Month: January 2022

Many tax limits that affect businesses are annually indexed for inflation, and a number of them have increased for 2022. Here’s a rundown of those that may be important to you and your business.

Social Security tax

The amount of an employee’s earnings that is subject to Social Security tax is capped for 2022 at $147,000 (up from $142,800 in 2021).

Deductions

• Standard business mileage rate, per mile: 58.5 cents (up from 56 cents in 2021)
• Section 179 expensing:
  • Limit: $1.08 million (up from $1.05 million in 2021)
  • Phaseout: $2.7 million (up from $2.62 million)
• Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
  • Married filing jointly: $340,100 (up from $329,800 in 2021)
  • Single filers: $170,050 (up from $164,900)

Business meals

In 2022 and 2021, the deduction for eligible business-related food and beverage expenses provided by a restaurant is 100% (up from 50% in 2020).

Retirement plans

• Employee contributions to 401(k) plans: $20,500 (up from $19,500 in 2021)
• Catch-up contributions to 401(k) plans: $6,500 (unchanged)
• Employee contributions to SIMPLEs: $14,000 (up from $13,500)
• Catch-up contributions to SIMPLEs: $3,000 (unchanged)
• Combined employer/employee contributions to defined contribution plans: $61,000 (up from $58,000)
• Maximum compensation used to determine contributions: $305,000 (up from $290,000)
• Annual limit for defined benefit plans: $245,000 (up from $230,000)
• Compensation defining a highly compensated employee: $135,000 (up from $130,000)
• Compensation defining a “key” employee: $200,000 (up from $185,000) 

Other employee benefits

• Qualified transportation fringe-benefits employee income exclusion: $280 per month (up from $270 per month)
• Health Savings Account contributions:
  • Individual coverage: $3,650 (up from $3,600)
  • Family coverage: $7,300 (up from $7,200)
  • Catch-up contribution: $1,000 (unchanged)
• Health care Flexible Spending Account contributions: $2,850 (up from $2,750)

These are only some of the tax limits that may affect your business and additional rules may apply. Contact us if you have questions.

© 2022

While some businesses have closed since the start of the COVID-19 crisis, many new ventures have launched. Entrepreneurs have cited a number of reasons why they decided to start a business in the midst of a pandemic. For example, they had more time, wanted to take advantage of new opportunities or they needed money due to being laid off. Whatever the reason, if you’ve recently started a new business, or you’re contemplating starting one, be aware of the tax implications.

As you know, before you even open the doors in a start-up business, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away. Keep in mind that the way you handle some of your initial expenses can make a large difference in your tax bill.

Essential tax points

When starting or planning a new enterprise, keep these factors in mind:

• Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one.
• Under the federal tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the venture begins. Of course, $5,000 doesn’t go far these days! And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
• No deductions or amortization write-offs are allowed until the year when “active conduct” of your new business commences. That usually means the year when the enterprise has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts generally ask questions such as: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Has the activity actually begun?

Types of expenses

Start-up expenses generally include all expenses that are incurred to:

• Investigate the creation or acquisition of a business,
• Create a business, or
• Engage in a for-profit activity in anticipation of that activity becoming an active business.

To be eligible for the election, an expense also must be one that would be deductible if it were incurred after a business began. One example would be the money you spend analyzing potential markets for a new product or service.

To qualify as an “organization expense,” the outlay must be related to the creation of a corporation or partnership. Some examples of organization expenses are legal and accounting fees for services related to organizing the new business and filing fees paid to the state of incorporation.

An important decision 

Time may be of the essence if you have start-up expenses that you’d like to deduct for this year. You need to decide whether to take the election described above. Recordkeeping is important. Contact us about your business start-up plans. We can help with the tax and other aspects of your new venture.

© 2022