March 15, 2022
Reporter, E&E News
Vice President and Editor-in-Chief, CO—
Throughout the past two years, the COVID-19 pandemic has caused tax deadlines to shift and brought about federal relief programs — all affecting how small businesses filed income taxes. Although the 2022 tax season is shaping up to be closer to “business as usual,” there are some considerations of which small business owners need to be aware.
CO— dedicated one of its recent “Start. Run. Grow.” events to help small businesses navigate the 2022 tax season. Accounting experts spoke with CO— Editor-in-Chief Jeanette Mulvey about what businesses need to know this year and how they can make filing and record-keeping easier year-round.
No Major Changes for the 2022 Tax Season
Unlike the 2020 and 2021 tax filing seasons, there are no major changes small businesses need to know for this tax season. The accountants on the panel recommended that small businesses make sure they’re paying their estimated taxes on time and know what their tax liability is. Otherwise, there have been no significant changes in tax policy.
“Those past two years were really an anomaly,” said Keila Hill-Trawick, founder and CEO of Little Fish Accounting. “Taxes for a very long time have relatively looked exactly the same. We're kind of returning back to the ‘before’ times, where there are not a lot of changes, [and] you're treating your taxes as you always have.”
Businesses That Deferred Taxes Need to Pay Them Back
While there are no major changes this tax season, businesses do need to be mindful of certain tax programs and exceptions they may have taken advantage of. In the early days of the pandemic, Congress allowed businesses to defer unemployment and employer taxes from their payroll. Those who elected to do so need to pay those taxes for the 2022 tax season.
“Make sure that you're paying that as well,” said Manny Cosme, president, and CEO of CFO Services Group. “The first half of that payment was actually due back in December and the second half is due at the end of this year.”
For Clarity, Meet With an Accounting Professional Year-Round
Tax preparation is an ongoing process, and CO–’s expert panel agreed that business owners should be meeting with their accountant and bookkeeper regularly. Providing them with accurate, updated financial records allows your accounting team to develop a strategy and reduces surprises when filing taxes.
“If you are using someone to file your taxes, a professional may not necessarily be looking over your books to make sure everything is accurate,” said Cosme. “Their job is to get the filing done with the information they've been given to them. Make sure that you're providing them with that accurate information, so that you do have a filing and you don't overpay your taxes.”
Keep Tax Records for the Appropriate Amount of Time
“Really understand what the record retention requirements are for where your business operates,” Whitaker explained. “Every state can have different requirements around record keeping. We generally see seven years for tax records. I've seen for some companies keep them a little bit longer just because of the potential for an audit.”
New Businesses Should Open a Separate Tax Account
New businesses with limited revenue may not think they need to be concerned about taxes yet. However, it’s always important to practice good tax habits for the future health of your business.
“Remember that you're taxed on profit, not income,” said Hill-Trawick. “If you're making $25,000, but you're spending more than you make, you're likely not going to have a tax liability associated with that.”
“About 30 percent of your profit is going to go to some kind of tax,” Hill-Trawick continued. “What I generally recommend is that you open a separate tax account. When you're doing your weekly bookkeeping reconciliation side — what is left over for profit at the end of each month, [you should] move over to that tax account. It may not break even for you, but it'll go a long way in avoiding a lot of the crazy [tax-related] surprises that come at the end of the year.”
From the Series