Tax Items in Recently Passed Legislation
Published Monday, November 22, 2021
With one notable exception, small businesses escaped major burdensome tax changes in the recently passed Infrastructure bill, and it appears the same applies to the Build Back Better tax proposals. Let’s start with the one exception.
Employee Retention Tax Credit Eliminated
Originally set to expire on December 31, Congress inexplicably eliminated the Employee Retention Credit as of September 30 in an apparent attempt to fund the Infrastructure Bill.What does this mean? Simply put, the credit will not apply to wages paid after September 30. Despite the expiration, two very important details to remember are:
- For those who qualify for the credits but have yet to file, you have three years from the due date of payroll tax returns to claim the credit.
- Start-up businesses that began operations after February 15, 2020 can still take the credit on wages paid through year end 2021.
Build- Back-Better Tax Provisions
Let’s start with what is NOT in the tax bill, at press time.
- No tax increases on the small business operator. It DOES NOT include proposals that called for a 26.5% top corporate income tax rate, a 39.6% top individual income tax rate, and a new 25% long-term capital gains and dividend rates.
- Keeps alive the 20% small business deduction for pass-through businesses and does not cut the estate and gift tax exemption amounts.
Tax Proposals in the Revised Bill Include
The main proposals, at press time, that could impact a small business individual are:
- Raises the cap on the state and local tax (SALT) deduction from $10,000 to $80,000 effective for 2021 tax year.
- Expands the reach of the 3.8% tax surcharge on unearned/passive income to include business income for those with 1/2 million of taxable income. If passed, it would begin 2022.
At Press Time, the other tax raisers occur at the ultra-upper income level:
- Surtax on high-income individuals ($10 million) and trusts, limitations on qualified small business stock exclusions, continuation of a temporary current-law limitation on excess business losses.
- Tax on the book income of billion-dollar corporations.
- Includes numerous credits for the alternative energy industry.
Tax Planning Reminder: Equipment Expensing
- Full business equipment write-offs are still in effect using expensing and 100% bonus depreciation options.
- The full expense can be deducted even when purchase and use occurs at end of year.
- 100% bonus depreciation can be applied to new or used business equipment.
- Bonus depreciation can be applied to improvements made to the interior of commercial buildings.
- Bonus depreciation has no business income limitation.
For additional information, please contact us at research@nwyc.com
