Small business tax deductions you need to know

Most media coverage of the various stimulus bills and COVID-19 relief efforts have gone toward the Paycheck Protection Program (PPP) loans that businesses can use to retain their employees while revenues take a hit.

To a lesser extent, employee retention credits have also been featured. There are other small business tax deductions, however, that financial advisers need to know so they can provide their business owner clients with informed, educational advice.  

In this article, you’ll learn about the other deductions you should know, including how working from home may impact taxes.

NEW DEDUCTIONS IN THE 2021 STIMULUS BILL

The updated stimulus bill removed the 50% deduction limit that had been placed on business meals, thus business meals are now 100% deductible for 2021 and 2022.

This move is an effort to encourage more business at restaurants, which have been disproportionately affected by COVID-19 shutdown measures. 

The usual rules apply to this deduction. Meals need to have a business purpose and they can’t be extravagant. 

Entertainment, such as tickets to a sporting event, continues to be non-deductible.

THE REMOTE WORK EFFECT ON TAXES

While some businesses like restaurants were forced to close, other businesses have been forced to move their teams to remote work conditions.

If you are an advisory firm owner, or you have clients who are business owners, you may be able to claim the home office deduction by calculating the square footage of your home’s office space vs. the total square footage of your home so you can claim a percentage of your utilities, mortgage, and real estate taxes.

There is also a simplified home office calculation, which is $5 for each square foot of your office, up to a $1,500 maximum.

Unfortunately for employees, no home office deduction exists. It was eliminated with the 2018 Tax Cuts and Jobs Act. 

Employers can still provide assistance to their employees when remote work is essential by purchasing any necessary office supplies or providing reimbursement for supplies like web cams, computer monitors, and other essential items.

THE FUTURE OF REMOTE ADVISORY TEAMS

It doesn’t appear that the need to understand tax considerations about working from home will go away this year, or even next.

Remote work looks like it will be the new normal for advisers and their teams for the foreseeable future. While some may have already returned to the office, large organizations like Google have made no firm determination on when office life might resume.

According to FP Alpha founder Andrew Altfest, the move to digital life for advisers was happening before the pandemic, and COVID-19 hurried progress along at a faster pace—but that’s a good thing for advisors.  

“The technology is available for advisers and their teams to be productive and create great client experiences for investors from anywhere,” Altfest said. “It’s all about providing value that is hyper-personalized to each client’s situation. Clients want advice, and they want it fast. If advisers are serious about giving their clients access to better information, they need to equip their employees with AI-enabled, future-forward technology solutions that allow them to do their jobs better and faster.”

Geographical boundaries for work have been eliminated throughout this current pandemic, and tax laws change seemingly every few months. 

In a time of major upheaval, financial advisers can still be the steady guide; to do that, they need to remain vigilant to stay up-to-date on new regulations and laws.

If you are a financial adviser who wants to prepare your clients to the fullest extent, talking to a tax adviser or implementing tax-aware financial planning software are the best action steps you can take right now to help clients through these fast moving times.

Bill Vasil is principal at ARM CPA and FP Alpha Tax Adviser.