Multiple reports show that millions of Americans, including black entrepreneurs, started businesses last year. The reasons ranged from people losing their jobs due to COVID-19 to people leaving the corporate world to become their own bosses. New and existing business owners alike would do well to start preparing their 2021 taxes now, if they haven’t already.
A big change for most business owners and individuals in 2022 is the extension of the tax filing deadline to April 18 instead of the traditional April 15. Brittany BensonSenior Tax Research Analyst at H&R Block, offered BLACK CORPORATE an overview of how Black business owners can save money this year.
BLACK BUSINESS: What new law or tax relief is in place to help Black business owners save money or maximize their 2021 deduction?
In recent years, many small business owners have claimed the qualifying business income deduction (or QBID) on their personal tax returns. This allows people with business income, other than C corporations, to deduct up to 20% of their qualifying business income. Business owners will need to bear in mind certain limits on wages and capital when claiming this and certain phase-out rules for those classed as a ‘specified trade or service business’. Whether these rules apply depends on the taxpayer’s taxable income and whether it is below the threshold. See more information here.
An interesting change for this year is that businesses can now deduct 100% of their meals for business purposes under a temporary limit increase, instead of 50%. This 100% deduction is allowed for eligible expenses paid or incurred in 2021 or 2022.
Is there an estimate you can provide on how much companies could save?
If they claim the QBI deduction, business owners could reduce their taxable business income by 20%. Depending on the company’s income and expenses, this could make a significant difference to its final tax bill, depending on all other circumstances of course.
Are there any special tax breaks the federal government is offering this year to Black businesses or small businesses in general to help them recover from COVID-19?
Most COVID-19 business assistance opportunities have ended and new applications are not being accepted.
Still, small businesses with employees may qualify for an employee retention credit during parts of 2020 or 2021 if they kept employees on their payroll during shutdowns or during periods of significant declines in gross revenue in due to COVID-19. Paid family or medical leave credit may also be available for circumstances related to COVID-19. Self-employed small business owners may be eligible for a credit equivalent to paid family leave or medical leave for circumstances related to COVID-19.
Benson added that QBID and COVID-19 help can be confusing for small business owners. The Block Advisors website could help you answer these questions and more, including payroll taxes and self-employment tax. She says an article from Block Advisors includes a list of small business tax topics to keep in mind for 2022.
What is the next step to access these benefits? Is there a free H&R Block link or other online resource?
Our website offers more information on small business tax topics, including ways to file a return.