With the tax season upon us, The Hechtman Group would like to remind you of some important tax changes that occurred in 2021 which may impact your return.
Businesses
- Earlier in the year, Illinois passed an elective pass-through entity tax known as the SALT workaround. This is used for partnerships, LLC’s and s-corporations as a workaround to the $10,000 limitation on the federal deduction currently allowed on individual income tax returns for state and local taxes (SALT). The entity pays the pass-through entity tax at 4.95% of its taxable profit for all partners/shareholders. The entity deducts the pass-through entity tax paid as above the line deduction on their tax return. The shareholders/partners receive a credit on their individual tax return for the tax paid on their behalf. Cash and accrual basis filers need to make this payment by or before December 31, 2021, to deduct the payment on their 2021 partnership, LLC, or s-corporation tax returns. Other states have passed similar laws, please contact our office for more information.
- A reminder that any employer (under 500 employees) that paid employees while they were out due to covid may qualify for the paid sick leave credit for wages paid from March 13, 2020, through September 30, 2021. Self-employed individuals are also able to take this credit if they qualify. If the employer paid the employee while they were out to take care of a family member, they may qualify for the family leave version of this credit. Wages used for the ERC cannot also be used for paid sick leave credits.
- The ERC (employee retention credit) is also available to employers who had a decline in quarterly gross receipts in 2020 or 2021 compared to the same quarter in 2019. This credit is available for wages paid from March 13, 2020, through September 30, 2021. This credit still applies for “recovery start-up” businesses for wages paid through December 31, 2021. Recovery start-up businesses are businesses that began operations after February 15, 2020. Wages used for PPP forgiveness cannot also be used for the ERC.
- Other things to think of for cash basis tax filers are:
- If 2022 is expected to be a much better year than 2021 delay paying expenses until next year as they may be applied to a higher tax bracket and accelerate income into 2021 at a lower rate
- If 2022 is expected to be a down year compared to 2021 consider delaying income until 2022 so that the revenue is received in 2022 and applied to a lower tax bracket and consider paying more expenses (including bonus depreciation on new asset purchases) before year-end to take advantage of the deduction in 2021 at a higher tax bracket.
- If your business doesn’t already have a retirement plan now may be a good time to consider opening one up. Solo 401(k)’s may be a good option for a small business that only has the owner or owner and spouse on payroll.
Individuals
- Consider “bunching or loading up” on your charitable contributions one year to take higher itemized deductions while taking the standard deduction the following year. This is helpful for taxpayers when their itemized deductions are near the standard deduction amounts of $12,550 for singles and married filing separate, $18,800 for head of household, and $25,100 for married filing joint filers.
- Taking capital losses to offset capital gains including capital gains from real estate.
- Take advantage of tax credits extended through 2021. Credits are still available for energy-efficient home improvements, residential energy-efficient property, and electric vehicle credits.
- Taxpayers 70 ½ or older can make a qualified charitable distribution right out of their IRA to a charity. This distribution can be used to satisfy an RMD requirement
- Gifting long-term appreciated stock to a charity or gifting to a family member instead of cash.
- If you have children attending college or younger consider making a contribution to your state’s 529 college savings plan as you may qualify for state tax benefits.
Learn more about our team and how we can serve you during the tax season and throughout 2022. Contact Us to schedule a consultation.