2022 Tax Season Insights for Small Business Owners

In the early days of the pandemic, Congress enacted emergency laws that created tax programs, business loans, and exceptions to reduce the federal tax burden for those two years. Deferred unemployment and employer payroll taxes will need to be paid back in 2022.

The Paycheck Protection Program
For any company that received a Paycheck Protection Program (PPP) loan (forgiven or unforgiven), the proceeds from these loans do not count as business income. In addition, you can write off eligible business expenses, even if the PPP loan was used to pay those expenses.

Economic Injury Disaster Loan (EIDL) Advances
EIDL loans do not need to be counted as taxable income. This comes with two additional benefits. Any expenses covered by using these funds can be deducted from 2022 tax liability, and businesses are allowed to use loan funds to cover tax liabilities.

It’s important to note that the EIDL loan agreement included a promise to maintain detailed records of how your business used the proceeds and to provide these records to the Small Business Administration (SBA) if required. While you may not get audited, this is a critical recordkeeping step. It should always be a best practice to maintain accurate business and tax records, so you are prepared to respond if an audit occurs.

Paid Leave Credit for Vaccines
The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to employees due to COVID-19. This was meant to level the playing field between small businesses and larger ones that had the resources to allow a large portion of their workforce to take work time to get vaccinated. This includes leave taken by employees to receive or recover from COVID-19 vaccinations. ARP tax credits are available to eligible employers who paid sick and family leave from April 1, 2021, through September 30, 2021.

Expansion of Common Business Deductions

• C Corps can still raise the limit for cash donations from 10% to 25% for the 2021 tax year.
• Business meals at restaurants are 100% deductible for 2021 and 2022 (up from 50%).
• The standard mileage rate for business use of a vehicle is 56 cents for the 2021 tax year and 58.5 cents for the 2022 tax year.
• Business owners with no employees can contribute up to $58,000 in 2021 and $61,000 in 2022 to a one-participant or solo 401(k), with an additional $6,500 catchup if the owner is over 50.
• If you allow customers to pay for goods or services through a digital payment service such as PayPal or Venmo, be aware that starting in 2022, if you’ve received more than $600 through these services, they must report the income to the IRS.