Summertime Planning for Business Taxes
As a small business owner, there is plenty of tax planning and reviewing you can do in the summer months to reduce your 2021 tax liability.
While conducting this review, remember that there is uncertainty surrounding possible tax hikes to take into account. The White House is proposing an increase to the corporate tax rate from 21% to 28%. The top tax rate that could hit passthrough entities might increase from 37% to 39.6%. Here are several moves to consider now.
- Plan business equipment purchases. The Section 179 and bonus depreciation deduction are two of the most valuable tax planning tools for small businesses. In 2021, you can deduct up to $1.05 million of equipment purchases courtesy of the Section 179 deduction. The bonus depreciation deduction permits you to deduct 100% of an equipment’s price tag. Look ahead to the second half of 2021 and plan any future equipment purchases by December 31.
- Plan purchase of business meals. Plan your business meals to take advantage of the temporary 100% deductibility available for qualifying meals prepared by a restaurant. The IRS has guidance on what is considered a restaurant for purposes of this 100% deduction. If food is purchased from a non-restaurant establishment, the traditional 50% deduction limitation still applies.
- Keep vehicle logs current. If your business has one or more vehicles for which you take a deduction, keep your mileage logs current. Whether your logs are kept on either physical paper or in a software app, remember that the IRS requires contemporaneous documentation of all business activity related to a vehicle. If you don’t keep track of your vehicle expenses as they occur, your deduction could be disallowed.
- Hire your children. Your kids could provide a valuable tax break for your business, but be sure to follow certain steps to ensure the wages are fully deductible. The child must have a real job that helps the business, and the wages must be reasonable for the work performed. In addition, depending on how your business is organized and the age of your child, you may be able to avoid paying Social Security, Medicare, and unemployment taxes on their wages. To qualify, you must be a sole proprietor or a husband-wife/eligible partnership and your child must be under the age of 18.
These are just some of the many ways your business can cut its tax bill. contact us today to start your 2021 tax planning.
Insero & Co. is a public accounting firm with decades of experience working with businesses and nonprofits of all sizes. Our experienced experts are available to help you evaluate best-in-class software and transition to solutions that give you the ability to scale efficiently.
As always, we hope you find our tips and news for businesses valuable, and look forward to receiving your feedback. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions about planning for business taxes, please contact us directly.