax professional to help you with it.
Research Credits and Plan Around Them
With so many credits available to businesses of all sizes, it seems like a waste to not utilize them. If you look through the credits shown on the IRS website and see one you think your company should qualify for, but doesn’t, then make a plan to meet the requirements.
Maybe you just need to have a few more innovation projects. Or expand your workforce so you qualify for new credits. Researching and understanding the credits available will help you to understand what your business could possibly be benefiting from.
And then put plans into place to make sure you can claim these credits in the next tax season.
Optimize Your Business’s Legal Structure
Some legal structures are more beneficial than others. If your business has seen significant growth in the past few years, it may be time to change your legal structure to reduce your tax liability.
Hiring a tax and accounting professional would be helpful in deciding if this is an option for your business. It’s a good idea to run a cost-benefit analysis before making a structural change to your business.
Offer Retirement Plans to Employees
As mentioned above in the business credit section, there is a significant tax benefit for offering retirement plans to your employees. If you don’t already have one in place, it may be time to start one.
You can also use the employer contributions to retirement plans as a way to reduce taxes. So, even if you do have a retirement plan in place, you can still find a way to reduce your tax liability by putting in a bigger contribution.
Write Off Bad Debt
You can write off some unpaid customer debt during tax season. This is a complicated topic and can cause issues later on if the customer comes back and pays what you’ve already written off.
To best navigate writing off bad debts, it’s best to speak with a professional. Check out our bookkeeping services to see if they may benefit your company.
Invest in Equipment, Supplies, or Advancements
A great way to reduce your tax liability while improving your business is to invest in it! You could upgrade equipment or stock up on supplies before tax season to give your company a few more deductions.
For organizations that earn a lot of income, advancing your company could be a way to lower your tax liability. Does your building need renovations? Does a specific area need an upgrade?
Consider where your business could benefit from improvements. And then weigh the options to see if these improvements could lead to a tax benefit. Consulting with a tax professional will help you determine the pros and cons of going this route.
At the end of the year, many businesses want to reduce taxable income but are running out of time. What better way to lower your liability than to give your team an end-of-year bonus?
This will be an additional business expense, but it’s also a great way to show your team you appreciate their hard work.
Donate to Charity
Donating to charitable organizations as a business can lead to tax savings! The percentage of charitable deductions allowed vary by business type, so it’s best to consult a tax consultant before donating all of your revenue to a charity in hopes you reduce your taxable income.
Keep Accurate Accounting Records
This one seems like a no-brainer, but it’s a very serious issue for many businesses. Keeping up-to-date and accurate accounting books can help you better plan for your taxes. You don’t want to be scrambling for documents or trying to figure out why you owe thousands more than expected a month before taxes are due.
Hiring an on-staff accountant or external accounting professional is the best way to make sure your books stay accurate and consistent. It will reduce your overall legal liability by having everything documented correctly. And an accountant proficient in taxes will be able to help you with tax planning.
The IRS has specific guidelines around deducting entertainment expenses, but if you regularly meet with and entertain your customers, it may be a way to reduce your taxes.
Or if your company thinks this could potentially be a move to not only improve engagement with customers but also reduce tax liability, it may be worth exploring. You can plan and claim an entire retreat for your organization if you are also working on next year’s business plan or creating new ways to interact with customers.
Get a Head Start on Next Year’s Tax Planning
Do you feel like your company could be better at tax planning? Do you know there are areas where you could be saving more but you aren’t sure how to do it? It may be time to get help from the professionals.
We offer a variety of services to help businesses control and reduce their tax liabilities. We can even help if you have a big tax bill or IRS audit looming on the horizon. Our services range from bookkeeping to full CFO services.
Reach out today to get started and jumpstart your tax planning for the next tax season.