Small Business Tax Deductions for 2022 – A Tax Story

5 min read • Mar 04, 2022 • Robert Woo

It’s tax season, which means that thousands of small business owners nationwide are digging out their receipts, spreadsheets, and calculators, all in the hopes of maximizing a precious resource for their bottom lines: tax deductions.

A tax deduction is money you can subtract from your taxable income or revenue but not from your actual income or revenue. So, if you made $100K but had $15K in deductions, you’d only be paying tax on $85K. 

This differs from tax credits, which are applied to your final tax bill. A $500 tax credit on a $5,000 tax bill would mean you’d only owe $4,500.

Tax credits are more exciting, but deductions are far more plentiful. And deductions can add up if you maximize them—an easy task with Lendio’s software, the accounting app for conscientious entrepreneurs that automatically itemizes and estimates yearly deductions.

As you can see below, deductions can make a difference. And with talk of the federal corporate tax rate going up, it will soon matter even more.

Tax Rate21%25%28%
Taxable Income
$100,000$21,000$25,000$28,000
$90,000$18,900$22,500$25,200
$80,000$16,800$20,000$22,400

 

 

 

 

 

 

Deductions in Practice

The easiest way to see how tax deductions reduce your taxable income is through a real-world situation. 

So, let’s say you have a business selling cat hoodies. After a good first year in business, you start looking for ways to reduce your taxable income—because why would you want to give all your profits to the government if you don’t have to?

Real Estate Deductions

You run your cat hoodie business out of the basement of your two-bedroom house in the Hills (the one with all the red cat doors). So, since your residence is also the location of your small business, you’d qualify for a mortgage interest deduction.

Speaking of your house, since you just moved in in January, you can deduct the interest you’re paying on your mortgage (all homeowners who bought after 

December 17, 2021, can deduct interest paid on the first $750,000 of their mortgage).

And since your second bedroom is the office/sewing factory/hoodie storage room and takes up 25% of your home, you can also take a home office expense deduction, which reduces your taxable income 25% of your mortgage, repair, and maintenance and utilities costs. You can also deduct a portion of your property tax.

Expense Deductions

Some of the money you spend to run your business can be deducted. And tracking what you spend is important so you don’t miss deductions you’re entitled to claim.

For example, you could deduct your business equipment expenses, like your work laptop, monitor, software, internet, standing desk, sewing machines, yarn, dyes, cat-shaped dress forms, and dozens of other things needed to make the best quality cat hoodies this side of the Mississippi.

Also deductible are your marketing and advertising costs to get the word out about Cat Hoodies. This includes everything from your business card to the jingle you had commissioned for your very popular radio commercial.

You can deduct your travel expenses, which includes the little expenses like gas and parking passes, and mileage reimbursement, and bigger ticket items like car depreciation costs, plane tickets, and hotel fees for the Cat Clothes Expo in Nevada.

Then there’s your business-related meals at kitty conventions. You can deduct 50% of this expense, making it easier to wine and dine the right people. And you can deduct for the costs of continuing education for businesslike, say, an eCommerce course.

Business Service and Employee Deductions

These would include your business-related legal and professional fees, your business’s insurance premiums, the monthly fee for your accounting software, the cost of your health insurance premiums, any contributions to a Health Savings Account (HSA) or 401(k).

Also, because you were smart and set your business up as an S-Corp, making you the one employee, your wage is a tax deduction to the company.

Other Deductions to Consider

  • Union dues
  • Bank and credit card fees
  • Business entertainment (for clients, not cats)
  • Taxes incurred from business (i.e., FICA, FUTA, state unemployment tax, or others)
  • Certain employee benefits (pet insurance would be key here)
  • Contracted workers/labor

Deductions add up quickly

When you see how much less tax you pay, you know that tracking money in and out for the purpose of claiming deductions is well worth the effort. 

And it’s not even that much effort with Lendio’s accounting software. The platform does most of the work for you. 

Keep more of your profit where it belongs: in your pocket.

 

Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.

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Robert Woo

Robert Woo is a freelance writer and marketer who has been running his business with Sunrise by Lendio for more than a decade. He focuses on the tech and finance industry, has been a featured contributor of Lendio, and regularly shares his experience with software via blogs and articles. During any remaining free time, he's obsessing over fantasy football, writing for television, and playing guitar just enough to maintain the calluses on his fingers.