Midyear Tax Planning Ideas for Your Business

  • July 19, 2022
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  1. 1. Plan equipment purchases. The Section 179 and bonus depreciation deduction are two valuable tax planning tools for small businesses. If you anticipate a profit this year, you can use planned improvements and equipment replacement to dramatically lower this year's tax bill. In 2022, you can deduct up to $1.08 million of equipment purchases courtesy of the Section 179 deduction. The bonus depreciation deduction permits you to deduct 100% of an equipment’s price tag. The downside to the approach by bundling all the depreciation in one year, is that it makes profit in future years higher.
  2. 2. Leverage the extra business meals deduction. Plan your business meals to take advantage of the temporary 100% deductibility available for qualifying meals prepared by a restaurant. So now might be a great time to re-engage with key customers and suppliers in a friendly atmosphere to either enhance revenue or reduce your costs. The IRS has guidance on what is considered a restaurant for purposes of this 100% deduction. If food is purchased from a non-restaurant establishment, the traditional 50% deduction limitation still applies.
  3. 3. Keep vehicle logs current. The IRS increased the business mileage rates for the final six months of 2022 from 58.5 cents to 62.5 cents. Be sure to take advantage of this larger tax deduction by keeping your mileage logs current if your business has one or more vehicles. Whether your logs are kept on either physical paper or in a software application, remember that the IRS requires contemporaneous documentation of all business activity related to a vehicle. If you don’t keep track of your vehicle expenses as they occur, your deduction could be disallowed.
  4. 4. Look into hiring your children. Your kids could provide a valuable tax break for your business, but you must follow certain steps to ensure the wages are fully deductible. The child must have a real job that helps the business, and the wages must be reasonable for the work performed. In addition, depending on how your business is organized and the age of your child, you may be able to avoid paying Social Security, Medicare, and unemployment taxes on their wages. To qualify, you must be a sole proprietor or a husband-wife eligible partnership and your child must be under the age of 18.

These are just some of the many ways your business can cut its tax bill. Call today to start your 2022 tax planning.