Six Tips for Managing Your Small Business Taxes
If you’re a small business owner, you probably started your business because you wanted to be your own boss, have the freedom to make your own decisions, set your own schedule and determine your own career path.
You probably didn’t start your business because you love doing taxes. And the challenges small business owners grappled with due to the pandemic have led to both headaches and heartaches for small businesses filing their taxes in 2020. It’s a problem that will persist in 2021, and possibly beyond.
But because taxes are a certainty of life, we’re here to help you and your small business by offering you six tips that may possibly save money on your small business taxes. As always, talk with your tax professional about any tax deductions or write-offs before you file your taxes.
- Account for relief options due to the pandemic
If you, as a small business owner, received money from the Paycheck Protection Program (PPP) or the Economic Injury Disaster Loan (EIDL) program, you can deduct qualifying expenses paid with the money received from a forgiven PPP loan or emergency EIDL grants. This change overrides previous IRS guidance. Forgivable PPP loans won’t be included in your gross income at the federal level; check with your state revenue department to see if your forgiven loan will be taxable on your state return.
The expanded Families First Coronavirus Response Act, or FFCRA, paid sick leave benefits. Employers can now use the credit to cover leave related to receiving or recovering from a coronavirus vaccination. Though employer tax credits were extended until March 31, 2021, criteria for those credits have been changed if the leave is taken after that date — and for self-employed people, the date has been extended to Dec. 31, 2021.
- You can now fully deduct business meals in 2021 and 2022.
The IRS and Treasury announced businesses may deduct 100% of the cost of food or beverages consumed in 2021 and 2022, doubling the previous deduction limit of 50%. There are, of course, a few details to note: Your expense can’t be considered lavish or extravagant, you can’t deduct food that hasn’t been purchased for immediate consumption (such as food from a grocery or convenience store), and you can’t deduct the expense if you, the small business owner, or one of your employees wasn’t present during the meal.
- Set up or add money to a retirement saving plan
Small business owners have options for retirement savings plans. Along with personal IRA contributions, there are employer-sponsored plans such as profit-sharing plans, a SIMPLE IRA, a SEP IRA and a 401(k). Contributions you make for yourself and your employees may be tax-deductible, and as the small business owner, you may get a tax credit to help defray the cost of setting them up.
- Take a home office deduction.
If a portion of your home is dedicated to your small business, as the owner you can qualify for this deduction. The easiest way to calculate for this deduction is to multiply the square footage used for your home office by $5. It just can’t exceed 300 square feet. You can also multiply eligible home expenses by the portion of your home used for business. The only catch here is your office can’t be used for other purposes. It has to be 100% dedicated to your business.
- Deduct your vehicle if you use it for business.
If you keep records to prove you use your car, truck or van for business (such as gas, oil changes, maintenance), you can deduct the cost of operating the vehicle. You don’t have to keep records of specific costs if you use the standard mileage rate the IRS sets each year; for 2021, that’s 56 cents per mile. Don’t forget, you still have to keep a record of how many miles you drove, and why.
- Take advantage of Section 179.
If you haven't heard of it, as a small business owner you might learn to love it. It helps small business owners invest in their businesses. You may be able to write off the full cost of equipment you purchase in the tax year you purchased it. In 2021, the Section 179 deduction was raised to $1,050,000. So your company can buy, finance or lease new or used equipment and write off the full purchase price on your 2021 taxes. However, you must purchase, finance or lease the equipment, and put it into service by December 31, 2021.
At First National Bank and Trust, we’re here to serve small business owners.
As always, it is important to consult your tax advisor regarding your specific situation. If you’d like to read more about issues concerning small businesses, read our blog posts
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