Tag: Tax Planning

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2021 YEAR-END TAX PLANNING FOR BUSINESSES

Tax Planning

2021 YEAR-END TAX PLANNING FOR BUSINESSES

November 12, 2021

Chetan Dogra

Written by Chetan Dogra, CPA

As we start to wrap up 2021, it‘s important to check in with your tax and financial plans. This year likely brought challenges and disruptions that significantly impacted your personal and financial situation –– a continued global pandemic, several significant natural disasters, new tax laws and political shifts. Now is the time to take a closer look at your current tax strategies to make sure they are still meeting your needs and take any last-minute steps that could save you money. Here’s a look at some issues to consider as we approach year-end:

Key tax considerations from recent tax legislation

Many tax provisions were implemented under the American Rescue Plan Act that was enacted in March 2021. This act aimed to help individuals and businesses deal with the COVID-19 pandemic and its ongoing economic disruption. Also, some tax provisions were passed late in December 2020 that will impact this filing season. Below is a summary of the highlights in recent tax law changes to help you plan.

Employee retention credit (ERC)

The ERC encourages businesses to keep employees on their payroll during the pandemic. The ERC is a refundable payroll tax credit that may be claimed by eligible employers who pay qualified wages to qualifying employees. Changes were made with legislation to allow businesses to qualify for both Paycheck Protection Program (PPP) loans and the ERC. See if these programs could benefit you.

Family and sick leave credits

The American Rescue Plan Act extended the family and sick leave credits to Sept. 30, 2021. These credits are intended to compensate employers and self-employed people for coronavirus-related paid sick and family and medical leave.

Small Business Administration (SBA) loans

Though the PPP ended on May 31, 2021, existing borrowers may be eligible for PPP loan forgiveness. Even though the PPP loan forgiveness is not taxable for federal purposes, there may be state implications. There are also other COVID-19 relief measures offered through the SBA.  

Other tax matters to note:

Business meals

There is a 100% deduction (rather than the prior 50%) for expenses paid for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020 and expires at the end of 2022.

Purchases of property and equipment

With tax-favorable options available to businesses, many purchases can be completely written off in the year they are placed in service. Plus, there are tax-favorable rules that permit qualified improvement property to qualify for 15-year depreciation and, therefore, also be eligible for 100% first-year bonus depreciation. Let us help you receive the best tax treatment.

Net operating losses

If you have significant losses from 2018 to 2020, you may be able to carry those losses back up to five years, which can significantly impact a prior year where there was a tax liability.

Methods of accounting

More businesses can use the cash method of accounting. This can be helpful for cashflow purposes and is generally easier to apply than the accrual method of accounting. There are qualifications that must be met, but we can help you
understand if your business would benefit.

Retirement plans

Have you revisited your company’s retirement plan lately? Take a look at the many retirement savings options to make sure that you are taking advantage of tax deductions as well as providing opportunities for owners and employees to save for retirement.

Looming potential legislation

With potential tax changes looming as Congress debates proposals in President Biden’s “Build Back Better” agenda, there remains uncertainty in how this will impact taxpayers. As legislation continues to evolve, and if it passes, we’ll contact you to discuss how changes impact your tax and financial plan.

Year-end planning equals fewer surprises

There are many other opportunities to discuss as year-end approaches. And, many times, there may be strategies such as deferral or acceleration of income, prepayment or deferral of expenses, etc., that can help you save taxes and strengthen your financial position.

Whether it’s working toward a business succession plan or getting answers to your tax and financial planning questions, we’re here for you. Please contact our office today at 646.477.9369 to set up your year-end review. As always, planning ahead can help you minimize your tax bill and position you for greater success.

 

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2021 YEAR-END TAX PLANNING FOR INDIVIDUALS

Tax Planning

2021 YEAR-END TAX PLANNING FOR INDIVIDUALS

November 12, 2021

Chetan Dogra

Written by Chetan Dogra, CPA

As we wrap up 2021, it’s important to take a closer look at your tax and financial plans. This year likely brought challenges and disruptions that significantly impacted your personal and financial situation –– a continued global pandemic, several significant natural disasters, new tax laws and political shifts. Now is the time to take a closer look at your current tax strategies to make sure they are still meeting your needs and take any last-minute steps that could save you money. Here’s a look at some issues to consider as we approach year-end:

Key tax considerations from recent tax legislation

Many tax provisions were implemented under the American Rescue Plan Act that was enacted in March 2021. This act aimed to help individuals and businesses deal with the COVID-19 pandemic and its ongoing economic disruption. Also, some tax provisions were passed late in December 2020 that will impact this filing season. Below is a summary of the highlights in recent tax law changes to help you plan.

 

Economic impact payments (EIPs)

The American Rescue Plan Act created a new round of EIPs that were sent to qualifying individuals. As with last year’s stimulus payments, the EIPs were set up as advance payments of a recovery rebate tax credit. If you qualified for EIPs, you should have received these payments already. However, if the IRS owes you more, this additional amount will be captured and claimed on your 2021 income tax return and we can help you plan for any modification now. 

If you received an EIP as an advance payment, you should receive a letter from the IRS. Keep this for record-keeping purposes to help us determine any potential adjustment.

Child tax credit

As part of the American Rescue Plan Act, there were many important changes to the child tax credit, such as the credit:

·       Amount has increased for certain taxpayers

·       Is fully refundable (meaning taxpayers will receive a refund of the credit even if they don’t owe the IRS)

·       May be partially received in monthly payments

·       Is applicable to children age 17 and younger

 

The IRS began paying half of the credit in advance monthly payments beginning in July –– some taxpayers chose to opt out of the advance payments, and some may have complexities that require additional analysis. We’ll be here to help you navigate any questions to make sure you get the best benefit for your family.

Charitable contribution deductions

Individuals who do not itemize their deductions can take a deduction of up to $300 ($600 for joint filers). Such contributions must be made in cash and made to qualified organizations. Taxpayers who itemize can continue to deduct qualifying donations. In addition, taxpayers can claim a charitable deduction up to 100% of their adjusted gross income (AGI) in 2021 (up from 60%). There are many tax planning strategies we can discuss with you in this area.

Required minimum distributions (RMDs)

RMDs are the minimum amount you must annually withdraw from your retirement accounts (e.g., 401(k) or IRA) if you meet certain criteria. For 2021, you must take a distribution if you are age 72 by the end of the year (or age 70½ if you reach that age before Jan. 1, 2020). Planning ahead to determine the tax consequences of RMDs is important, especially for those who are in their first year of RMDs.

Unemployment compensation

Another thing to note that’s different in 2021 is the treatment of unemployment compensation. There is no exclusion from income. The $10,200 income tax exclusion that a taxpayer may have received in 2020 is no longer available in 2021. We can help you plan for any potential impacts of this change.

State tax obligations related to teleworking arrangements

The pandemic has spawned changes in how people work, and more people are permanently working from home (i.e., teleworking). Such remote working arrangements could potentially have tax implications that should be considered by you and your employer.

Virtual currency transactions are becoming more common.

There are many different types of virtual currencies, such as Bitcoin, Ethereum and non-fungible tokens (NFTs). The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services, or holding such currencies as an investment, generally has tax impacts. We can help you understand those consequences. 

Additional tax and retirement planning considerations

We recommend you review your retirement situation at least annually. That includes making the most of tax-advantaged retirement saving options, such as traditional IRAs, Roth IRAs and company retirement plans. It’s also advisable to take advantage of health savings accounts (HSAs) that can help you reduce your taxes and save for your future. We can help you determine whether you’re on target to reach your retirement goals.

Here are a few more tax and financial planning items to discuss with us:

·        Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, starting a business and significant expenditures (real estate purchases, college tuition payments, etc.).

·        Consider tax benefits related to using capital losses to offset realized gains –– and move any gains to the lowest tax brackets, if possible.

 

·        Make sure you’re appropriately planning for estate and gift tax purposes. There is an annual exclusion for gifts ($15,000 per donee, $30,000 for married couples) to help save on potential future estate taxes.

 

·         Consider Sec. 529 plans to help save for education; there can be income tax benefits to do so, and we can help you with any questions.

 

·         Consider any updates needed to insurance policies or beneficiary designations.

 

·         Discuss tax consequences of converting traditional IRAs to Roth IRAs.

 

·         Let’s review withholding and estimated tax payments and assess any liquidity needs.

Looming potential tax legislation

With potential tax changes looming as Congress debates proposals in President Biden’s “Build Back Better” agenda, there remains uncertainty in how this will impact taxpayers. As legislation continues to evolve, and if it passes, we’ll contact you to discuss how changes impact your tax and financial plan.

Year-end planning equals fewer surprises

There are many other opportunities to discuss as year-end approaches. And, many times, there may be strategies such as deferral or acceleration of income, prepayment or deferral of expenses, etc., that can help you save taxes and strengthen your financial position.

Whether it’s working toward retirement or getting answers to your tax and financial planning questions, we’re here for you. As always, planning ahead can help you minimize your tax bill and position you for greater success.

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How to treat business start-up expenses on your tax return?

startupexpenses

While the COVID-19 crisis has devastated many existing businesses, the pandemic has also created opportunities for entrepreneurs to launch new businesses. For example, some businesses are being launched online to provide products and services to people staying at home.

Entrepreneurs often don’t know that many expenses incurred by start-ups can’t be currently deducted. You should be aware that the way you handle some of your initial expenses can make a large difference in your tax bill.

How expenses must be handled

If you’re starting or planning a new enterprise, keep these key points in mind:

  • Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one.
  • Under the Internal Revenue Code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the business begins. As you know, $5,000 doesn’t get you very far today! And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
  • No deductions or amortization deductions are allowed until the year when “active conduct” of your new business begins. Generally, that means the year when the business has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts generally ask questions such as: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Did the activity actually begin?

Expenses that qualify

In general, start-up expenses include all amounts you spend to:

  • Investigate the creation or acquisition of a business,
  • Create a business, or
  • Engage in a for-profit activity in anticipation of that activity becoming an active business.

To be eligible for the election, an expense also must be one that would be deductible if it were incurred after a business began. One example is money you spend analyzing potential markets for a new product or service.

To qualify as an “organization expense,” the expenditure must be related to creating a corporation or partnership. Some examples of organization expenses are legal and accounting fees for services related to organizing a new business and filing fees paid to the state of incorporation.

Thinking ahead 

If you have start-up expenses that you’d like to deduct this year, you need to decide whether to take the elections described above. Recordkeeping is critical. Contact us about your start-up plans. We can help with the tax and other aspects of your new business.

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Tax Planning Basics

tax planning

Tax planning is a process of looking at various tax options in order to eliminate or reduce taxes. There are countless tax planning strategies available to a small business owner or an individual. However, regardless of how simple or complex a tax strategy is, it will based on or more of the following techniques:

Choose the optimum form of business entity structures – such as LLC, Partnership, Corporation, or S Corporation. There are different tax benefits available under each type of entity structure.

Shift income from a high tax rate taxpayer, such as you, to a lower rate tax payer, such as your child or other family members.

Structure a transaction so that the money you receive is classified as capital gain or tax exempt.

Plan to take advantage of all available deductions and credits, both business and personal.

Accelerate expenses into the current year and postpone receipt of income into the next year. This strategy is based on controlling the timing of the tax liability.

Find the lowest tax jurisdiction for yourself and your business. The goal is to move profits from a high tax country/state to a low or no tax country/state.

All strategies I discussed above are used year-around. Now that you have an overview of how tax planning works. In next post, I will cover how we can use some tax strategies before the year-end.

Keep in mind that everyone’s tax situation is different, and tax rules can be complex. These tax tips have been prepared for informational purposes only and should not be relied on for tax, legal or accounting advice.