There are a number of tax changes brewing, and we want to help keep you and your business in the loop. Small Business Taxes and Government Changes As the first year of a new President’s term is coming to an end, that means there are lots of potential changes on the horizon. According to the National Federation of Independent Business, new proposed tax plan changes will increase the corporate tax rate from 21% to 26.5%, which will negatively impact small businesses classified as C-corps. The good news is that only about 25% of small businesses are classified this way. However, many experts are saying that these changes would still impact small businesses in the coming tax year, if the plan gets approved. There are also changes coming in the form of increasing the top capital gains tax rate and changes to the estate tax, says the NFIB. 2021 Losses All non-corporate business taxpayers can deduct a net trade or business loss up to $262,000 (or $524,000 for joint returns). This includes Schedules C, E, and F business activities. Employee Retention Credit Your business may also be eligible for Employee Retention Credit (ERC). Though initially only applicable to wages paid from March 13, 2020, to December 31, 2020, the recently passed Consolidated Appropriations Act and American Rescue Plan Act have expanded this credit. For tax year 2021, eligible employers can claim the employer share of Social Security tax if it equals 70% of up to $10,000 in qualified wages paid per employee, per quarter. Maximum credits are $28,000 per employee for the year. Qualifying businesses must prove it fully or partially suspended operations due to the pandemic, had a 50% decline in 2020 gross receipts compared to the same quarter in 2019, or less than 80%of 2021 gross receipts when compared to the same 2019 quarter. Net Operating Loss Limits Are Back to Normal The CARES Act relaxed limits on net operating loss for tax years beginning in 2018. 2019, and 2020. But no such …
6 Small Business Tax Credits
In a previous blog article, we covered everything you need to know about tax deductions. Today, we’ll talk about small business tax credits and offer some tips for taking advantage What Is a Tax Credit? A tax credit is a dollar-for-dollar reduction. NerdWallet explains “A few credits are even refundable, which means that if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a check for $750.” This is different from a deduction, which is a dollar amount you can subtract from your adjusted gross income. There are two types of tax credits, according to the IRS: Nonrefundable: tax credits where you get a refund only up to the amount you owe Refundable: tax credits where you get a refund, even if it’s more than what you owe Let’s go through some tax credits for the self-employed, including a few that have emerged in response to the coronavirus pandemic. Earned Income Tax Credit (EITC) The Earned Income Tax Credit is determined by income and is designed to help low- to moderate-income workers and families lower their tax burdens. To qualify, you must be between the ages of 25 and 65, be filing as an individual or married filing jointly, and be considered a low-income filer. Small Business Healthcare Tax Credit The Small Business Healthcare Tax Credit offers up to 50% in credits for “costs paid for premiums purchased through the Small Business Health Options Program (SHOP) plan for ACA coverage,” according to Zenefits. This tax credit is for businesses with fewer than 25 employees whose average salary is $50,000 or less per year. American Opportunity & Lifetime Learning Credits The American Opportunity Tax Credit is a credit for “qualified education expenses paid for an eligible student for the first four years of higher education.” The maximum annual credit is $2,500 per eligible student, which includes people whose modified adjusted gross income is $80,000 or less ($160,000 for married couples filing …