Year-End Tax Planning for 2021 (part 1 of 2), by Cliff Ennico
As we come to the end of the second year of COVID, it’s even hard to think of another tax deadline in three to four months.
But as Mark Twain pointed out, the only two things you can count on in life are death and taxes.
The good news: If your small business has been wiped out by the COVID pandemic and government shutdowns, you shouldn’t have to pay a lot in taxes for 2021.
The bad news: Sometimes our tax laws work crazy.
I am indebted to my good friend John D’Aquila, Chartered Accountant and Director of D’Aquila and Company LLP in Jacksonville, Fla. (Www.daquilallp.com), for sharing with me some of his late tax advice. year. and allow me to share them with you.
AMERICAN RESCUE PLAN ACT
As COVID continued to impact businesses, Congress passed the Consolidated Appropriations Act, 2021 in late December 2020, and the American Rescue Plan Act in March. One of ARPA’s main strengths is a provision that allows businesses to fully deduct expenses paid with the proceeds of a canceled Paycheck Protection Program loan, thereby overriding previous guidelines. The ARPA went on to extend and modify certain refundable tax credits for businesses and the self-employed, which are discussed in detail below.
As a result of this latest change, the IRS revised Form 941-X to allow businesses to correct COVID-related employment tax credits reported on Form 941 earlier in the year. Reviewing your tax returns to make sure your business has taken full advantage of these credits, and filing any amended returns that may be necessary “should be one of your top priorities in end-of-year tax planning. year, ”according to D’Aquila.
ARTICLE 179 CHARGE AND DEPRECIATION DEDUCTIONS
Depending on what your business income looks like for 2021, there are two must-have deductions that usually take priority when trying to reduce income for tax purposes: the Section 179 deduction, where your business can. choose to deduct the full cost of certain assets acquired and put into service during the year, and the bonus capital cost allowance, where 100% of the cost of business assets can be expensed. Under the item 179 expense option, your business can immediately expense the cost of up to $ 1,050,000 of “item 179” assets placed in service in 2021. This amount is reduced dollar for dollar (but not below zero) of the amount by which the cost of ownership of Section 179 put into service during the year exceeds $ 2,620,000.
The premium amortization rules apply unless the company expressly chooses not to follow these rules. The exclusion may be preferable when a business expects a tax loss for the year and the bonus depreciation would only increase that loss, or when it might be advantageous to carry forward depreciation deductions back into the future. years to come. For example, when the owner of a flow-through entity to which these deductions would be paid expects to be in a higher tax bracket in the years to come, those deductions could be more useful in those years to come. If you apply both the section 179 deduction and the bonus capital cost allowance to an asset, the section 179 deduction applies first.
If you are looking for a vehicle, purchasing a sport utility vehicle weighing over 6,000 pounds may trigger a larger deduction than if you were purchasing a smaller vehicle. Indeed, vehicles weighing 6,000 pounds or less are considered listed property and the related deduction for the first year is limited to $ 18,200 for cars, trucks and vans acquired and put into service in 2021. For vehicles weighing over 6,000 pounds, however, up to $ 26,200 of the cost of the vehicle can be immediately expensed.
If you leased a passenger automobile in 2021 worth more than $ 51,000, the deduction available for these leasing costs is reduced. In such cases, the tenant must include in gross income an amount determined by a formula that the IRS issues each year.
DEDUCTION FOR ENERGY-EFFICIENT BUILDINGS
If your business made energy efficiency upgrades to a building in 2021, such as installing a property that is part of 1) an interior lighting system, 2) heating, cooling, ventilation and air conditioning systems. hot water or 3) from the building envelope, a -the efficient building deduction, which has been made permanent in the CAA, may be available. The rules are quite complicated, however, so talk to your accountant or tax professional.
HANDLING OF DEDUCTIONS AND REVENUES
When it comes to year-end tax planning, two rules never change: you should try 1) to speed up as many deductions as possible until December 2021 and 2) carry over as much income as possible until January 2022. If you know you will owe someone money at the start of next year, ask them to submit their bills now so you can send the payment before the end of the year. Better yet, if it’s a scheduled monthly payment, ask if it’s possible to pay all year in advance; they can even give you a discount for it. Wait until January 1 to send your invoices, unless a customer (having read this column) asks you to send it now, in which case you should probably do so in the interest of good customer service.
More next week …
Cliff Ennico ([email protected]) is a columnist, author and former host of the PBS television series “Money Hunt”. This column is not a substitute for legal, tax, or financial advice, which can only be provided by a qualified professional licensed in your state. To learn more about Cliff Ennico and other Creators Syndicate writers and designers, visit our web page at www.creators.com.
Photo credit: steveb to Pixabay