WASHINGTON — The Internal Revenue Service today urged professional taxpayers to start planning now to take advantage of the enhanced 100% business meal deduction and other tax benefits available to them when they file their 2022 federal income tax return.
During National Small Business Week, May 1-7, the IRS is highlighting tax benefits and resources related to this year’s celebration theme: “Building a Better America Through Entrepreneurship.” With nearly a year to go until next year’s filing deadline, any entrepreneur still has time to identify any tax benefits, take steps to qualify for them, and then claim them when filing their tax return. 2023.
Enhanced business meal deduction
For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Otherwise, the limit is usually 50% of the cost of the meal.
To qualify for the higher limit, the business owner or an employee of the business must be present when food or drink is provided. Moreover, the expense cannot be lavish or extravagant. Restaurants include businesses that prepare and sell food or beverages to retail customers for immediate consumption on or off-site.
For this purpose, grocery stores, convenience stores, and other businesses that primarily sell prepackaged products not intended for immediate consumption are not considered restaurants. Also, an employer cannot treat certain employer-operated food establishments as restaurants, even if they are operated under contract by a third party.
For more information on this provision, as well as details on the special record-keeping rules that apply to business meals, see IRS Publication 463, Travel, Gift, and Car Expenses.
Home office deduction
With a growing number of business owners now working from home, many may qualify for the home office deduction, also known as the business use of a home deduction.
Usually, a business owner must use a room or other identifiable part of the house exclusively for business purposes on a regular basis. Exceptions to the exclusive use standard apply to home child care and parts of the home used for the storage of a business, where the home is the only fixed location of that business.
Eligible persons can calculate the deduction using either the regular method or the simplified method.
To choose the regular method, complete and attach Form 8829, Expenses for Business Use of Your Home. In general, this form divides the operating expenses of the home between personal and business use. Direct business expenses are fully deductible. On the other hand, the commercial part of the indirect expenses, such as property taxes, mortgage interest, rent, losses, utilities, insurance, depreciation, maintenance and repairs, are shown on this form, depending on the percentage of the house used for business.
Alternatively, instead of completing the 44-line Form 8829, business owners can choose the simplified method, based on a 6-line spreadsheet found in the instructions for Schedule C, the Tax Form for Sole Proprietors. . This method has a prescribed rate of $5 per square foot for commercial use of the home. The maximum deduction is $1,500, based on commercial use of at least 300 square feet.
Although homeowners who choose the simplified option cannot depreciate the portion of their home used for business purposes, they can still claim mortgage interest, property taxes and qualifying home losses as itemized deductions on the Schedule A. These deductions do not need to be split between personal and business use. , as required by the usual method. Business expenses not related to the home, such as advertising, supplies, and salaries paid to employees, are still fully deductible.
Under the regular and simplified methods, business expenses that exceed the gross income limit are not deductible. For more information on this limit as well as further details on the home office deduction and the two methods of determining it, see Publication 587, Business Use of Your Home.
Other tax advantages
From business start-up expenses to the qualifying business income deduction to the self-employed health insurance deduction, there are a variety of other tax benefits that are often available to entrepreneurs and other homeowners. of business.
For more details on these and other tax benefits, see Publication 535, Business Expenses. Details on another major expense for most businesses, the depreciation of buildings, equipment, and other assets, can be found in Publication 946, How to Depreciate Property. Yet another useful resource for any small business is the agency’s Small Business Tax Guide, Publication 334. All of these publications are available on IRS.gov.