The IRS is urging business owners to take advantage of tax benefits that apply to them. The 2022 tax season will include an enhanced 100% deduction for business meals and other expenses. Optima Tax Relief expands on the enhanced deductions.
Businesses will be able to deduct the full expense of business-related food and beverage purchases. However, there are some limitations including:
The business owner or an employee must be present at the time of purchase
The purchase may not be considered “lavish” or “extravagant”
The purchase must be made at a restaurant, or location that prepares and sells food or beverages for immediate consumption. This excludes grocery stores or other businesses that sell pre-packaged goods.
The purchase cannot be made at an employer-operated eating facility, including cafeterias, even if it is operated by a third party.
Some businesses will qualify for the home office deduction, especially with more business owners working from home. Typically, there must be a designated room or space in the home used exclusively for business purposes on a regular basis. There are multiple ways of calculating the deduction.
If using the regular method, taxpayers should complete Form 8829: Expenses for Business Use of Your Home. Direct business expenses are 100% deductible, while the business portion of indirect expenses is calculated using a percentage of the home used for business. This includes real estate taxes, mortgage interest, rent, utilities, insurance, maintenance, and more.
There is also a simplified method found in Schedule C, used by sole proprietors. This method uses a rate of $5 per square foot for business use of the home, with a maximum deduction of $1,500. Taxpayers using this method should note that they are not eligible to depreciate the portion of their home used for business purposes. However, they may still claim home mortgage interest, real estate taxes and casualty losses if itemizing their deductions. Regardless of the method used, business expenses that exceed the gross income limitation cannot be deducted.
Business owners should view all available resources for details on other tax deductions and benefits including:
Publication 535, Business Expenses
Publication 946, How to Depreciate Property
Publication 334, Tax Guide for Small Businesses