There are changes to filing taxes in 2024 that you should be aware of, including new tax credits for small business owners.
We provide an overview of these changes here and also provide information on general best practices for filing your 2023 tax return.
Oh, and the IRS is going to increase the number of audits it conducts, so this section of the article will help you prepare if you find yourself on the receiving end of an IRS audit.
save energy
Massage therapists and other small business owners can save on energy costs thanks to the Anti-Inflation Act of 2023. These savings include a tax credit for 30% of the cost of converting to low-cost solar power, reducing operating costs and protection. Due to changes in energy prices. There are also tax credits of up to $5 per square foot of business space, which can be used for energy efficiency improvements (and lower utility bills).
Mobile massage tax credit
Massage therapists who use a truck or van for business can benefit from a tax credit of up to 30% of the purchase cost of a clean electric or fuel cell model commercial vehicle through the Clean Commercial Vehicle Credit.
Claim business expenses
Entrepreneurs can take advantage of a variety of tax benefits, including medical expense deductions, home office deductions, and business start-up costs for self-employed massage therapists. For more information, see Publication 55, Business Expenses.
Depreciation is important
Massage therapists and other small businesses that own buildings and equipment have tax benefits if they are depreciated. For more information, see Publication 946, Asset Depreciation Methods.
student loan support
If you maintain an educational assistance program for your employees, you can use that program to help them pay off their student loans.
According to the IRS, “While the Educational Assistance Program has been available for many years, the option to use it to pay off student loans is only available for payments made after March 27, 2020, and under current law. Still available under ” until December 31, 2025. ”
For more information, see Publication 15-B, Employer Tax Guide to Fringe Benefits. For more information about what qualifies as a student loan, see Publication 970, Chapter 10, Tax Benefits for Education.
mileage
The mileage rate for 2023 is 65.5 cents for every eligible business mile driven.
Remember: Daily mileage is deductible if between two business locations. This is one strong argument for taking a home office deduction even if you don't have any clients at home. This turns your home into a business office and increases the possibility of mileage deduction.
There are different rules for traveling out of town and commuting.
audit
The IRS plans to conduct more audits. There are some simple ways to reduce your chances of being audited.
• Please use exact numbers. The IRS will be suspicious if you want to round numbers up or down so that all amounts on Schedule C (where many people document their business income and expenses) end in zero.
• Use the correct massage therapist code at the top of Schedule C. In Block A, enter your legal title (e.g., Certified Massage Therapist, Certified Massage Therapist, etc.), not just “Massage Therapist.” Block B uses the appropriate code 621399 for massage therapists. This way, categories like “laundry” won't be frowned upon.
• Work with your accountant. If your accountant completes your return, your accountant must also sign it. Audit risk is reduced when the IRS verifies the accountant's signature.
It may have been 30 years ago, but remember that having a home office does not increase your chances of being audited. Home offices are now so common that they are no longer subject to audit.
Loss does not necessarily increase audit risk. Companies sometimes spend more money than they earn.
Here are some tips to help you survive the audit if you are selected.
• Continue with your bookkeeping. Rather than auditing last year's return, the IRS audits returns from several years ago. What are the odds that you remember what you spent $32.47 on in 2019?
• Add notes to your ledger. Again, remember why you drove 44 miles in 2020 and claimed it as an expense? A quick note (27 Miles: Springfield Ethics Lesson) can save you a ton of emotional pain. It can be reduced. It also allows the IRS to match your entries (“Oh, she spent her $50 to register for a “Springfield Ethics Class” last month).
• Know your deductions. Understand what is and is not allowed as a business deduction. What's common sense to you (“I only wear these shoes at the office, so I'm deducting them”) doesn't mean it's common sense or legal to the IRS (no, I deduct them because I only wear them at the office). You can not).
Work with your accountant. If your accountant does your taxes, you may be required to attend an audit and may be held responsible for mistakes and associated penalties.
Remember: Just because you're selected for an audit doesn't mean you did anything wrong. Each year, the IRS randomly selects returns for audit. Maybe you just got lucky?
online payment app
Do you accept payments through apps like Venmo, CashApp, or Zelle? You were always required to report that income and could record any expenses as a business expense.
Last year, the IRS expanded reporting requirements for these companies. If you process more than $600 through the app, you (and the IRS) will receive $1,099,000 from the company. (Note: Zelle is not subject to this change, meaning there are no reporting obligations associated with payments received through Zelle.)
If you use the app for both business and personal transactions, you must document which transactions were business and which were personal.
When it comes to payment processing, if you share a more traditional payment processing device or service with another person, one of you will likely be reimbursing the cost of the transaction to the other. The person receiving the refund must record the refund as income. If it's more than her $600, the person making the refund must also issue her 1099MISC to the person who gave the money and to her IRS.
entertainment
As a business, have you ever taken clients to a game, show, or other entertainment? You can no longer take a deduction for that.
meal
In 2022, the IRS made significant changes to the meal deduction, and those changes are still in effect. If you spend money at a sit-down restaurant, you can deduct 100%. If you buy food from a food truck, takeout shop, or grocery store, you can only deduct 50%.
Attachment C has a section (line 24B) where you can specify whether the food expenses are 100% type or 50% type, so please record them correctly.
Qualified Business Income (QBI)
This was brought to us as part of the 2018 tax bill. Depending on your taxable income, you may be able to claim an additional deduction (QBI deduction) on your taxes. There are thresholds that affect the amount of work required to qualify for this deduction. These standards will rise in 2023.
QBI is not simple and may require a tax professional to resolve.
Digital (crypto) currency
We don't know if many massage therapists used cryptocurrencies (or accepted payments) for business expenses in 2023, but if they did, there would be a new question on their 1040 (not Schedule C) asking about digital assets. A row is added. Cryptocurrency is a digital asset.
Severance pay
While this isn't technically a business expense, if you're self-employed, you may need to self-fund your retirement. The maximum amount you can contribute in 2023 has been increased. Think about your future and put some extra change into your retirement account.
3 secrets to making tax season (almost) painless.
If tax season has you in extreme anxiety mode, there are a few things you can do to reduce your anxiety.
1. Write it down
Yes, we are talking about bookkeeping. Equipping yourself with modern bookkeeping is one of the greatest things you can do for your business and yourself. If you have daily transactions, such as customer payments or expenses, write them down every day.
With practice, it can take 3-4 minutes. (Yes, I timed it myself.)
Many of the transactions are the same, so entry is quick. The longer it takes you to enter a transaction, the more likely you are to forget something. (For me it's mileage.)
Really the best part? It takes him less than 30 minutes to prepare the tax report he submits to his accountant in February (and most of it is fixing data entry mistakes he made throughout the year that are clearly visible on the report) ).
Use your preferred bookkeeping method. Pen and paper, Excel, household finances, bookkeeping programs. Which one do you think is the least intimidating and most comfortable? Go with it.
2. Learn the truth
Look for a suitable reference book or course on deductions for massage therapists. Please check back regularly (something changes every year). Even if you use bookkeepers and accountants, they are only as good as the information you give them. They can't do a good job for you if you give them bad information, such as what deductions they can and can't take.
Don't rely on “common sense” (as that's not one of the criteria the IRS uses). Also, don't rely on “I heard/my uncle told me.” From strangers online. I will admit that I often go online and try to answer questions about deductions online, but I will cite sources.
3. Don't trust your memory
Don't just enter the money you spent or earned. Add notes to help you remember details when you need them. why Did you drive 57 miles on June 3rd?was all Did you make a purchase at an office supply store on August 1st for business purposes? what percentage Do you take your cell phone bill as a business deduction?
Create notes. Don't trust your memory!
About the author
Kelly Bowers is the owner of Healing Arts Business Academy and a former massage therapist. She is the author of her four books entitled Can I Deduct That? ” “The Affordable Massage Handbook” “The Accidental Business Owner” “Between a Doormat and a Diva”. She is a regular speaker at national conferences, an instructor for her program of professional training, and an NCBTMB certified CE provider. You can find her on her Facebook, Instagram, and YouTube. She lives in Durham, North Carolina.
