Page 55 - BusinessWest November 24, 2021

on the number of credits per business.
TIP: The WOTC has expired — and then been
reinstated — multiple times in the past, but the CAA extended it for five years through 2025.
Miscellaneous
• Stock up on routine supplies (especially if they are in high demand). If you buy the supplies in 2021, they are deductible in 2021, even if you do not use them until 2022.
• Under the CARES Act, a business could defer 50% of certain payroll taxes due in 2020. Half of the deferred amount is due at the end of 2021, so meet this obligation if it applies.
“Step up your charitable giving at the end of the year. Then you can reap the tax rewards on your 2021 return.”
• If you pay year-end bonuses to employees
in 2021, the bonuses are generally deductible by your company and taxable to the employees in 2021. A calendar-year company operating on the accrual basis may be able to deduct bonuses paid as late as March 15, 2022 on its 2021 return.
• Generally, repairs are currently deductible, while capital improvements must be depreciated over time. Therefore, make minor repairs before 2022 to increase your 2021 deduction.
• Have your C-corporation make monetary donations to charity. ARPA extends a 2020 increase in the annual deduction limit from 10% of taxable income to 25% for 2021.
INDIVIDUAL TAX PLANNING Charitable Donations
There were plenty of worthy causes for indi- viduals to donate to in 2021, including disaster aid relief. Besides helping out victims, itemizers are eligible for generous tax breaks.
ACTION: Step up your charitable giving at the end of the year. Then you can reap the tax rewards on your 2021 return. This includes amounts charged to your credit card in 2021 that you do not actually pay until 2022.
Under the CARES Act, and then extended through 2021 by the CAA, the annual deduction limit for monetary donations is equal to 100% of your adjusted gross income (AGI). Theoretically, you can eliminate your entire tax liability through charitable donations.
Conversely, if you donate appreciated proper- ty held longer than one year (i.e., long-term capi- tal gain property), you can generally deduct an amount equal to the property’s fair market value. But the deduction for short-term capital-gain property is limited to your initial cost. In addi- tion, your annual deduction for property dona- tions generally cannot exceed 30% of your AGI.
TIP: If you do not itemize deductions, you can still write off up to $300 of your monetary charitable donations. The maximum has been doubled to $600 for joint filers in 2021.
Medical Deduction
The tax law allows you to deduct qualified medical and dental expenses above 7.5% of AGI. This threshold was recently lowered from 10% of AGI. What’s more, the latest change is permanent.
To qualify for a deduction, the expense must be for the diagnosis, cure, mitigation, treat- ment, or prevention of disease or payments
for treatments affecting any structure or func- tion of the body. However, any costs that are incurred to improve your general health or well- being, or expenses for cosmetic purposes, are non-deductible.
ACTION: If you expect to itemize deductions and are near or above the AGI limit for 2021, accelerate non-emergency expenses into this year, when possible. For instance, you might move a physical exam or dental cleaning sched- uled for January to December. The extra expenses are deductible on your 2021 return.
Note that you can include expenses you pay on behalf of a family member — such as a child or elderly parent — if you provide more than half of that person’s support.
TIP: The medical deduction is not available for expenses covered by health insurance or other reimbursements.
Miscellaneous
• Pay a child’s college tuition for the upcoming semester. The amount paid in 2021 may qualify for one of two higher-education credits, subject to phaseouts based on modified adjusted gross income (MAGI). Note that the alternative tuition- and-fees deduction expired after 2020.
• Avoid an estimated tax penalty by qualifying for a safe-harbor exception. Generally, a penalty will not be imposed if you pay during the year 90% of your current tax liability or 100% of the prior year’s tax liability (110% if your AGI exceed- ed $150,000).
• If you are in the market for a new car, con-
At MBK, we are more than just tax advisors. We work with you to understand your business objectives, personal goals and fiduciary responsibilities. We use our in-depth knowledge to develop effective, proactive strategies to put you in the most tax advantageous position possible. And we’re here for you all year long — not just during tax season.
413-536-8510 | mbkcpa.com
ACCOUNTING & TAX PLANNING
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