Tax planning is an important part of running a successful business. With 2022 tax returns due in the coming months, it is important to start gathering your tax records now.
Many strategies are available to reduce taxes and maximize profits. Here are six questions to ask yourself when planning your business’ tax returns for the 2022 tax year.
1. Have you considered all deductions? Tax deductions can help reduce overall taxes. Examples of tax deductions for businesses include labor, materials, vehicle costs, office costs, employee benefits and advertising expenses, as well as other expenses incurred to run your business.
2. Did you report your retirement savings contributions? Retirement plans such as 401(k) accounts and individual retirement arrangements (IRAs) can provide significant tax savings. Contributions to these plans are tax-deductible, and your money grows tax-free until it is withdrawn. Businesses also can take advantage of employer-matching contributions, which can further increase savings.
3. Did you report your tax-advantaged account contributions? Tax-advantaged accounts, such as health savings accounts (HSAs) and flexible spending accounts (FSAs), can provide significant savings. These accounts can be used to pay for certain medical and childcare expenses, and the money you contribute is tax-deductible.
4. Did you lose money in the stock or cryptocurrency markets? With stocks, bonds and crypto all down, you’re not alone. But you can take some of the sting out of those losses by tax-loss harvesting. This strategy generally allows you to sell investments that are down, replace them with reasonably similar investments, and then use those losses to offset realized investment gains — plus up to $3,000 of regular income each year. Also, unused losses carry over to subsequent years. Make sure you work with your certified public accountant (CPA) on this one, however, as wash rules may apply. Such rules dictate that if the asset you purchase back is the same as the one you sold, for example, you need to wait 31 days before purchasing it back to claim the loss. If you haven’t made these sales by the end of 2022, consider this strategy for 2023.
5. Do you qualify for the QBI deduction? If your pest management company is set up as a pass-through entity (sole proprietor, LLC or S corporation) you may qualify for this deduction. The qualified business income (QBI) deduction lets you deduct up to 20 percent of that income. You don’t need to itemize to claim the QBI deduction, but you will need to fill out Form 8995 or Form 8995-A.
6. Do you qualify for the SALT deduction? The state and local tax (SALT) deduction lets you deduct the value of your state and local property tax payments, plus either your income or sales taxes. This is an itemized deduction, so your combined itemized deductions should be more than a certain amount for you to claim it. If you’re itemizing, use Schedule A. The maximum SALT deduction is $10,000 per year.
These are just some of the tax planning ideas that businesses and individuals can use to reduce their 2022 taxes. By taking advantage of these strategies, businesses can maximize profits and minimize taxes. Keep in mind that tax laws are constantly changing, so it is important to stay up to date on the latest information. By doing so, you can ensure you are taking advantage of all available tax savings.