Tax Outlooks for Small Businesses in 2021
Win or Lose in 2021?
Many small business owners should be excited for 2021. With a new year comes new opportunities, new ways to grow, and new tax deductions.
20 Percent Tax Deduction
According to USA Today, small and medium-sized businesses may be eligible to deduct 20% of their income tax. Even though this is exciting news, it comes with a catch: Companies that lease their equipment rather than owning it won’t necessarily qualify for the deduction.
Companies set up as partnerships, S Corporations, and sole proprietorships qualify as long as their annual income doesn’t exceed $157,000 for single tax filers and $315,000 for couples filing jointly.
100 Percent Bonus Depreciation
In Wealth Factory’s article, “2018 Tax Reform Details: 5 Big Wins for Small Business Owners”, they address new opportunities that small businesses can benefit from as a result of tax reform. Depreciation represents a large part of common tax deductions. Depreciation is where you are allowed to write off the wear and tear of certain property.
In 2002, Congress implemented the Bonus Depreciation Service to speed up this evaluation process and quickly save on taxes. In 2015, the depreciation deduction was increased to 50%. Now, the new tax reforms bump the deduction up to 100%, which will stay in effect until 2023. After 2023, it will slowly decrease each year.
Property that qualifies for this service includes personal property used for business purposes that is useful for 20 years or less. Examples include cars, computers, software, machinery, equipment, and furniture.
Real property tied to the business, like real estate, does not qualify. It is highly recommended that business owners speak with their accountants to discuss the plan they could use when implementing the bonus depreciation.
State and Local Tax Leaders
The sales and income tax leaders vary as well. The Tax Foundation describes an individual tax burden as what a taxpayer has actually spent in local and state taxes. According to the Tax Foundation, these are the five highest state-local tax states:
- New York: 12.7%
- Connecticut: 12.6%
- New Jersey: 12.2%
- Illinois: 11.0%
- Wisconsin: 11.0%
United LLC’s team of experts is dedicated to helping you find long-term solutions for your business. Reach out and learn about our working capital solutions that can help your business grow.