As a sales representative, you may be wondering how your business activities in 2022 will affect your tax return. It is important to realize that more write-offs are available to self-employed sales reps than those who are classified as employees.
Today, we’ll take a look at some of the changes and available tax write-offs that you should be aware of with the new tax laws in 2022.
New Tax Laws 2022: Increase in the Standard Deduction
The standard deduction has increased for 2022. This deduction is available to anyone who files a tax return – unless they elect to itemize their tax deductions.
The standard deduction is indicated below:
- Single — $12,950
- Married filing jointly — $25,900
- Head of household — $19,400
- Married filing separately — $12,950
Changes to Retirement Planning
Contribution limits for common retirement plans including Traditional IRAs, Roth IRAs, and 401(k)s will remain the same in 2022 as they were for 2021. Contributions up to a maximum of $6,000 may be made to IRAs for participants under age 50, while older individuals may contribute up to $7,000.
If you have a 401(k), you may contribute up to $20,500 tax-free if you are younger than 50. Contribution limits for those over 50 are $27,000 for the year.
Sales Rep Tax Deductions
Sales reps who work for traditional employers are not able to take tax write-offs for their expenses, as they are deemed to be reimbursable by the employer. However, self-employed or contractor sales reps have a number of tax write-offs available to them.
Sales rep tax deductions include the following:
Deductions for Vehicle Use
As a sales rep, tax deductions are available for the use of your personal vehicle to meet with customers. You can write off any vehicle expenses associated with those trips, including gasoline, maintenance, oil changes, or other relative items.
However, to make use of this deduction you should have documented your expenses thoroughly. If you do not have receipts, it is better to claim the standard mileage deduction, which is given based on the miles driven for your trips.
Business Travel Deductions
Airplane flights, car rentals, and hotel stays are fully deductible when incurred for business purposes. In addition, 50% of your meal costs may be written off for a sales-related business trip.
Office Expense Write-Offs
If your home office is your primary place of business, you may deduct the expenses associated with it. Deductions may be calculated using either the actual expense or simplified expense method.
The actual expense allows deductions for all office-related expenses as long as clear documentation exists. The standard deduction allows for an office deduction of up to $1,500 or revenue earned, whichever is less.
Long-Term Property or Equipment
Any property or equipment purchased to support the business may be deducted. To claim this deduction, you’ll need to assess the type of purchased property to determine the period in which it may have depreciated.
Different types of depreciation methods are allowed. Each year, a specific amount of depreciation may be deducted from taxable income until the property is sold or fully depreciated.
Classes taken to improve sales skills or factors that are otherwise related to your job may be deducted from your taxes. However, courses designed to help you qualify for a new career are not deductible.
Cost of Cell Phone
The monthly cost of a cell phone is deductible if it is used entirely for business and is not otherwise reimbursed by an employer. A second line may be deducted if it can be proven that it was also used for business.
Long-Term Capital Gains Tax
If you have held investments for over a year and sold them during 2022, you are eligible for a reduced capital gains tax rate. The tax rate on most net capital gain is no higher than 15% for most individuals.
A capital gain rate of 15% applies if your taxable income is greater than $40,400 but less than or equal to $445,850 for single; more than $80,800 but less than or equal to $501,600 for married filing jointly or qualifying widow(er); more than $54,100 but less than or equal to $473,750 for head of household or more than $40,400 but less than or equal to $250,800 for married filing separately.
However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.
There are differences in the tax brackets for those who file as “married filing jointly,” “head of household,” or “married filing separately.” It’s important to check the brackets to make sure that you claim the appropriate tax rate on long-term capital gains in accordance with tax deductions (2022).
Qualified Business Income Deduction
As a sales rep, tax deductions for Qualified Business Income are allowed if you work on a contract basis. The Qualified Business Income Deduction allows you to deduct up to 20% of your business income – this applies up to a limit of $170,050 for single filers and $340,100 for married filers. Income that qualifies includes that which is earned from your company’s active net income.
Income earned from interest, capital gains or losses, dividends, or outside of the U.S. does not qualify for this deduction.