Year-end tax planning is an essential part of maximizing the tax burden of small businesses. Here’s what business owners need to know about tax provisions for 2022:
Standard Mileage Rates
Due to inflation, there were two standard mileage rates in 2022: 62.5 cents per business mile driven (July 1-December 31, 2022) and 58.5 per business mile driven (January 1-June 30, 2022).
Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000. This amount is adjusted annually for inflation (e.g., for 2021 returns it was $56,000).
In 2022, the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers).
Section 179 Expensing and Depreciation
for 2022, the Section 179 expense deduction increased to a maximum deduction of $1.08 million of the first $2.70 million of qualifying equipment placed in service during the current tax year. The deduction is indexed to inflation for tax years after 2018 and enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection, alarm systems and security systems, and heating, ventilation, and air-conditioning systems.
Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. The standard business depreciation amount is 26 cents per mile (same as 2021).
Work Opportunity Tax Credit (WOTC)
Extended through 2025 (The Consolidated Appropriations Act, 2021), the Work Opportunity Tax Credit can be used by employers who hire long-term unemployed individuals (unemployed for 27 weeks or more). It is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit.
SIMPLE IRA Plan Contributions
Contribution limits for SIMPLE IRA plans increased to $14,000 for persons under age 50 and $17,000 for persons age 50 or older in 2022. The maximum compensation used to determine contributions is $305,000.
Please contact our office and schedule a tax planning session for more information about these and other tax deductions and credits to which you are entitled.