Tax Tips for Businesses Edit as AdminIMPORTANT NOTE TO EMPLOYERS: If you have at least 50 full-time employees (including full-time equivalent employees), you are considered an Applicable Large Employer (ALE) according to the Affordable Care Act (ACA) and must offer full-time employees ACA compliant health care coverage or pay a penalty. You will need to report information to the IRS about the health care coverage offered to your full-time employees using Forms 1094-C and 1095-C. You must also distribute copies of Form 1095-C to your full-time employees, which contains information they may need to report as part of their income tax submission for the 2021 tax year. The IRS will use the information from Form 1095-C to administer the Employer Shared Responsibility provision. The Form also helps the IRS administer premium tax credits for any employee who qualified and enrolled for coverage at a Health Insurance Marketplace rather than enrolling in your employer plan.
Qualified Business Income Deduction: In general, The Tax Cuts and Jobs Act allows a 20% deduction on qualified business income from partnerships, LLCs, S-Corporations, trusts, estates and sole proprietorships. For 2021, the deduction is subject to limitations for certain businesses where individual taxable income is $164,900 or more filing single, and $329,800 or more if filing joint. When income exceeds these thresholds, the calculation becomes more complex, certain types of service businesses lose the deduction, and there is a phase-out range.
Section 179 Deduction: This special election allows eligible businesses to deduct the full cost of annual asset acquisitions instead of taking ordinary depreciation. A business can expense up to $1,050,000 for the year 2021. Phase-out of the deduction begins when acquisitions for the year exceed $2,620,000. The Section 179 deduction is limited to the amount of taxable income from the taxpayer's active trade or business. Some classes of property are not eligible. However, The Tax Cuts and Jobs Act, signed on December 22, 2017 expands the definition of qualifying property to include certain improvements made to nonresidential real property.
Bonus Depreciation: For assets placed in service after September 27, 2017, taxpayers can take a depreciation deduction of 100% of the cost of eligible property in the year placed in service. Used property now qualifies for bonus depreciation as long as the taxpayer did not previously use the property before acquiring it.
UPDATES & OTHER TIPS
Profit-sharing Plans: Unlike other plans, a profit-sharing plan is flexible. The plan can be designed so that the employer or plan sponsor is not required to make an annual contribution. The amount can be left to the company's discretion. Often, a profit sharing plan type provision is included in a company 401(k) Plan.
401(k) Contributions: For 2021 the maximum employee elective deferral is $19,500. If you are age 50 or older, you can defer an additional $6,500.
Social Security Wage Cap: The Maximum Amount of Wages Subject to the Social Security Tax for 2021 is $142,800. There is no limit on the amount of wages subject to the Medicare tax.
Hiring Your Children: If you have your own business, you should consider hiring your child to work after school or on vacations. The wages you pay your child for bona fide work are tax deductible. Your child will probably pay less in taxes than you would pay. In fact, the income could be considered tax free if the amount is less than your child's standard deduction. For 2021, a dependent child can take a standard deduction of the greater of $1,100 or the sum of $350 plus the child’s earned income, up to the applicable standard deduction of $12,550.
Business Automobiles: You can claim deductions for the business-related use of an auto using either the standard mileage rate method or the actual expense method. You should use the method that will yield the largest deduction. However, once you've claimed accelerated depreciation for a business car in prior years under the actual expense method, you cannot switch to the standard mileage rate method for that car in a subsequent year. The Standard Mileage Rate for business driving increased to 56 cents per mile effective January 1, 2021 and continues through December 31. If you use the standard mileage rate, you can separately deduct business parking fees and tolls, and any business portion of state and local personal property taxes. A business may also deduct its portion of loan interest.
Home Office Expenses: To qualify for a deduction related to an office in the home, you must have an area of your home used exclusively as your principal place of business. This includes a place of business where you meet or deal with patients, clients, or customers. A separate unattached structure that you used in connection with a business may also be eligible for the deduction. Space in your home used exclusively and regularly for administrative and management activity of your trade or business may be eligible for a home office deduction. However, you cannot have another fixed location where you conduct substantial administrative or management activities of the trade or business. Deductible expenses are proportionate to the space used for the business activity. Taxpayers may take an alternate safe harbor deduction of $5 times the home office square footage, up to 300 square feet.
Credit for Small Employers Providing Employee Health Insurance: For tax year 2018 employers can receive a credit of up to 50% of premiums paid. Certain conditions must be met, and only employers with fewer than 25 full time equivalent employees with average annual wage no greater than $53,200 qualify.