Leverage your startup expenses and retirement plan to reduce your business’s 2022 tax bill

leverage your startup expenses and tax aspects of operating a business

Many businesses have had a turbulent year, and the current economic situation foresees even more uncertainty. However, regardless of your company’s performance thus far, there is still time to take actions that can lower your federal tax obligation for 2022. Continue reading to learn how to leverage your startup expenses and retirement plan, something you may want to consider. Keep an eye out for more!

Leverage your startup expenses

If you started a new firm this year, you might be eligible for a small tax break on some expenses. The IRS permits you to write off up to $5,000 for organizational costs and $5,000 for startup expenses. Some of those include the costs of creating a partnership. Any sum over $50,000 in starting or organizational costs will result in a deduction reduction. You must amortize any remaining costs.

You could write off an eligible expense if it were incurred to run an already established firm in the same industry. Additionally, qualifying expenses must be covered before the active business starts. Business analysis expenses, opening-day advertisements, travel expenses to meet with potential distributors, suppliers, or clients, and specific salaries, wages, and fees are a few examples.

Start or replace your retirement plan

Suppose you’ve put off setting up a retirement plan or have outgrown the one you started years ago. In that case, you may still have time to create a new plan this year to reduce your taxes. You can also increase employee attraction and retention. For the first three years, eligible employers can claim a tax credit of up to $5,000 for the expenses incurred in establishing a SEP IRA, SIMPLE IRA, or a qualified plan such as a 401(k).

The credit is equal to 50% of the costs you incurred to create and manage employee plans. It also includes the cost of informing employees about it. You may be eligible to receive up to:

  • the greater of $50,
  • the lesser of $250 multiplied by the number of non-highly compensated employees who are eligible to participate in the plan, or
  • the lesser of $5,000.

The tax year before the year the plan is active is when you can start claiming the credit. Additionally, consider incorporating an auto-enrollment option. That way, you can apply for a three-year, $500 per year tax credit beginning in the first taxable year that includes the feature.

Turn to us for planning advice

The solution described here and in our other blog posts entails compromises that require careful consideration, analysis, and evaluation. To reduce the tax burden on your business, contact our RRBB accountants and advisors to assist you in making the best decisions.


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