2021 tax planning considerations for businesses, individuals
As 2021 comes to a close, it’s essential to take a closer look at your tax and financial plans. This year brought challenges and disruptions that likely impacted your personal and financial situation –– a continued global pandemic, several significant natural disasters, new tax laws, and political shifts.
While many tax provisions were passed late in December 2020 that could impact your 2021 tax strategy, the American Rescue Plan Act (ARPA), enacted in March 2021, brought new legislation and changes to previous relief offered in 2020’s Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Infrastructure Investment and Jobs Act (IIJA), passed in November 2021, brought even more changes to COVID relief. Then there’s the Build Back Better Plan, which continues to evolve, and if it passes, we’ll discuss how changes could impact your tax and financial plan.
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. Below is a summary of items to consider in your planning. Don’t hesitate to get in touch with your Goering & Granatino professional or call our office today at (913) 396-6225 to set up a year-end review.
Tax Planning Considerations for Businesses
- Employee retention credit (ERC): The ERC is a refundable payroll tax credit eligible employers can claim for paying qualified wages to qualified employees. ARPA made changes that allow businesses to qualify for Paycheck Protection Program (PPP) loans and the ERC. However, the IIJA ended the program early, so only qualified wages paid through Sept. 30, 202, are eligible.
- Family and sick leave credits: The American Rescue Plan Act extended the family and sick leave credits to compensate employers and self-employed individuals for COVID-related paid sick and family and medical leave to Sept. 30, 2021.
- Small Business Administration (SBA) loans: Though the PPP ended 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.
- Partnership audit and adjustment rules: New audit and adjustment rules are in effect. Even if your business isn’t a partnership, you’ll want to evaluate the impact these new rules could have if you’ve invested in any partnership.
- 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: You can completely write off many equipment-related expenses in the year the equipment is placed in service. Qualified improvements on property can now qualify for 15-year depreciation and, therefore, be eligible for 100% first-year bonus depreciation.
- Net operating losses: You may be able to carry significant losses from 2018 to 2020 losses back up to five years.
- Methods of accounting: More businesses can use the cash method of accounting. This can be helpful for cash flow purposes and is generally easier to apply than the accrual method of accounting.
- Sales and use tax: States continue to change their sales and use tax laws and filing requirements following the South Dakota v. Wayfair, Inc. ruling.
- Retirement plans: Review retirement savings options to ensure you are taking advantage of tax deductions and providing opportunities for owners and employees to save for retirement.
Tax Planning Considerations for Individuals
- Economic impact payments (EIPs): 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. If you received an EIP as an advance payment, you should receive a letter from the IRS.
- Child tax credit: ARPA increased the amount for certain taxpayers, made the credit fully refundable, allowed for partial receipt in monthly payments, and changed eligibility to children 17 and younger.
- 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%).
- Required minimum distributions (RMDs): 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).
- Unemployment compensation: There is no exclusion from income. The $10,200 income tax exclusion a taxpayer may have received in 2020 is no longer available in 2021.
- Additional considerations
- Review your retirement situation to make the most of tax-advantaged retirement saving options, such as traditional IRAs, Roth IRAs, and company retirement plans.
- Take advantage of health savings accounts (HSAs) that can help you reduce your taxes and save for your future.
- Consider tax benefits related to using capital losses to offset realized gains –– and move any gains to the lowest tax brackets, if possible.
- Planning appropriately 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 and leverage income tax benefits.
- Consider any updates needed to insurance policies or beneficiary designations.
- Discuss tax consequences of converting traditional IRAs to Roth IRAs.
- Review your withholding and estimated tax payments and assess any liquidity needs.
Tax Planning Considerations for Business and Individuals
- Teleworking arrangements: The rise in remote workers could mean new state tax implications and requirements for employers and employees alike.
- Virtual currency/cryptocurrency: The sale or exchange of virtual currencies (examples: Bitcoin, Ethereum) and non-fungible tokens (NFTs), the use of such currencies to pay for goods or services, or holding such currencies as an investment, generally has tax impacts and consequences if not handled and reported appropriately.
- Fraudulent activity: Fraudsters continue to refine their techniques, and tax identity theft remains a significant concern. Beware if you receive a notice or letter from the IRS regarding a tax return, tax bill or income that doesn’t apply to you; get an unsolicited email or another form of communication asking for your bank account number, other financial details or personal information; or receive a robocall insisting you must call back and settle your tax bill.
Year-End Planning Equals Fewer Surprises
There are many other opportunities to discuss as December 31 approaches. 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.
We’re here to help you take a fresh look at the health of your tax and financial well-being and leverage opportunities to minimize your tax liabilities for the 2021 filing season. Don’t hesitate to get in touch with your Goering & Granatino professional or call our office today at (913) 396-6225 to set up a year-end review. As always, planning ahead can help you minimize your tax bill and position you for greater success.
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