Businesses naturally focus on sales to create profits. But the tax results of business activities can't be ignored. Economic conditions, including inflation, supply chain issues, and labor shortages, impact sales and, in turn, affect taxes. And tax rules are continually changing. As a small business owner, you can't rely on the tax rules you've become accustomed to. You need to familiarize yourself with new rules to minimize your 2022 taxes, figure estimated taxes for 2023, and obtain tax refunds from certain prior years. Major recent legislation, including the Consolidated Appropriations Act, 2022; the CHIPS and Science Act of 2022; and the Inflation Reduction Act of 2022, needs to be taken into account.

This book focuses primarily on federal income taxes. Businesses may be required to pay and report many other taxes, including state income taxes, employment taxes, sales and use taxes, and excise taxes. Some information about these taxes is included in this book to alert you to your possible obligations so that you can then obtain further assistance if necessary.

The book takes a holistic approach to taxes, showing you where applicable the ramifications that tax decisions can have on your business activities and your bottom line. Statistics, resources, and other materials are provided to help you better run your business by making good tax decisions and implementing sound business practices.

It is important to stay alert to future tax changes. Be sure to check on any final action before you take any steps that could be affected by these changes.

For a free supplement on tax developments after October 1, 2022, affecting small businesses (available in February 2023), go to www.jklasser.com or www.BigIdeasForSmallBusiness.com.

How to Use This Book

The purpose of this book is to make you acutely aware of how your actions in business can affect your bottom line from a tax perspective. The way you organize your business, the accounting method you select, and the types of payments you make all have an impact on when you report income and the extent to which you can take deductions. This book is not designed to make you a tax expert. It is strongly suggested that you consult with a tax adviser before making certain important decisions that will affect your ability to minimize your taxes (and Chapter 33 tells you how to work with a tax professional). I hope that the insight you gain from this book will allow you to ask your adviser key questions to benefit your business.

In Part 1, you will find topics of interest to all businesses. First, there is an overview of the various forms of business organization and an explanation of how these forms of organization affect personal liability for an owner as well as reporting of income and claiming tax deductions. Part 1 also explains tax years and accounting methods that businesses can select. And it covers important recordkeeping requirements and suggestions to help you audit‐proof your return to the extent possible and protect your deductions and tax credits.

Part 2 details how to report various types of income your business may receive. In addition to fees and sales receipts—the bread‐and‐butter of your business—you may receive other types of ordinary income such as interest income, royalties, and rents. You may have capital gain transactions as well as sales of business assets. But you may also have losses—from operations or the sale of assets. Special rules govern the tax treatment of these losses. The first part of each topic in a chapter discusses the types of income or loss to report and special rules that affect them. Then scan the second part of each topic in a chapter, which explains where on the tax return to report the income or claim the loss.

Part 3 focuses on specific deductions and tax credits. It provides you with guidance on the various types of deductions you can use to reduce your business income, including the qualified business income (QBI) deduction for owners of pass‐through entities. In the first part of each topic in a chapter, you will learn what the write‐off is all about and any dollar limits or other special requirements that may apply. As with the income chapters, the second part of each topic chapter explains where on the tax return you can claim the write‐off based on your form of business organization. Also, in Chapter 22, Miscellaneous Business Deductions, you will find checklists that serve as handy reference guides on all business deductions. The checklists are organized according to your status: self‐employed, employee, or small corporation. You will also find a checklist of business expenses that are not deductible.

Part 4 contains planning ideas for your business. You will learn about strategies for deferring income, boosting deductions, starting up or winding down a business, running a sideline business, owning multiple businesses, taking distributions, and avoiding audits. It also highlights the most common mistakes that business owners make in their returns, so by avoiding them you will not lose out on tax‐saving opportunities. You will also find links to resources for tax assistance and planning purposes. And you will find information about other taxes on your business, including state income taxes, employment taxes, sales and use taxes, and excise taxes. Finally, you will see how to work with a tax professional and what to do if you are audited.

In Appendix A, you will find a listing of information returns you may be required to file with the IRS or other government agencies in conjunction with your tax obligations. These returns enable the federal government to crosscheck tax reporting and other financial information. Appendix B covers tax penalties that may apply if you fail to do something you were supposed to do, or if you do it wrong or do it late. Appendix C contains a checklist of tax‐related corporate resolutions to help you keep your corporate minutes book up to date. Appendix D is a list of dollar limits and amounts for certain tax rules that are adjusted annually for inflation to help you plan ahead.

Several forms and schedules as well as excerpts from them have been included throughout the book to illustrate reporting rules. These forms are not to be used to file your return. (In many cases, the appropriate forms were not available when this book was published, and older or draft versions of the forms were included.) While most returns today are prepared and filed electronically, if you do not use software or a paid preparer to complete your return, you can obtain the forms you need from the IRS's website at https://www.irs.gov or where otherwise indicated.

Another way to stay abreast of tax and other small business developments that can affect your business throughout the year is by subscribing to Barbara Weltman's Big Ideas for Small Business^®, a free online newsletter geared for small business owners and their professional advisers, and my “Idea of the Day^®” (via e‐mail) at www.BigIdeasForSmallBusiness.com. Again, the Supplement to this book, which covers developments after October 1, 2022, may be found at www.jklasser.com and my website www.BigIdeasForSmallBusiness.com.

This book has been in print for more than 25 years and has tracked dramatic changes in tax law and business operations. For those who are using it for the first time, the book is a resource guide for handling taxes effectively as well as for making financial decisions and using business practices to increase your bottom line. For those who are perennial readers, you will see that while much in the book is unchanged, it has been updated and expanded to reflect changes from new laws, court decisions, and IRS pronouncements as well as my additional comments on tax strategies and business practices. For tax practitioners, I recognize that there are no citations, and that there are some issues that are unsettled. I invite your comments on any areas in which you disagree with my presentation and for ways to make improvements in future editions (send comments to [email protected]). I also recognize that more small businesses are going global and have to contend with foreign taxes and the implications on their U.S. returns, but the subject of foreign taxes is not fully addressed in this book.

I would like to thank Sidney Kess, Esq. and CPA, for his valuable suggestions in the preparation of the original tax deduction book, and Elliott Eiss, Esq., for his expertise and constant assistance with this and other projects.

Barbara Weltman
October 2022