517.789.8900 fax. 517.789.6477
113 w. michigan ave, suite 301, jackson, mi 49201

HOMEBLOGSmall Business Tax Briefs: January 2022


Small Business Tax Briefs: January 2022

Defer tax with a like-kind exchange

Do you want to sell commercial or investment real estate that has appreciated significantly? One way to defer a tax bill on the gain is with a Section 1031 “like-kind” exchange where you exchange the property rather than sell it. With real estate prices up in some markets (and higher resulting tax bills), the like-kind exchange strategy may be attractive.

A like-kind exchange is any exchange of real property held for investment or for productive use in your trade or business (relinquished property) for like-kind investment, trade or business real property (replacement property).

For these purposes, like-kind is broadly defined, and most real property is considered to be like-kind with other real property. However, neither the relinquished property nor the replacement property can be real property held primarily for sale.

Important change

Under the Tax Cuts and Jobs Act, tax-deferred Section 1031 treatment is no longer allowed for exchanges of personal property — such as equipment and certain personal property building components — that are completed after December 31, 2017.

If you’re unsure if the property involved in your exchange is eligible for like-kind treatment, please contact us to discuss the matter.

Assuming the exchange qualifies, here’s how the tax rules work. If it’s a straight asset-for-asset exchange, you won’t have to recognize any gain from the exchange. You’ll take the same “basis” (your cost for tax purposes) in the replacement property that you had in the relinquished property. Even if you don’t have to recognize any gain on the exchange, you still must report it on Form 8824, “Like-Kind Exchanges.”

Frequently, however, the properties aren’t equal in value, so some cash or other property is tossed into the deal. This cash or other property is known as “boot.” If boot is involved, you’ll have to recognize your gain, but only up to the amount of boot you receive in the exchange. In these situations, the basis you get in the like-kind replacement property you receive is equal to the basis you had in the relinquished property you gave up reduced by the amount of boot you received but increased by the amount of any gain recognized.

An example to illustrate

Let’s say you exchange land (business property) with a basis of $100,000 for a building (business property) valued at $120,000 plus $15,000 in cash. Your realized gain on the exchange is $35,000: You received $135,000 in value for an asset with a basis of $100,000. However, since it’s a like-kind exchange, you only have to recognize $15,000 of your gain. That’s the amount of cash (boot) you received. Your basis in your new building (the replacement property) will be $100,000: your original basis in the relinquished property you gave up ($100,000) plus the $15,000 gain recognized, minus the $15,000 boot received.

Note that no matter how much boot is received, you’ll never recognize more than your actual (“realized”) gain on the exchange.

If the property you’re exchanging is subject to debt from which you’re being relieved, the amount of the debt is treated as boot. The theory is that if someone takes over your debt, it’s equivalent to the person giving you cash. Of course, if the replacement property is also subject to debt, then you’re only treated as receiving boot to the extent of your “net debt relief” (the amount by which the debt you become free of exceeds the debt you pick up).

Great tax-deferral vehicle

Like-kind exchanges can be a great tax-deferred way to dispose of investment, trade or business real property. Contact us if you have questions or would like to discuss the strategy further.

Businesses with employees who receive tips may be eligible for a tax credit

If you’re an employer with a business where tipping is customary for providing food and beverages, you may qualify for a federal tax credit involving the Social Security and Medicare (FICA) taxes that you pay on your employees’ tip income.

Basics of the credit

The FICA credit applies with respect to tips that your employees receive from customers in connection with the provision of food or beverages, regardless of whether the food or beverages are for consumption on or off the premises. Although these tips are paid by customers, they’re treated for FICA tax purposes as if you paid them to your employees. Your employees are required to report their tips to you. You must withhold and remit the employee’s share of FICA taxes, and you must also pay the employer’s share of those taxes.

You claim the credit as part of the general business credit. It’s equal to the employer’s share of FICA taxes paid on tip income in excess of what’s needed to bring your employee’s wages up to $5.15 per hour. In other words, no credit is available to the extent the tip income just brings the employee up to the $5.15-per-hour level, calculated monthly. If you pay each employee at least $5.15 an hour (excluding tips), you don’t have to be concerned with this calculation.

Note: A 2007 tax law froze the per-hour amount at $5.15, which was the amount of the federal minimum wage at that time. The minimum wage is now $7.25 per hour but the amount for credit computation purposes remains $5.15.

An example to illustrate

Example: Let’s say a waiter works at your restaurant. He’s paid $2 an hour plus tips. During the month, he works 160 hours for $320 and receives $2,000 in cash tips which he reports to you.

The waiter’s $2-an-hour rate is below the $5.15 rate by $3.15 an hour. Thus, for the 160 hours worked, he is below the $5.15 rate by $504 (160 times $3.15). For the waiter, therefore, the first $504 of tip income just brings him up to the minimum rate. The rest of the tip income is $1,496 ($2,000 minus $504). The waiter’s employer pays FICA taxes at the rate of 7.65% for him. Therefore, the employer’s credit is $114.44 for the month: $1,496 times 7.65%.

While the employer’s share of FICA taxes is generally deductible, the FICA taxes paid with respect to tip income used to determine the credit can’t be deducted, because that would amount to a double benefit. However, you can elect not to take the credit, in which case you can claim the deduction.

Claim your credit

If your business pays FICA taxes on tip income paid to your employees, the tip tax credit may be valuable to you. Other rules may apply. If you have any questions, don’t hesitate to contact us.

Numerous tax limits affecting businesses have increased for 2022

Many tax limits that affect businesses are annually indexed for inflation, and a number of them have increased for 2022. Here’s a rundown of those that may be important to you and your business.

Social Security tax

The amount of an employee’s earnings that is subject to Social Security tax is capped for 2022 at $147,000 (up from $142,800 in 2021).


  • Standard business mileage rate, per mile: 58.5 cents (up from 56 cents in 2021)
  • Section 179 expensing:
    • Limit: $1.08 million (up from $1.05 million in 2021)
    • Phaseout: $2.7 million (up from $2.62 million)
  • Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
    • Married filing jointly: $340,100 (up from $329,800 in 2021)
    • Single filers: $170,050 (up from $164,900)

Business meals

In 2022 and 2021, the deduction for eligible business-related food and beverage expenses provided by a restaurant is 100% (up from 50% in 2020).

Retirement plans 

  • Employee contributions to 401(k) plans: $20,500 (up from $19,500 in 2021)
  • Catch-up contributions to 401(k) plans: $6,500 (unchanged)
  • Employee contributions to SIMPLEs: $14,000 (up from $13,500)
  • Catch-up contributions to SIMPLEs: $3,000 (unchanged)
  • Combined employer/employee contributions to defined contribution plans: $61,000 (up from $58,000)
  • Maximum compensation used to determine contributions: $305,000 (up from $290,000)
  • Annual limit for defined benefit plans: $245,000 (up from $230,000)
  • Compensation defining a highly compensated employee: $135,000 (up from $130,000)
  • Compensation defining a “key” employee: $200,000 (up from $185,000) 

Other employee benefits

  • Qualified transportation fringe-benefits employee income exclusion: $280 per month (up from $270 per month)
  • Health Savings Account contributions:
    • Individual coverage: $3,650 (up from $3,600)
    • Family coverage: $7,300 (up from $7,200)
    • Catch-up contribution: $1,000 (unchanged)
  • Health care Flexible Spending Account contributions: $2,850 (up from $2,750)

These are only some of the tax limits that may affect your business and additional rules may apply. Contact us if you have questions.


Entrepreneurs and taxes: How expenses are claimed on tax returns

While some businesses have closed since the start of the COVID-19 crisis, many new ventures have launched. Entrepreneurs have cited a number of reasons why they decided to start a business in the midst of a pandemic. For example, they had more time, wanted to take advantage of new opportunities or they needed money due to being laid off. Whatever the reason, if you’ve recently started a new business, or you’re contemplating starting one, be aware of the tax implications.

As you know, before you even open the doors in a start-up business, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away. Keep in mind that the way you handle some of your initial expenses can make a large difference in your tax bill.

Essential tax points 

When starting or planning a new enterprise, keep these factors in mind:

  • Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one.
  • Under the federal tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the venture begins. Of course, $5,000 doesn’t go far these days! And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
  • No deductions or amortization write-offs are allowed until the year when “active conduct” of your new business commences. That usually means the year when the enterprise has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts generally ask questions such as: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Has the activity actually begun?

Types of expenses

Start-up expenses generally include all expenses that are incurred to:

  • Investigate the creation or acquisition of a business,
  • Create a business, or
  • Engage in a for-profit activity in anticipation of that activity becoming an active business.

To be eligible for the election, an expense also must be one that would be deductible if it were incurred after a business began. One example would be the money you spend analyzing potential markets for a new product or service.

To qualify as an “organization expense,” the outlay must be related to the creation of a corporation or partnership. Some examples of organization expenses are legal and accounting fees for services related to organizing the new business and filing fees paid to the state of incorporation.

An important decision 

Time may be of the essence if you have start-up expenses that you’d like to deduct for this year. You need to decide whether to take the election described above. Recordkeeping is important. Contact us about your business start-up plans. We can help with the tax and other aspects of your new venture.

Keeping meticulous records is the key to tax deductions and painless IRS audits

If you operate a business, or you’re starting a new one, you know you need to keep records of your income and expenses. Specifically, you should carefully record your expenses in order to claim all of the tax deductions to which you’re entitled. And you want to make sure you can defend the amounts reported on your tax returns in case you’re ever audited by the IRS.

Be aware that there’s no one way to keep business records. But there are strict rules when it comes to keeping records and proving expenses are legitimate for tax purposes. Certain types of expenses, such as automobile, travel, meals and home office costs, require special attention because they’re subject to special recordkeeping requirements or limitations.

Here are two recent court cases to illustrate some of the issues.

Case 1: To claim deductions, an activity must be engaged in for profit 

A business expense can be deducted if a taxpayer can establish that the primary objective of the activity is making a profit. The expense must also be substantiated and be an ordinary and necessary business expense. In one case, a taxpayer claimed deductions that created a loss, which she used to shelter other income from tax.

She engaged in various activities including acting in the entertainment industry and selling jewelry. The IRS found her activities weren’t engaged in for profit and it disallowed her deductions.

The taxpayer took her case to the U.S. Tax Court, where she found some success. The court found that she was engaged in the business of acting during the years in issue. However, she didn’t prove that all claimed expenses were ordinary and necessary business expenses. The court did allow deductions for expenses including headshots, casting agency fees, lessons to enhance the taxpayer’s acting skills and part of the compensation for a personal assistant. But the court disallowed other deductions because it found insufficient evidence “to firmly establish a connection” between the expenses and the business.

In addition, the court found that the taxpayer didn’t prove that she engaged in her jewelry sales activity for profit. She didn’t operate it in a businesslike manner, spend sufficient time on it or seek out expertise in the jewelry industry. Therefore, all deductions related to that activity were disallowed. (TC Memo 2021-107)

Case 2: A business must substantiate claimed deductions with records

A taxpayer worked as a contract emergency room doctor at a medical center. He also started a business to provide emergency room physicians overseas. On Schedule C of his tax return, he deducted expenses related to his home office, travel, driving, continuing education, cost of goods sold and interest. The IRS disallowed most of the deductions.

As evidence in Tax Court, the doctor showed charts listing his expenses but didn’t provide receipts or other substantiation showing the expenses were actually paid. He also failed to account for the portion of expenses attributable to personal activity.

The court disallowed the deductions stating that his charts weren’t enough and didn’t substantiate that the expenses were ordinary and necessary in his business. It noted that “even an otherwise deductible expense may be denied without sufficient substantiation.” The doctor also didn’t qualify to take home office deductions because he didn’t prove it was his principal place of business. (TC Memo 2022-1)

We can help

Contact us if you need assistance retaining adequate business records. Taking a meticulous, proactive approach can protect your deductions and help make an audit much less difficult.

Leave A Comment


kobe byrant shoes
21 January, 2022

I would like to convey my appreciation for your kindness supporting those who have the need for help on this particular idea. Your very own commitment to getting the message along came to be really interesting and have usually enabled somebody much like me to attain their pursuits. Your new helpful suggestions signifies this much a person like me and even more to my colleagues. Best wishes; from everyone of us.
kobe byrant shoes kobe byrant shoes

yeezy 350 v2
24 January, 2022

I and my pals appeared to be reading through the good things located on your site and so then got a horrible feeling I had not expressed respect to the web site owner for those techniques. Most of the young boys appeared to be totally excited to learn all of them and have in truth been having fun with them. Appreciation for truly being really helpful and also for considering certain beneficial subject matter millions of individuals are really desirous to learn about. Our own sincere regret for not saying thanks to you sooner.
yeezy 350 v2 yeezy 350 v2

chrome hearts
26 January, 2022

Thank you so much for giving everyone a very marvellous possiblity to read articles and blog posts from here. It really is so excellent and as well , jam-packed with a lot of fun for me and my office friends to search your site at a minimum thrice in 7 days to learn the fresh guidance you will have. And indeed, I’m so actually satisfied with your sensational information you serve. Some 4 tips on this page are surely the most efficient I’ve ever had.
chrome hearts chrome hearts

cheap jordans
28 January, 2022

I precisely had to appreciate you yet again. I do not know what I might have implemented without the entire methods shown by you relating to this industry. Completely was the difficult crisis in my position, however , discovering a new skilled style you processed the issue took me to cry with fulfillment. I’m just happier for this assistance and in addition hope you find out what a powerful job you are providing teaching the rest all through a web site. Probably you’ve never encountered all of us.
cheap jordans cheap jordans

moncler outlet
30 January, 2022

Thanks for all your valuable effort on this site. My mum take interest in doing investigation and it’s really easy to see why. Almost all hear all relating to the dynamic ways you give useful tricks by means of the website and as well increase contribution from others on the topic plus my daughter has been studying so much. Take advantage of the rest of the year. Your carrying out a powerful job.
moncler outlet moncler outlet

golden goose outlet
01 February, 2022

My wife and i got now comfortable when Emmanuel managed to finish off his analysis through the precious recommendations he had through your web page. It’s not at all simplistic just to possibly be freely giving instructions which often people today may have been making money from. Therefore we take into account we need the writer to give thanks to because of that. All the explanations you made, the simple web site navigation, the friendships you can help engender - it is most awesome, and it is making our son and us reason why this concept is pleasurable, which is truly important. Thanks for all the pieces!
golden goose outlet golden goose outlet

03 February, 2022

I happen to be commenting to make you understand of the impressive encounter my daughter found reading your web page. She learned so many issues, including what it’s like to possess a very effective coaching nature to get others clearly thoroughly grasp chosen grueling matters. You really exceeded visitors’ expected results. I appreciate you for showing the useful, dependable, revealing and as well as cool tips on that topic to Kate.
yeezys yeezys

05 February, 2022

I just wanted to post a simple remark in order to thank you for all the awesome ideas you are posting here. My time consuming internet research has now been paid with really good insight to talk about with my two friends. I ‘d say that most of us readers actually are undoubtedly fortunate to exist in a useful network with so many brilliant professionals with great tricks. I feel extremely blessed to have used the web page and look forward to many more brilliant minutes reading here. Thanks a lot once again for everything.
bape bape

07 February, 2022

I in addition to my pals were found to be studying the best items on your web page and so the sudden I had a horrible feeling I had not expressed respect to the blog owner for those tips. These young men happened to be certainly glad to learn all of them and have in effect very much been having fun with those things. I appreciate you for truly being indeed accommodating and then for pick out some excellent useful guides millions of individuals are really needing to discover. My personal sincere regret for not expressing appreciation to you earlier.
bape bape

supreme hoodie
11 February, 2022

I wanted to compose you that little remark in order to say thanks a lot yet again for all the striking methods you’ve contributed in this case. It’s certainly unbelievably generous with people like you to supply easily just what most people would have offered for sale for an e book to make some money for themselves, precisely seeing that you could have tried it in case you desired. Those ideas additionally served to become a fantastic way to fully grasp that some people have the identical desire just like my personal own to realize more on the subject of this issue. I think there are thousands of more fun sessions up front for individuals that see your site.
supreme hoodie supreme hoodie

kyrie irving shoes
13 February, 2022

Thanks so much for giving everyone an extraordinarily splendid opportunity to read critical reviews from this site. It really is so terrific and as well , jam-packed with amusement for me personally and my office co-workers to search the blog not less than three times in one week to find out the latest guides you will have. And definitely, I’m just actually fulfilled with your astonishing things you give. Selected 2 areas in this article are ultimately the most suitable I have had.
kyrie irving shoes kyrie irving shoes

yeezy boost 350
16 February, 2022

I as well as my pals came analyzing the excellent guides from the website and then all of the sudden came up with a terrible feeling I had not expressed respect to the blog owner for those tips. These boys were definitely totally passionate to learn them and already have in truth been having fun with these things. Appreciation for actually being very considerate and for making a decision on certain tremendous tips millions of individuals are really wanting to be aware of. My very own sincere regret for not saying thanks to earlier.
yeezy boost 350 yeezy boost 350

19 February, 2022

I precisely wished to thank you so much once more. I’m not certain what I would have used in the absence of the tips and hints shared by you on this subject matter. Entirely was a frightening circumstance in my opinion, but witnessing a new specialised approach you treated it made me to weep for happiness. Now i am happier for the guidance and thus wish you find out what an amazing job you have been carrying out educating others with the aid of your web site. I’m certain you have never met any of us.
bape bape

stephen curry shoes
21 February, 2022

Thank you for your entire efforts on this blog. Betty delights in working on investigations and it’s easy to see why. Most people learn all about the dynamic medium you render effective things on this website and even improve contribution from website visitors about this topic so our own girl is in fact studying a lot. Enjoy the rest of the year. Your performing a fantastic job.
stephen curry shoes stephen curry shoes

golden goose shoes
23 February, 2022

I wish to show some appreciation to this writer just for bailing me out of this particular issue. Because of scouting through the world wide web and coming across principles that were not productive, I figured my life was well over. Living minus the approaches to the problems you have solved all through your write-up is a critical case, as well as the ones that would have badly damaged my entire career if I hadn’t noticed your website. Your actual competence and kindness in controlling all things was tremendous. I am not sure what I would’ve done if I had not come upon such a stuff like this. I am able to at this time look forward to my future. Thanks a lot very much for this high quality and results-oriented guide. I won’t hesitate to suggest the sites to anybody who will need guidelines about this subject matter.
golden goose shoes golden goose shoes

curry 7 shoes
25 February, 2022

Thank you so much for providing individuals with an exceptionally breathtaking chance to read from here. It really is so awesome and also jam-packed with amusement for me and my office co-workers to visit your site particularly three times every week to study the fresh things you have. And definitely, I am also actually pleased for the amazing strategies you give. Selected 3 points on this page are completely the very best I’ve ever had.
curry 7 shoes curry 7 shoes

supreme clothing
27 February, 2022

Thanks a lot for giving everyone an extremely splendid opportunity to read articles and blog posts from this web site. It’s usually so amazing plus packed with fun for me and my office acquaintances to visit your web site a minimum of 3 times in one week to learn the new secrets you will have. Not to mention, I am also actually fulfilled with all the impressive concepts you serve. Certain 2 areas in this article are undoubtedly the most beneficial I have had.
supreme clothing supreme clothing

kyrie irving
01 March, 2022

I would like to express my gratitude for your kindness supporting people that should have guidance on your matter. Your real commitment to passing the solution all through came to be certainly informative and have always permitted somebody much like me to realize their desired goals. Your entire important guideline entails this much a person like me and much more to my peers. Thank you; from everyone of us.
kyrie irving kyrie irving

bape hoodie
03 March, 2022

My husband and i ended up being very comfortable that Emmanuel could deal with his web research by way of the ideas he obtained out of your web pages. It is now and again perplexing just to be making a gift of solutions which usually many others may have been trying to sell. And we all see we need the writer to give thanks to because of that. The main illustrations you’ve made, the easy site menu, the relationships you will give support to instill - it’s everything fabulous, and it’s letting our son and us reckon that that matter is entertaining, and that’s exceedingly important. Thanks for the whole thing!
bape hoodie bape hoodie

off white shoes
05 March, 2022

I together with my friends came reading through the good thoughts located on your site and immediately developed a horrible suspicion I never thanked you for those strategies. All of the boys became absolutely happy to study all of them and have in effect surely been enjoying them. Thanks for actually being really thoughtful and for making a decision on certain marvelous useful guides millions of individuals are really eager to learn about. My personal sincere apologies for not expressing appreciation to you sooner.
off white shoes off white shoes

Next Page
Bond & Company Accepts These Credit Cards