Multiple reports show millions of Americans—including Black entrepreneurs—launched businesses last year. The reasons ranged from people losing their jobs due to COVID-19 to individuals leaving the corporate world to become their own bosses. New business owners and existing ones may do well to start preparing their taxes for 2021 now, if they have not already done so.
A big change for most business owners and individuals in 2022 is the extension of the tax filing deadline to April 18 instead of the traditional April 15. Brittany Benson, senior tax research analyst at H&R Block, offered BLACK ENTERPRISE insight about how Black business owners can save money this year.
BLACK ENTERPRISE: What new law or tax break is in place that would allow Black business owners to save money or maximize their 2021 deduction?
For the last several years, many small businesses owners have claimed the qualified business income deduction (or QBID) on their personal income tax return. This allows individuals with income from businesses—other than C corporations—to deduct up to 20% of their qualified business income. Business owners will need to keep some limits on wages and capital in mind when they claim this and certain phaseout rules for those classified as “specified service trade or business.” Whether these rules apply depends on the taxpayer’s taxable income and if under the threshold. See more information here.
One exciting change for this year is that businesses can now deduct 100% of their meals for business purposes under a temporary increase in the limit, up from 50%. This 100% deduction is allowed for qualifying expenses paid or incurred in 2021 or 2022.
Is there any estimate you can provide about how much money businesses could save?
If they claim the QBI deduction, business owners could reduce their individual taxable business income by 20%. Depending on the business’s income and expenses this could make a significant difference for their final tax bill—depending on all other circumstances of course.
Are there any special tax breaks the federal government is offering Black or small businesses in general this year to help them rebound from COVID-19?
Most of the COVID-19 business relief opportunities have ended and new applications aren’t being accepted.
Still, small businesses with employees may have qualified for an employee retention credit during parts of 2020 or 2021 if they kept employees on their payroll during shutdowns or during periods of significant decline in gross receipts due to COVID-19. A paid family or medical leave credit may also be available for COVID-19 related circumstances. Self-employed small business owners may qualify for a paid family or medical leave equivalent credit for COVID-19 related circumstances.
Benson added QBID and COVID-19 relief can be confusing for small business owners. The website Block Advisors could help with these questions and more including payroll and self-employment tax. She says an article from Block Advisors includes a list of small business tax topics to keep in mind for 2022.
What is the next step to accessing these benefits? Is there a free H&R Block link or another online resource?
Our website offers more information about small business tax topics including ways to file.