Often Missed Small Business Expenses
You are forgiven for not being able to keep up with all of the changes in small business taxes. It has been a chore to digest everything even for professionals. Here is a recap of recent small business expense changes.
Ancient History
Let's not forget the massive change that occurred when The Tax Cuts and Jobs Act (TCJA) was passed in 2017:
Bonus Depreciation: Qualified property can be 100% expensed in the year of acquisition. Election to not expense must be made if business doesn’t want. There is no dollar limit.
Section 179 Expansion: 100% expensing of qualified property in the year of acquisition. Annual limit is $1mm.
Qualified Improvement Property: Expanded definition of qualified property for Section 179 such as leasehold improvements and roofs. Qualified Improvement Property is no longer eligible for Bonus Depreciation.
Inventory Method Changes: Reduced burden and simplification of accounting for inventory if a business does less than $25mm in revenue.
Corporate Tax Rates: Rate lowered to a flat 20%. This means more small businesses may find a C-Corporation preferable to an S-Corporation treatment.
Net Operating Losses: Net Operating Loss carrybacks were eliminated, and allowed to be carried forward indefinitely. Loss can only be taken for 80% of taxable income (reduced from 100%).
Entertainment: Removed the deduction of 50% of entertainment expenses. Certain meals are still eligible. This was temporarily restored for 2021.
CARES Act
The CARES Act passed last year gave additional incentives.
Employee Retention Credit: New credit for eligible businesses for wages paid in 2020 and 2021. Credit is different for each year, but in 2021 credit is as much as $28k per employee.
Net Operating Losses: Restored the 100% of taxable income deduction for Net Operating Losses for those losses generated from 2018 through 2020. Additionally, losses generated in 2018 through 2020 are eligible for a 5 year carryback. Effectively the 2018 is no longer available.
Business Losses: The TCJA had limited a business loss to $250k in a given year. The CARES Act removed that limitation for losses generated in 2020.
Tax Credit for Sick Pay: a dollar for dollar credit against employer FICA tax for mandatory pay for employees with COVID.
Refundable Income Tax Credit: To provide sick leave for self-employed individuals (those filing schedule C), there is a credit of $5,110.
Small business taxes are the best they have been in decades. Make sure you are taking advantage of all of your opportunities by working with Core.
