Year End Tax Planning Reminders

Year End Tax Planning Reminders

It’s hard to imagine but year-end is fast upon us and time to consider tax planning moves.  Fortunately, it appears there will be no major increases in tax rates during the current legislative season. Now it is time to issue reminders of the 2021 tax breaks still in play that may warrant your attention.

Business Planning

Is Equipment Expensing Still in Play?  Most definitely, yes. This most favored tax break among small business operations is still available in its entirety. The following will refresh you on some of the particulars of equipment expensing:

• Full business equipment write-offs are still in effect using expensing and 100% bonus depreciation options.

• The full expense can be used even where purchase and use of equipment occurs at end of year.

• 100% bonus depreciation can be applied to new or used business equipment. At one point show-room floor new was the only option.

• Bonus depreciation can be applied to improvements made to the interior of commercial buildings (more below).

• Bonus depreciation is not inhibited by a business income limitation. Traditional expensing, however, is limited to the net income of the business.

More on Expensing Building Improvements

Normally, building improvements are deducted through depreciation over a period of years.  However, certain qualified interior building improvements are eligible for immediate bonus depreciation and expensing. Examples include interior improvements to a building (but not for enlargement), elevators or escalators, internal structural framework, roofs, HVAC, fire protection, alarm, and security systems.

Phase-Down of Bonus Depreciation Is Coming:

Absent any future changes, you have one more year for 100% bonus depreciation, then it begins to phase down as follows: 2023-80%; 2024-60%; 2025-40%; 2026- 20%.

Small Business 20% Pass-Through Tax Deduction: This deduction was untouched by recent legislation and is available to those who operate as a partnership ,S-corp or sole proprietor. While beyond the scope of this writing, there are ways to maximize this deduction, especially where your income limits exceed the ability to use the deduction. May be prudent to review this tax break with your tax advisor.

Cash-Basis Taxpayers: Prepaid 2022 expenses can still be deductible if paid by year end.

Corporate Tax Rate Unchanged: Not many operate using this entity (C-corp) structure, but for those that do, the tax rate is unchanged at 21%, which is a historical low and, more significantly, may be lower than your individual rate.

Individual Planning Considerations

Manage Capital Gains and Losses:  There are still  three tiers of long-term capital gains rates based on taxable income: 0%/$80,800; 15%/$501,600; 20%/ over $501,600.

SALT Deduction:  Currently capped at $10,000, Congress is still debating an increase to $80,000, or some variation there-of. If increased, paying anticipated state tax liabilities before year-end will generate increased deductions for itemizers.

Consult your tax advisor for the most ideal way to use these planning reminders.