Business Tax Services

How Tax Law Changes May Impact Your Entity Selection

Business owners who are trying to decide which legal entity is appropriate for their companies must factor in several tax considerations in light of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the potential for new tax legislation in 2021.

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What are the Latest Tax Updates from Washington?

• [May 2021] President Biden recently announced his $1.8 trillion American Families Plan (AFP), the third step in his Build Back Better policy initiative. The announcement followed the previous releases of the proposed $2.3 trillion American Jobs Plan and the Made in America Tax Plan. These plans propose major investments in various domestic initiatives, such as expanded tax credits for families, offset with tax increases on high-income individual taxpayers and corporations. More information on proposed tax changes.
• [March 2021] The American Rescue Plan Act (ARPA) was enacted on March 11, 2021. This newest legislation aimed at providing economic and other relief from COVID-19 includes $1.9 trillion in funding for individuals, businesses and state and local governments. ARPA extends and expands some of the critical provisions in the CARES Act and the Consolidated Appropriations Act (CAA). It also includes some new provisions that should come as welcome news to many families and businesses. Details on ARPA
• [December 2020] The COVID-19 Relief Act was signed into law on 12/27/20 to provide additional economic relief for individuals and businesses. Many of the CARES Act’s tax credits, set to expire on 12/31/20, were extended in this newest bill. Details on COVID-19 Relief Act
• [March 2020] The Coronavirus Aid, Relief, and Economic Security (CARES) Act was a $2 trillion bill with an array of significant tax-saving provisions for both individuals and businesses. The bill, signed into law on 3/27/20, includes provisions for 2020 to create needed cash flow and it could affect prior tax years. Details on CARES Act

What are the 2021 Business Tax Rates and Credits?

• Corporate Tax Rate: 21%
• The Estate Tax Exemption for 2021 is $11.7 million for individuals and $23.4 million for married couples. Estate and Trust Planning may be impacted by future legislation. Check out these articles to learn more. Critical Estate Changes Could be On the Horizon and Trust & Estate Planning 2021 With an Eye to Biden's Administration
• Bonus Depreciation now applies to both new and used items (if the used items are placed in service for the first time in the business). 100% bonus depreciation on qualifying business equipment is through 2022.
• Employee Retention Credit: Under the Consolidated Appropriations Act (CAA), signed into law at the end of 2020, the ERC was extended through June 30, 2021. The CAA also expanded the ERC rate of credit from 50% to 70% of qualified wages. Most recently, the ARPA further extended the ERC from June 30, 2021, until December 31, 2021. The 70% of qualified wages is also extended for this period, as is the allowance for up to $10,000 in qualified wages for any calendar quarter. This means an employer could potentially have up to $40,000 in qualified wages per employee through 2021. New COVID-19 Relief Law Extends Employee Retention Credit. 
  Determining the best way to use the Employee Retention Credit is complex. Utilize a tax expert to help you determine how this credit works with your PPP loans to maximize the benefits available to your company. Using our tax planning experts, SVA can help you identify the best way to use this credit and maximizing your tax savings.
• Family Leave Credits are a refundable credit for required leave provided to employees who are unable to work or telework because they are caring for someone with COVID-19, caring for a child whose school or place of care is closed, or childcare is unavailable due to COVID-10. Employers are entitled to a sick leave credit for up to 80 hours limited to 2/3 of employee’s regular pay or up to $200 per day, but no more than $2,000 per employee in total, plus related health care costs.
• Net Operating Loss (NOL) Carryback: With the passing of the CARES Act, businesses and individuals can now carryback NOLs from 2018, 2019, and 2020 to the prior five tax years. Note that any losses arising in 2021 must be carried forward to future years. To understand the modified rules, view our Biz Tip on NOLs and AMT.
• Qualified Business Income (QBI) Deduction: Through 2025, taxpayers can deduct up to 20% of their QBI from a pass-through entity (sole proprietorship, LLC, partnership, or S corporation). Phaseouts begin when taxable income exceeds $164,900 for single taxpayers or $329,800 for married couples (other limitations also apply). More information
• Research & Development (R&D) Credits are federal tax credits that allow up to 10% of eligible expenses that relate to a new or improved process or product. Credits can be utilized to offset income tax, or if eligible, employer-paid payroll taxes. Additionally any credit can be carried back one year or forwarded up to 20 years. For more information, view our Biz Tip on R&D Tax Credits.
• The Section 179 Deduction applies to tangible personal property, such as machinery and equipment, purchased for the business. The annual deduction limit is $1.04 million for tax years beginning in 2020, subject to a phaseout rule if the amount is over $2.59 million. This deduction is also available for qualifying tangible personal property such as furniture and appliances, as well as some nonresidential real property such as roofs, ventilation, fire protection, and security systems. Read more on Section 179
• Work Opportunity Tax Credit: If you hire individuals from a specified disadvantaged targeted group, you could be eligible for a credit worth 25-40% of their wages. Find more information on the tax credit extension.

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