Business Tax Advisory

Meals that are purchased for business purposes are only granted a 50% deduction on your tax return. Entertainment expenses paid by the business are 100% nondeductible. Note that business related gifts to employees, clients, or prospects up to $25 each are still deductible.

However, the Consolidated Appropriations Act (CAA) passed in late 2020 temporarily increased the deductibility of many business-related meals to 100%, given certain requirements are met. CAA is in effect for the years 2021 and 2022. More on CAA here.

Have a personal car that you use for your business? Each business mile could get you an additional $0.585 (2022) of an expense. It adds up quick and there are simple apps to track this, so it’s worth checking. On the other end, do you have a business vehicle that you use personally? The miles used for personal reasons should be income to you if the company is paying for the vehicle and related expenses.

Do you have a real business need for these assets? This should be made as a business decision first before taxes are considered. If you pay $100 for a piece of equipment that you don’t need just to save $30 in tax, is that a good business decision? Or should you take the $70 in after-tax profit and fund a different avenue.

Sole proprietors and passthrough entities (S Corp and Partnership) could be eligible for a deduction for 20% of the taxable income from their business on their individual tax return. There are certain limitations based on the type of business, taxable income levels, and other business factors when calculating the deduction. Due to the complexity, it is recommended to consult your advisor for questions related to QBI. 

Yes. If you are not eligible to be covered by your spouse’s employer, and you pay for medical/dental insurance, you can deduct the insurance premiums as self-employed health insurance on your Form 1040.

“Safe Harbor” for estimated taxes includes two methods. You’re able to base your estimated tax on 100% of your prior year tax, or 90% of the tax liability that you expect to have for the current year. That means if you had a great prior year, but this year has been sluggish and you don’t expect high income, you might want to use the 90% method and pay less each quarter. Alternatively, if you are having a stellar year compared to last, the minimum you should pay is 100% of last year, but for cash flow purposes you might want to increase your quarterly payments. Note that if you are a higher income taxpayer ($150,000), the prior year method changes to 110%.

Think of the expenses that you pay for personally, but you use that item or service frequently for your business. Do you have a dedicated area used for your home office? Do you use your personal car for business trips and aren’t reimbursed? How about your personal cell phone used for business calls, emails, texts? If yes, you may be able to take a substantial amount of these costs as deductions for your business. Please consult with an advisor on the correct way to determine what can be allocated to the business.