Wednesday February 8, 2023
Tax Benefits Highlighted for Businesses
On May 3, 2022, the Internal Revenue Service highlighted benefits available during National Small Business Week. The IRS theme for this effort is "Building a Better America Through Entrepreneurship."
A primary benefit for businesses in 2022 is the ability to deduct 100% of the cost of most business–related food and beverage purchases. Previously, the deduction limit was 50% of food and beverage purchases.
A business owner or employee of a business may qualify for this benefit if the food or beverages are purchased from a restaurant and he or she is present at the event. The purchase may not be lavish or extravagant. A restaurant qualifies if it prepares and sells food and beverages for on–premises or off–premises consumption.
However, there are some food and beverage purchases that do not qualify. Purchases from a grocery store or convenience store will not qualify because they are not restaurants. Some employer–operated eating facilities are also not qualified as restaurants. The specific recordkeeping requirements are outlined in IRS Publication 463, Travel, Gift and Car Expenses.
During the pandemic, millions of Americans worked from home. Many business owners continue to work from home and hope that they will qualify for a home office deduction.
This deduction is available if an identifiable portion of the home is regularly used exclusively for business. A business owner with a portion of his or her home used exclusively for a business purpose may deduct expenses with the regular method or the simplified method.
The regular method involves attaching IRS Form 8829, Expenses for Business Use of Your Home, to your tax return. This form enables you to determine the percentage of your personal and business use.
First, your direct business expenses are fully deductible. However, your indirect expenses such as real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs must be allocated between personal and business use. You can use Form 8829 to allocate these indirect expenses and calculate the deductible percentage of your home that is used for business purposes.
The simplified method is a 6–line worksheet that is in the Schedule C instructions. This method is available for sole proprietors. You may take a deduction of $5 per square foot for business use, with a maximum deduction of $1,500. The simplified method does not permit you to depreciate the portion of your home used for business. However, you still can take the normal itemized deductions for home mortgage interest, real estate taxes and casualty losses on Schedule A.
You may have some business expenses unrelated to your home. These frequently include advertising costs, supplies and wages paid to employees. These items remain deductible with the simplified method.
If you desire to better understand the regular and simplified method for taking deductions, refer to IRS Publication 587, Business Use of Your Home.
Published May 6, 2022
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