By Trent Derrick, CMT®
Of course, the last couple of years have been difficult for everyone; but as a small business owner, you have experienced some unique challenges. The global pandemic has tried to break down the American dream of owning a business, but many business owners have found creative ways to survive—and even thrive in many cases. One way to keep your business afloat is by effectively managing your tax strategy so you can save even more money. It’s also important to stay up to date on tax laws to ensure you are staying in compliance.
While tax obligations have changed a lot over the last few years, for the most part, things will be back to “business as usual” for the 2022 tax year. (1) Some of these recent changes will still be in effect going forward, so it’s important to be aware of how it may affect your small business. It can be confusing and time-consuming to review everything you need to know, which is why we have done some of the research for you. Here’s what you need to know about recent changes to small business taxes.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act implemented many changes that affected employers. One of those changes allowed businesses to defer their portion of Social Security taxes that were due in 2020. The first half of those taxes were due by Dec. 31, 2021, and the other half will be due by Dec. 31, 2022. If you didn’t pay the first half of those deferred taxes last year, you may be subject to penalties on all the deferred taxes based on the original due date. (2) Congress also allowed businesses to defer their unemployment and employer taxes from their payroll. If you participated in this option, those taxes will be due for the 2022 tax year. (3)
Employee Retention Tax Credit
Another tax change that occurred during the past couple years that may affect your business this year is the Employee Retention Tax Credit (ERTC), which is also part of the CARES Act. This allows eligible employers to claim a refundable tax credit on a certain percentage of their employee’s wages. Due to new legislation last year, the 4th quarter credit was canceled, but eligible businesses may still file claims in 2022. (4) However, it’s important to note that if you did claim the credit, you may face a penalty if you didn’t deposit the taxes on or before Dec. 20, 2021, or by Jan. 31, 2022, with Form 941.
Interest Expense Limitation Rule
The Interest Expense Limitation Rule is another example of a tax rule that was previously in effect but temporarily suspended to help Americans during the pandemic. This rule limits taxable income to the current tax year and reduces the interest expense deduction from 50% to 30% of adjusted taxable income. It was reinstated last year and will continue going forward. If your small business took advantage of this suspension during the previous two tax years, you will want to take it into account when filing taxes for the 2022 tax year.
We’re Here for You
As a hardworking small business owner, it can be challenging to keep up with all the changes to small business taxes. Partnering with a trusted financial advisor can help relieve some of the burden and stress when it comes to managing your business in the most efficient way. At Legacy Wealth Management, we work closely with a network of CPAs to provide a variety of services to help streamline your business needs. To see how I can help you and your business succeed, book a consultation with me here or email me at email@example.com.
Trent Derrick is a financial advisor and Chief Market Technician at Legacy Wealth Management. Trent is passionate about the value small businesses bring to their communities and specializes in serving small business owners by providing seamless financial advisory services tailored to their financial needs, including tax planning, cash flow management, retirement planning, and bookkeeping. Trent has a bachelor’s degree from the College of Charleston and studied economics at the University of South Carolina, Columbia. He is a Chartered Market Technician® (CMT®) professional. Trent serves as a guest lecturer for the College of Charleston’s MBA program and acts as chairman of the Market Technician Association’s Charleston chapter. When he’s not working, Trent, a proud Eagle Scout, enjoys volunteering with the Charleston Animal Shelter’s outreach program. Trent and his wife love to cook international cuisines and host dinner parties with their friends. To learn more about Trent, connect with him on LinkedIn.This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.