Page 54 - BusinessWest November 24, 2021

This is the time to assess your tax outlook for 2021. By developing a comprehensive year-end plan, you can maximize the tax breaks currently on the books and avoid potential pitfalls.
Be aware that the concepts discussed in this article are intended to provide only a general overview of year-end tax planning. It is recom- mended that you review your personal situation with a tax professional.
BUSINESS TAX PLANNING Depreciation-related Deductions
At year-end, a business may secure one or more of three depreciation-related tax breaks: (1) the Section 179 deduction, (2) first-year ‘bonus’ depreciation, and (3) regular depreciation.
ACTION: Make sure qualified property is placed in service before the end of the year. If your business does not start using the property, it does not qualify for these tax breaks.
• Section 179 deductions: Under this section
of the tax code, a business may ‘expense’ (i.e., currently deduct) the cost of qualified property placed in service anytime during the year. The maximum annual deduction is phased out on a dollar-for-dollar basis above a specified threshold.
The maximum Section 179 allowance has increased gradually since 2018, for 2021 the limit is $1.05 million, and the phaseout begins when acquisitions exceed $2.62 million. However, be aware that the Section 179 deduction cannot exceed the taxable income from all your business activities this year. This could limit your deduc- tion for 2021.
• First-year bonus depreciation: The Tax Cuts and Jobs Act (TCJA) doubled the 50% first-year
bonus depreciation deduction to 100% for prop- erty placed in service after Sept. 27, 2017 and expanded the definition of qualified property to include used, not just new, property. However, the TCJA gradually phases out bonus depreciation after 2022.
• Regular depreciation: If any remaining acqui- sition cost remains, the balance may be deducted over time under the Modified Accelerated Cost Recovery System (MACRS).
TIP: The CARES Act fixed a glitch in the TCJA relating to ‘qualified improvement property’ (QIP). Thanks to the change, QIP is eligible for bonus depreciation, retroactive to 2018. There- fore, your business may choose to file an amend- ed return for a prior year.
Employee Retention Credit
Many business operations have been disrupt- ed by the COVID-19 pandemic. At least recent leg- islation provides tax incentives for keeping work- ers on the books during these uncertain times.
Under the CARES Act, the ERC was equal to 50% of the first $10,000 of qualified wages per quarter, for a maximum credit of $5,000 per work- er. The CAA extended availability of the credit into 2021 with certain modifications, including a max- imum ERC of $14,000 per worker per year. Now ARPA authorizes a maximum credit of $28,000 per worker for 2021.
In addition, ARPA allows businesses that start- ed up after Feb. 15, 2020 and have an average of $1 million or less in gross receipts to claim a cred- it of up to $50,000 per quarter.
Business Meals
Previously, a business could deduct 50% of the cost of its qualified business entertainment expenses. ARPA doubles the usual 50% deduction to 100% of the cost of food and beverages pro- vided by restaurants in 2021 and 2022. Thus, your business may write off the entire cost of some meals this year.
“Make sure qualified property is placed in service before the end of the year. If your business does not start using the property, it does not qualify for these tax breaks.”
Work Opportunity Tax Credit
If your business becomes busier than usual during the holiday season, it may add to the exist- ing staff. Consider all the relevant factors, includ- ing tax incentives, in your hiring decisions.
ACTION: All other things being equal, you may hire workers eligible for the Work Opportunity Tax Credit (WOTC). The credit is available if a worker falls into a ‘target’ group.
Generally, the WOTC equals 40% of the first- year wages of up to $6,000 per employee, for a maximum of $2,400. For certain qualified veter- ans, the credit may be claimed for up to $24,000 of wages, for a $9,600 maximum. There is no limit
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54 NOVEMBER 24, 2021
ACCOUNTING & TAX PLANNING
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