Earnings taxes are a perennial chore for enterprise house owners. Whereas many tax gadgets—deductions, credit, and many others.—have new limits for 2021 on account of cost-of-living changes and new legal guidelines, sure new gadgets stand out. Don’t overlook the next:
1. Reporting PPP mortgage forgiveness
A Paycheck Safety Program (PPP) mortgage could have helped you get via the pandemic, however there are tax penalties to deal with. When you aren’t taxed on the forgiveness of a PPP mortgage, there’s nonetheless some reporting to deal with. The forgiveness of a PPP mortgage creates tax-exempt revenue, which in flip impacts proprietor’s foundation in entity. Rev. Proc. 2021-48 permits pass-throughs to deal with tax-exempt revenue ensuing from the forgiveness of a PPP mortgage as obtained or accrued
- As, and to the extent that, eligible bills are paid or incurred;
- When the S company applies for forgiveness of the PPP mortgage; or
- When forgiveness of the PPP mortgage is granted.
This reporting requires a press release to be connected to the return. And changes to Schedules M-1 and M-2 have to be made reflecting the tax-exempt revenue.
Needless to say whereas revenue from the mortgage forgiveness isn’t taxable, it nonetheless counts as gross receipts. For instance, this may increasingly influence the “gross receipts check” used for figuring out eligibility to make use of the money methodology of accounting, not having to take care of stock tax information, and for different functions.
2. New Schedules Okay-2 and Okay-3
In case you are an proprietor in a partnership, multi-member restricted legal responsibility firm, or S company, you’re acquainted with Schedule Okay-1. This schedule allocates to the proprietor his or her share of enterprise revenue, deductions, credit, and many others. Most small companies are home; their actions are confined inside the U.S. and Schedule Okay-1 is all that’s wanted. But when there are specific overseas revenue or actions that generate “gadgets of worldwide relevance,” this requires the submitting new schedules with 2021 returns. Normally this implies having overseas companions or overseas revenue. Schedule Okay-2 lists the entity’s overseas gadgets; Schedule Okay-3, like Schedule Okay-1, allocates them to house owners.
Even when there aren’t any overseas actions, the schedules should still be required. For instance, a partnership with no overseas supply revenue, no belongings producing overseas supply revenue, and no overseas taxes paid or accrued should still must report data on Schedules Okay-2 and Okay-3 if the accomplice claims a credit score for overseas taxes paid by the accomplice.
The IRS stated that as a result of this was the primary yr for these schedules, it will waive penalties so long as there’s been an excellent religion effort to adjust to the brand new reporting necessities.
3. 100% meals allowance
With the pandemic subsiding, enterprise house owners and workers are resuming in-person assembly, with meals and drinks usually accompanying discussions. Enterprise meals offered at eating places throughout 2021 are absolutely deductible. This is applicable as effectively to the meals portion of per diem charges used to substantiate the price of enterprise lodging and meals. ADD
For the price of pre-packaged meals or drinks bought at a grocery retailer; specialty meals retailer; beer, wine, or liquor retailer; drug retailer; comfort retailer; newsstand; or a merchandising machine or kiosk the same old 50% limitation. In any occasion, required substantiation is important for claiming a deduction (50% or 100%) for the price of enterprise meals.
4. Larger charitable contribution deductions
Companies are very charitable and will reap appreciable tax breaks for his or her actions. Money donations made in 2021 have greater limits:
- For C firms: 25% of taxable revenue (as an alternative of the same old 10%)
- For house owners of pass-through entities: 100% of adjusted gross revenue (as an alternative of 60%)
Companies that made donations of meals stock for the care of the “unwell, needy, or infants,” can deduct them as much as 25% of combination web revenue for pass-throughs or taxable revenue for C firms (up from 15%).
If your organization had a leave-based donation program in 2021 and also you contributed the money equal to the donated go away time earlier than January 1, 2022, to a charity offering COVID-19 aid, you possibly can deduct this donation.
5. Worker retention credit score
The worker retention credit score is an employment tax credit score that was speculated to run via the top of 2021 however was retroactively terminated on September 30, 2021, aside from for “restoration startup companies.” It is a enterprise that (i) started carrying on any commerce or enterprise after February 15, 2020, (ii) for which the typical annual gross receipts for the 3-taxable-year interval ending with the taxable yr that precedes the calendar quarter for which the credit score is set doesn’t exceed $1 million, and (iii) that’s not in any other case an eligible employer on account of a full or partial suspension of operations or a decline in gross receipts. For revenue tax functions, the deduction for wages have to be diminished by the quantity of the credit score obtained.
If a restoration startup enterprise takes the credit score for the fourth quarter of 2021, which is reported on Type 941 in 2022, during which yr ought to the wages be diminished? The IRS says the wages paid in 2021 have to be diminished by the credit score that’s claimed in 2022. The yr of fee deductions when the deduction disallowance applies.
Alert: The Worker Retention Tax Credit score Reinstatement Act (H.R. 6161; comparable measure within the Senate) would permit the credit score for the 4th quarter of 2021, so monitor Congressional motion on this measure if your small business could also be eligible for it.
Conclusion
If all of this sounds sophisticated, it’s as a result of it’s. The excellent news is that tax preparation software program or cloud options in addition to tax professionals can deal with these new guidelines. Good luck on this tax season.
Picture: Depositphotos
