Many small business owners should be excited for 2021. With a new year comes new opportunities, new ways to grow and new tax deductions.
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 who are set up in a way where they don’t own their equipment but lease it won’t necessarily qualify for the deduction. This also plays into the requirements for the deduction. Companies set up as partnerships, S Corporations, and sole proprietorships qualify as long their annual income doesn’t exceed $157,000 for single tax filers and $315,000 for couples filing jointly.
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% and will stay like that 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; for example, cars, computers, software, machinery, equipment, and furniture.
Real property that is tied with 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.
The sales & 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:
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