Keith Youngren: tax Changes For Individuals And Businesses

Every year, it’s a sure bet that there will be changes to current tax law and this year is no different. From standard deductions to health savings accounts and tax rate schedules, here’s a checklist of tax changes to help you plan the year ahead.

Individuals

In 2021, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion. The tax rate structure, which ranges from 10 to 37 percent, remains similar to 2020; however, the tax-bracket thresholds increase for each filing status. Standard deductions also rise, and as a reminder, personal exemptions have been eliminated through tax year 2025.

Standard Deduction
In 2021, the standard deduction increases to $12,550 for individuals (up from $12,400 in 2020) and to $25,100 for married couples (up from $24,800 in 2020).

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Top Tax Savings Strategies For Business

As a business owner, you know first-hand that taxes can take a big chunk out of your pocket. No matter how small your business is or how large you grow, you’ll always be on the hook for some kind of taxes. However, the tax code is such that there is always room for strategic tax savings as long as you operate within the laws. Your CPA is the best source of tax-saving strategies, but it can help if you present some of your own ideas, too. Here are some that are worth considering.

1. Consider Hiring Independent Contractors Instead of Employees

Payroll taxes are something every business owner needs to consider before making a commitment to add another employee to the payroll. Payroll taxes are one of the larger taxes that business have to pay, and they come around not once, but usually at least twice a month. One way that businesses have gotten around paying payroll tax is buy hiring independent contractors instead of employees. You don’t have to pay payroll tax on independent contractors that you hire. Of course, there are certain rules about what constitutes an IC and what constitutes an employee, but once you ensure you would be in compliance, you may be able to get by with ICs.

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IRS Time Is Running Out To Elect Out Of New 100 Depreciation Deduction

The Internal Revenue Service today reminds business taxpayers who placed qualifying property in service during 2017 but choose not to claim the new 100-percent depreciation deduction, that they have a limited time to file the required election with the IRS.

In general, individuals and calendar-year corporations must file the election with the IRS by Oct. 15, 2018. The new 100-percent deduction allows businesses to write off most depreciable business assets in the year they are placed in service. Read More

IRS Issues Guidance On Tax Cuts And Jobs Act Changes

The Internal Revenue Service issued guidance today on the business expense deduction for meals and entertainment following law changes in the Tax Cuts and Jobs Act (TCJA).

The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. Read More

Maybe you cater for your friends, maybe you make jewelry, maybe you sell your artwork, maybe you have a lemonade stand- regardless of what you do, do you know how the IRS views this? Here are some tips on how to tell if your activity is a business or a hobby and the tax implications of each.

1. The IRS has a checklist for determining if your activity is a business or hobby. The list is basically intent. Is this for fun or do you intend to make a profit? Do you want to depend on the income? What is the intent of your activity?

For the IRS list that discusses the difference between a business and a hobby click here.

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The Tax Cuts and Jobs Act, a $1.5 trillion tax cut package, was signed into law on December 22, 2017. The centerpiece of the legislation is a permanent reduction of the corporate income tax rate. The corporate rate change and some of the other major provisions that affect businesses and business income are summarized below. Provisions take effect in tax year 2018 unless otherwise stated.

Corporate Tax Rates

  • Instead of the previous graduated corporate tax structure with four rate brackets (15%, 25%, 34%, and 35%), the new legislation establishes a single flat corporate rate of 21%.
  • The Act reduces the dividends-received deduction (corporations are allowed a deduction for dividends received from other domestic corporations) from 70% to 50%. If the corporation owns 20% or more of the company paying the dividend, the percentage is now 65%, down from 80%.
  • The Act permanently repeals the corporate alternative minimum tax (AMT).

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The Problem: Often business owners want to segregate valuable assets from potential adverse liabilities generated in the operation of a business.

For example, a bakery will likely own: (1) equipment used in its operations; (2) the factory building and (3) a fleet of delivery trucks and vehicles. If all of these are owned by the same company, then liabilities arising from an accident involving the trucks could result in the loss of the factory building to satisfy a judgment. Read More

Poor cash flow can affect much more than the financial performance of your business. The non-financial costs of poor cash flow can have just as negative an impact on your business as the financial costs. Here are a few ways, as noted in Beyond the Numbers, that poor cash flow can affect your business.

 

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The Tax Cuts and Jobs Act (TCJA) enhances some tax breaks for businesses while reducing or eliminating others. One break it enhances — temporarily — is bonus depreciation. While most TCJA provisions go into effect for the 2018 tax year, you might be able to benefit from the bonus depreciation enhancements when you file your 2017 tax return. Pre-TCJA bonus depreciation Under pre-TCJA law, for qualified new assets that your business placed in service in 2017, you can claim a 50% first-year bonus depreciation deduction. Used assets don’t qualify. This tax break is available for the cost of new computer systems, purchased software, vehicles, machinery, equipment, office furniture, etc. Read More

This bill implements certain measures announced in the 2017 federal budget. Bill C-63 also includes catch-up measures previously included in September 16, 2016 draft legislation, measures related to the principal residence exemption, and some specified cooperative income measures. Bill C-63 also contains some GST/HST measures related to pension plans and drop shipments, and other indirect tax measures that were previously released in draft legislation on September 8, 2017 (see TaxNewsFlash-Canada No. 2017-50). Read More

William Rogers, Tax Advisor

Projecting your business income and expenses for this year and next can allow you to time when you recognize income and incur deductible expenses to your tax advantage. Typically, it’s better to defer tax. This may end up being especially true this year, if tax reform legislation is signed into law.

Here are two timing strategies that can help businesses defer taxes:

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William Rogers, Tax Advisor

Currently, a valuable income tax deduction related to real estate is for depreciation; however, the depreciation period for such property is long and land itself isn’t depreciable.

Whether your real estate property is occupied by your business or is being used as a rental, here’s how you can maximize your deductions:

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