With the deadline for filing individual tax returns come and gone, tax professionals everywhere are enjoying well-earned downtime. However, taking a little time with business-return clients to get a jump on planning for next filing season could bring unexpected savings. Now is the perfect opportunity to help your business-return clients qualify for deductions—some common and some expiring.
What is the Enhanced Business Meal Deduction?
Historically, business owners had the ability to deduct half the cost of business-related food and beverages at a restaurant. But for tax years 2021 and 2022, that deduction applies to 100% of the cost of the meal.
There are a few qualifications, however, the filer has to meet:
- The business owner or an employee of the business has to be present when the food or beverages are provided.
- The expense can’t be lavish or extravagant.
- Qualifying restaurants include those who prepare and sell food or beverages to retail customers for immediate consumption, whether on- or off-premises.
- Other businesses, such as grocery stores and convenience stores, that primarily sell pre-packaged foods that aren’t intended for immediate consumption, don’t qualify for the 100% deduction.
- And certain employer-operated eating facilities can’t be considered restaurants under the deduction’s requirements—even if they’re operated by a third party under contract.
IRS Publication 463, Travel, Gift and Car Expenses, has more information about deducting business meals, as well as how to keep records for meals.
How do business owners deduct a home office?
There has been an explosion in the number of business owners who work from home, and a lot of them may qualify for the home office deduction. Business clients interested in claiming this deduction have to choose between the regular method and the simplified method.
The regular method starts with the 44-line Form 8829, Expenses for Business Use of Your Home, which separates applicable operating costs into two categories: “direct expenses” that are fully deductible and “indirect expenses” that are based on the percentage of the home used for business. Indirect expenses are usually items related to the home itself:
- Real estate taxes
- Mortgage interest
- Casualty losses
- Maintenance and repairs
The simplified method uses a 6-line worksheet in the Schedule C instructions to figure the deduction, using a fixed $5-per-square-foot rate for business use of the home. Using this method, the maximum deduction is capped at $1,500 (which assumes 300 square feet were used for business).
While being more general in scope, the simplified method does offer other benefits. Those using the simplified method to figure home office deductions aren’t allowed to depreciate the part of the home that’s used for business, but they can use Schedule A to claim home mortgage interest, real estate taxes, and casualty losses as itemized deductions—and they don’t have to be split between personal and business use.
No matter which method is chosen, business expenses beyond the gross income limitation aren’t deductible. Publication 587, Business Use of Your Home, has more information on the home office deduction and how to figure it.
Where can I find other deduction opportunities?
The IRS provides the following publications to guide small business owners and tax pros!
- Publication 535, Business Expenses – information on a wide range of business deductions
- Publication 946, How to Depreciate Property – information on major expenses, such as depreciating buildings, equipment, and other assets
- Publication 334, Tax Guide for Small Business -for individuals who use Schedule C, this has tax information tailored to the needs of small business
How do I learn more about small business tax issues?
Earn continuing professional education credits while learning more about business tax topics! The tax-education specialists at DrakeCPE.com have created in-depth courses that can help you better serve small-business clients:
- Fringe Benefits: Tax Implications
- Fundamentals of Preparing Form 1120-S
- Home-Office Deduction
- The § 199A Pass-Through Deduction