Many small businesses are still struggling to fully recover from the COVID-19 pandemic. In fact, for roughly 63% of small businesses, their revenue is still lower than it was in 2019.
This means that for the majority of small businesses and freelancers, operating efficiently is vital to get back to where they were before the pandemic.
Part of operating efficiently is staying up to date on all of the latest tax changes. Keeping up with relevant tax changes allows small businesses and freelancers alike to make sure they are filing correctly, avoiding penalties, and taking advantage of all applicable deductions.
Here are 4 tax changes for small businesses that you need to be aware of for 2022.
Business meals are 100% deductible.
The food and beverage industry was hit particularly hard by the COVID-19 pandemic. As a result, Congress decided to raise the deduction for business meals from 50% to 100% for 2021 and 2022.
The new 100% business meal deduction will not only benefit the food and beverage industry, but it will also benefit the vast majority of small businesses and, you guessed it, even freelancers. This is because almost any small business can use this deduction.
The temporary 100% business meal deduction includes meals eaten at restaurants, catered meals, and takeout meals ordered from restaurants. So, no matter if you want to go to a restaurant for a business meal, have it catered, or order the food to go, your business will be able to deduct the entire cost of the meal.
Your meal will still have to meet the following criteria to count as a business meal, however:
- You or an employee is present at the meal
- The meal is ordinary and necessary to your business
- You must be meeting about business with a client, vendor, employee, etc.
- The meal cannot be overly lavish or extravagant
You do not need to report PPP loans as Income on your tax return
If your business received a Paycheck Protection Program (PPP) loan from the government, then you do not have to add the loan proceeds as income on your tax return. This is true even if your loan was forgiven.
However, even if you received a PPP loan and will not be adding it to your income for your 2022 tax returns, you are still able to deduct qualifying expenses. So, you should make sure that you keep track of all receipts for business expenses that you pay for with your PPP loan. When tax time comes, you can deduct all of them. But, just in case you are audited, make sure that you store the receipts somewhere safe.
You will receive a 1099-K form from every payment service provider through whom your business receives more than $600 in income
Prior to the American Rescue Plan Act of 2021, it was up to small businesses, self-employed workers, freelancers, etc. to report the income that they were paid through payment platforms like Paypal, Zelle, Cash App, and Venmo. These payment providers were not legally required to report the payments that you received through these services to the IRS.
However, due to new rule changes put forth in the American Rescue Plan Act of 2021, payment service providers like Zelle, Paypal, etc. will now be required to inform the IRS every time a person or small business receives annual payments in excess of $600.
Before this rule went into effect, small businesses and self-employed workers were still obligated to report this income. Just as today, anyone who did not report this kind of income either because they forgot about it, or because they simply did not want to be taxed on it, were still liable for penalties.
With this new law firmly in effect for 2022, it will now be pretty tricky for small businesses and self-employed workers to underreport income they earned through their business and received through popular payment services.
So, if your business receives payments through services like Zelle, Venmo, etc. then you need to make sure that you report all of these payments as income for each service provider — as long as the annual amounts are greater than $600.
You do not need to report an Economic-Injury Disaster Loan (EIDL) as income
The rules for an EIDL are the same as the rules for PPP loans. This means that you will not have to report an Economic-Injury Disaster Loan as income on your tax return. Just like PPP loans, many of these loans were issued during the pandemic to help keep struggling small businesses alive.
The government has essentially accepted that it was necessary to give certain small businesses loans in order to limit damage to the economy, and it is not expecting these loans to be reported as income. This is true, even if the loan was forgiven. Also, just like with PPP loans, you are allowed to deduct qualifying business expenses for which you used your EIDL loan proceeds.
Change is Certain. Trust the Experts.
If you feel like you need financial help, you’re not alone. Tax changes occur more often than you can anticipate. Managing your tax obligations can be tricky with these recurrent changes. Whether you are a traditional business, freelancer, a content creator, or a brand partner, do yourself a favor and bring in a professional who searches high and low to find the appropriate solutions that will help your business thrive.
The financial services team at Semaphore has a wide variety of up-to-date business solutions to fit your small or large business’ needs. From bookkeeping and payroll, to taxes and insurance, we have you — and your business — covered.
For more information, fill out the contact form at the bottom of this page or call us at 866-736-2444, and we’ll find an immediate solution for your business needs.