Before you leave 2021 in your rearview mirror, you will likely still need to file your business taxes.
To help ease the pain of tax season, we asked Laura Jenkins, a tax partner with Citrin Cooperman, about a few things business owners should keep in mind when filing this year.
What do I need to know about Employee Retention Credits?
The Employee Retention Credit established under the CARES Act was designed to encourage businesses to keep employees on the payroll. In 2021, the refundable tax credit for businesses is 70% of up to $10,000 in wages per employee for each of the first three quarters, up to a total of $21,000 for the year. This is an increase compared to 2020, where eligible employers impacted by COVID-19 saw refundable tax credits of 50% of up to $10,000 in wages per employee, for a maximum credit of $5,000 for the year.
To determine if you are eligible or if other factors come into play, Laura suggests reaching out to a CPA.
What do I need to know if I want to hire someone who works out of state?
The pandemic shifted many workplaces away from a physical location and into homes. As a result, some employers were able to offer increased flexibility to employees, and even find new talent in other states. Laura cautions that each state may have different regulations that could potentially impact your organization for payroll tax, income tax, and even sales tax. Talking to your team of advisors and researching state regulations is important if you are considering hiring anyone out of state in 2022.
Are there any tax increases on the horizon?
There is a proposed change that would expand the base of the 3.8% Net Investment Income Tax to include pass-through business income. Keep an eye out for how Congress and the White House progress in discussions surrounding taxes and be sure to reach out to a tax professional to discuss your unique situation.
Have qualified business income deductions changed?
Passed in 2017, the Tax Cuts and Jobs Act introduced a 20% deduction on all business income that was not a specified service. This deduction is slated to sunset in 2025, but that could change.
Is Congress working on any other changes I need to know?
Initially, Congress proposed increases to corporate tax rates as well as both individual ordinary and capital gain tax rates. In December, legislation passed the House and those proposed tax increases were not included. The bill included a 15% Minimum Corporate Tax on corporations with profits reported to shareholders greater than $1 billion and a 1% tax assessed on corporations that buy back their own shares. For individual taxpayers, the bill contained a 5% surcharge on taxpayers on income in excess of $10 million and an additional 3% surcharge on income in excess of $25 million. The provision to expand the 3.8% Net Investment Income Tax to include pass-through business income was retained in this version of the bill.
Our best advice for filing business taxes this year?
Consult a tax professional to make a plan that works best for your unique circumstances. Especially for the 2021 tax year, a CPA or other tax expert may help you work through these increasingly complex tax strategies.
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