Making the most of tax deductions in 2022

For small-businesses owners, filing year-end taxes and shelling out hefty payments to the IRS can be overwhelming in itself; this season might feel especially daunting amid yet another year of uncertainty. To alleviate some stress for 2021 filings, and even more importantly lower those final amounts owing, business owners and accountants alike can look to take advantage of certain deductions and expenses.

There are dozens of deductions and expenses that entrepreneurs may qualify for that could save them some serious cash. Below are a few common and uncommon deductions that small-business owners should not only be aware of, but should look to understand better this tax season, to help improve their cash flow and overall financial standing.

Office expenses (even the work-from-home kind!)

While many freelancers and entrepreneurs are aware they can claim rent as a business deduction (whether for an office space or even just a desk in a coworking space), this tax season, more and more business owners have homes that are doubling as workspaces.

According to IRS Publication 587 (Business Use of Your Home), a portion of business expenses are tax deductible for home offices, but it’s important to distinguish between basic costs of running a business from personal rent and utilities. While they may overlap, these are two entirely separate deductions and should be treated as such when completing the required paperwork. Some expenses entrepreneurs can look to include are utilities (heat, electricity, water, internet and more), maintenance, mortgage interest, property taxes and home insurance, all of which qualify as business-use-of-home deductions.

That said, before hastening to deduct all these costs, business owners should ensure their home office meets the IRS’s requirements: the office is regularly and exclusively used, and is the principal location of the business. Accountants should look to support clients in understanding this separation more than ever in a year where lines between home and work have become even more blurred.

Legal and professional fees

Legal deductions are more relevant than ever in a year when many small and microbusiness owners flocked to professional legal advice amid pandemic uncertainty. Did they seek advice from a lawyer to start up their business or to understand government pandemic bailouts? If so, they can likely claim these professional fees as a deduction.

Consultant costs for external pros like lawyers and accountants, membership fees to professional organizations, and even costs for business books, industry publications and online subscriptions are all potential areas where business owners can look this tax season for unforeseen deductions.

Bad debts

No matter how efficient a business is, many small businesses end up with a substantial amount of “bad debts” every year. Bad debt is essentially any liability a business owner can’t collect on and, for many microbusinesses, this often means invoices that customers simply won’t pay. In fact, a Wave study found that 70% of microbusiness owners wait one to six months to get paid, and 25% wait more than a year, or don't get paid at all.

Depending on whether you sell goods or services, bad debts business owners can claim include funds you’ve loaned to employees, vendors or other businesses, and the costs of outstanding or unpaid goods or services.

Office supplies and tools

Keeping a business running means an immeasurable amount of supplies to keep an office or workplace functional. As a small-business owner, purchasing certain tools is a given — think pens, notebooks, stationery, computers, monitors, desks, chairs, phones, printers and all the other little things that take up space in your workspace.

While individually some of these items may seem inexpensive, small costs can add up and lead to some serious savings when it comes to deductions on year-end filing. Some obvious and not-so-obvious supplies included in this category include pens and pencils, stationery, staplers and paper clips, day-to-day product shipping, courier expenses and cleaning supplies.

As entrepreneurs look to navigate an especially complicated tax year, minor deductions can be a key for their small business’s survival. By tallying up returns across the board, businesses can have access to larger cash flow and increase their prospects for future success. This list is just the tip of the iceberg when it comes to reducing the year-end tax burden, but with a deeper dive and adamant preparation, business owners can emerge with more cash on hand than expected this tax season.