In light of the pandemic, the rules and programs governing income taxes for businesses have changed numerous times over the last two years, which has caused confusion and headaches for more than a few business owners. And while many of the pandemic-inspired programs and tax breaks have already ended or will end soon, a few of these programs still stand to impact your taxes in 2021.

The good news is that even though many of these programs are ending, the impact on the overall taxes paid by most small businesses is not expected to be all that significant. Moreover, in some cases, business owners can still apply retroactively for certain pandemic-related benefits they might have missed out on when the tax breaks were first offered.

With this in mind, here we’ll cover a few of the tax breaks left over from the pandemic-inspired programs that are still available to businesses in 2021. We’ll also outline some of the most valuable deductions and credits that are available to tax savvy business owners every year.

Although the optimal time for tax planning is typically before the end of the year, there are still a number of ways you can reduce your company’s 2021 tax bill right up to this year’s filing deadline, which is April 18th for most taxpayers. While there are dozens of potential tax breaks you may qualify for, here are six last-minute moves you can make to save on your company’s 2021 tax return.

First started under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, the Employee Retention Credit (ERC) is a fully refundable tax credit that was created to encourage businesses to keep employees on their payroll. The ERC has gone through multiple changes over the last two years, causing confusion among many business owners, which is one reason many companies didn’t apply for it.

However, the ERC can be extremely valuable, and while the program ended for most companies on Sept. 30, 2021, businesses may be able to retroactively claim the ERC. In order to qualify for the latest version of the ERC, a business must have experienced one of the following two circumstances:

1. Gross receipts declined more than 50% in any quarter of 2020 compared to the same quarter of 2019 or declined more than 20% in any quarter of 2021 compared to the same quarter of 2019; or
2. The company had to fully or partially suspend operations due to a government order related to COVID-19.

For companies who qualify, the expanded ERC comes with the following conditions:

• Can be applied retroactively to 2020.
• Can be claimed by Paycheck Protection Program (PPP) borrowers, as long as the PPP proceeds and the ERC covered different expenses.
• Can offset employment taxes equal to 50% of qualified wages (including employer paid health plan expenses) paid between March 13, 2020 and December 31, 2020 or 70% of qualified wages paid between January 1, 2021, and September 30, 2021.
• Has a maximum credit of $5,000 per employee per year for 2020 or $7,000 per employee per quarter for 2021.
• Companies with fewer than 500 employees may also be able to claim fully refundable tax credits to cover wages paid to employees who took paid sick or family leave related to COVID-19 from January 1, 2021 through September 30, 2021.
  

Although the ERC ended for most businesses on Sept 30, 2021, some new companies, known as “Recovery Startup Businesses” (RSB) can claim the ERC for the third and fourth quarters of 2021. To qualify as an RSB, a company must meet each of the following conditions:

• Started operations on or after Feb. 15, 2020;
• Maintains average annual gross receipts that do not exceed $1 million;
• Employs one or more employees (other than 50% owners); and
• Does not otherwise qualify for the ERC because the business’ operations were not fully or partially suspended due to government orders, and it did not experience a decline in gross receipts.

Businesses that want to apply for the ERC retroactively will need to amend prior years’ tax returns to adjust their payroll expenses. And even if you’ve already filed your taxes for 2021, you still have time to claim the credit. In fact, businesses have up to three years from the program’s end on Sept. 30, 2021 to determine if wages they paid after March 12, 2020 through the end of the program are eligible.

For more information, visit the ERC FAQs on the IRS website. That said, because the ERC is so complex, you should consult with us, your local Family Business Lawyer™ or your CPA to gain clarification on the program and support you with your application to ensure your company gets the maximum benefit of the tax credit.

Forgiven Paycheck Protection Program (PPP) loans aren’t considered taxable income by the IRS, so they won’t affect your 2021 federal income taxes. Additionally, you can deduct eligible business expenses you paid with PPP funds on your federal tax return.

That said, not all states have adopted the federal rules on how PPP loans are taxed, so you should consult with us, your Family Business Lawyer™ or your CPA to determine our state’s law on the PPP’s taxability.

To spur growth in the hard-hit restaurant industry, a provision in the Consolidated Appropriations Act (CAA) passed in December 2020 makes the cost of business-related meals (food and beverages) served by a restaurant 100% deductible on your federal income taxes. As long it’s from a restaurant, meals served via takeout and delivery qualify too—you don’t have to actually eat on the premises.

This tax break is only for 2021 and 2022. Previously, deductions for business meals at restaurants were limited to 50%.

If you purchased new or used business equipment in 2021, you could qualify for a deduction of up to $1.05 million (up from $1.04 million in 2020). The deduction is available under Section 179, which allows you to write off the entire amount you pay for qualified business equipment in a single year, rather than depreciating it over multiple years.

Most business property, such as office furniture, computers, software, machinery, and office equipment, will qualify. The deduction can also be applied to SUVs, pickups, vans, and other vehicles weighing more than 6,000 pounds. Section 179 now also includes building improvements like HVAC, elevators, and security systems, Real estate, however, does not qualify.

To take the deduction, the property must be purchased and put into use during 2021, and it must be used more than 50% of the time for business purposes. The provision caps total equipment purchases for the year at $2.62 million (up from $2.59 million in 2020). Once you spend $2.62 million, the deduction is phased out on a dollar-for-dollar basis, and it totally phases out once you hit $3.67 million.

That said, if you made equipment purchases in 2021 that exceeded the $3.67 million limit, you may still use bonus depreciation on the amount above the Section 179 cap. Bonus depreciation remains at 100% through 2022. From there, bonus depreciation decreases by 20% each year until it totally phases out at the end of 2026.

If you made significant equipment purchases in 2021 or plan to make them in 2022, meet with us, your Family Business Lawyer™ , so we can work with you and your CPA to ensure you are maximizing all of your deductions for such major capital investments.

Most every business takes out some form of business insurance to protect against a variety of threats and liabilities. Yet, many business owners don’t realize or simply forget that you can deduct 100% of the cost of most types of business insurance from your federal income taxes. The most common forms of business insurance that qualify for the 100% deduction include the following:

• Health insurance 
• General liability insurance 
• Commercial property insurance 
• Business interruption insurance 
• Professional liability/Malpractice insurance
• Cybersecurity insurance
• Worker’s compensation insurance 
• Vehicle insurance

Note that while most forms of business insurance are tax deductible, life insurance premiums are generally not deductible. There are a few exceptions, such as when you pay for your employee’s life insurance premiums, which can be written off as a business expense, but even this comes with limitations.

In this case, deductions can only be applied to premiums paid for the first $50,000 of coverage for each employee, and you are not permitted to deduct the premiums if you or the company benefit from the policy. Since it can be tricky to figure out when life insurance is deductible, meet with us, your Family Business Lawyer™ to find out whether or not your policies would qualify.

The Section 199A Qualified Business Income (QBI) Deduction is still available for 2021. Starting in 2018 and running through 2025, this provision allows qualifying business owners to take a straight 20% deduction on their net business income for the year. And this deduction is in addition to any ordinary business-expense deductions you might have.

To qualify, your business must be set up as a “pass-through” entity, meaning your company’s taxes pass through and are paid at your personal income tax rate. This business structure includes sole proprietorships, partnerships, limited liability companies (LLC), and S corporations—basically all businesses except C corporations and LLCs taxed as corporations.

The deduction does have some restrictions, including for specific types of service businesses like law practices and accounting firms, and it begins to phase out at higher income levels. For 2021, the deduction begins to phase out once your taxable income surpasses $164,900 if single and $329,800 if married and filing jointly. The tax break completely phases out once your income reaches $214,900 for individuals and $429,800 for joint filers.

Given these restrictions, meet with us, your Family Business Lawyer™ or your CPA to see if your company qualifies.

In addition to the tax breaks highlighted here, there are numerous other potential tax-saving opportunities that your company might qualify for. So even if you don’t qualify for any of these, it’s likely that there are others you can benefit from.

As your Family Business Lawyer™, we will work with you and your CPA to help you choose the tax breaks best suited for your business, and ensure you get the maximum benefit from the ones you qualify for during the 2021 tax season and beyond. Contact us today to get started.

This article is a service of a Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

When you first realize that your biggest personal and business expense—bar none—is taxes, it can come as quite a shock. Seeing so much of your hard-earned money wind up in the government’s hands can feel like a shakedown. That said, focusing a relatively small amount of time and effort into strategically reducing your taxes can pay major dividends.

Some people resist implementing creative tax strategies because they’re worried it’s going to get them in trouble with the IRS. However, as long as you do things properly, there’s absolutely nothing illegal—or even risky—about strategizing to pay the least amount of taxes possible.

On the other hand, it is illegal to evade taxes. As the late Martin Ginsburg, Georgetown Law professor and husband of the recently deceased Supreme Court Justice Ruth Bader Ginsburg, used to say, “Pigs get fat; hogs get slaughtered.” In other words, you want to be smart when it comes to saving on your taxes, but not greedy.

As we head into the final weeks of 2021, we’re entering into the most critical time of the year for your company’s tax strategy, and here we’ll outline how you can get fat, without getting slaughtered.

To save on your 2021 taxes, your first step should be either building or rekindling your relationship with your team of financial professionals. These are the individuals who will support you in establishing the foundation for developing and implementing your tax-saving strategies. At the very least, this team should include a Family Business Lawyer™, a bookkeeper/financial manager, and a tax advisor, which should be either a Certified Public Accountant (CPA) or an Enrolled Agent (EA).

If your bookkeeper’s job is more about data entry than financial management, you should look for someone new—or quickly get your current team member trained and up to speed. An effective bookkeeper will be managing your books on a week-to-week basis (if not daily, depending on your business). Note I said “week-to-week,” not just “month-to-month” or “quarter-to-quarter.”

Your bookkeeper’s primary responsibilities should include daily/weekly cash-flow management, monthly review of reports and categorization of expenses, and quarterly updates of your forecast and projections. Again, if your bookkeeper isn’t providing these types of services for you, your business is missing an essential part of its financial foundation.

Outside of your bookkeeper, your tax advisor is the person who actually files your taxes. Ideally, you should meet with your tax advisor at least twice a year: once in May/June (after tax season) and once approaching year’s end in October/November. Obviously, it’s already quite late in the year to start your year-end tax planning, but you still have time if you act immediately.

The May/June meeting is a general catch-up, mid-year review that lets your tax advisor know what you’re financially on track to do for the year. Based on that information, your advisor can consider the most effective tax strategies for the coming year.

When you meet again in October/November, that’s when you’ll really get down to business. This is when you’ll project cash flow through the end of the year and get a tax estimate using a couple different assumptions, both with and without tax-saving strategies included.

If your tax advisor cannot provide this level of service and is merely a tax filer, it’s time to get a new advisor. As your Family Business Lawyer™, we can help you find a tax professional that offers these kinds of services, so contact us today if you need to find a creative tax advisor who’s capable of handling such matters.

Additionally, as a Family Business Lawyer™ we meet regularly with many of our clients and their team of financial professionals throughout the year to ensure your financial and tax-saving strategies are supported with the legal implementation necessary to tie it all together and ensure it works properly. To find out if we are available to support you in this way, contact us today.

Once you’ve got your LIFT (legal, insurance, financial, and tax) team in place, you should meet monthly with your bookkeeper—within the first 10 days of the month—to review your profit and loss statement (P&L). You should review the categorization of your income and expenses each month, rather than scrambling to get your receipts to your CPA in February or March just before taxes are due. Your bookkeeper should have your books reconciled, including all bank accounts and credit card expenses, prior to this meeting.

To be most effective, your bookkeeper needs to understand all of the ways you earn revenue and know the expenses required to fulfill the delivery of your product and/or service. Using this knowledge, your bookkeeper should update a daily forecast each week, and produce your monthly P&L, so you can stay regularly apprised of your company’s financial health and make strategic decisions on that basis.

Each month, when you review your P&L, you’re looking for variances from the prior month as well as expenses that are improperly categorized or not categorized at all. It’s crucial to properly categorize all expenses, so you can measure trends in your business and write off as many deductions as possible against your taxable income.

In late October or early November, your bookkeeper should send a year-to-date profit and loss (P&L) statement to your tax advisor, along with projections of income and expenses for the remainder of the year. Your tax advisor will then use that data to create tax projections based on your current earnings versus expenses and how much you expect to bring in over the remainder of the year.

Using these projections, you can put strategies in place to minimize your tax liability. That said, most of these strategies need to be in place BEFORE the end of the year, so ideally you should make sure you’ve started this process by the final weeks of November.

If your tax projections indicate that you’re going to owe money, meet with your CPA and us, your Family Business Lawyer™ to strategize the best year-end tax strategies to implement. And if you haven’t run your tax projections yet because you don’t have a qualified bookkeeper or tax advisor, we can refer you to the professionals we trust most.

Once you have your tax projections ready, you want to look at whether you’re likely to be in a higher tax bracket this year compared with future years. Determining this will allow you to save on your taxes by managing when you receive your year-end income and pay your year-end expenses.

After reviewing that data, if you’re likely to be in a higher tax bracket this year than in the future, it makes sense to push taxes off into the year(s) when your tax rate will be lower. Even if your tax bracket will be higher in future years, it still might be worthwhile to push your taxes off into the future. This way, you’ll be able to use those funds, which would otherwise be in the hands of the government.

This is the question to ask yourself: Can I make more money with those funds now than I’d pay in higher taxes by pushing those tax payments off until later?

If you can make more money now, you can decrease this year’s taxes by pushing income into the future and accelerating expenses that you’d otherwise pay next year into this year, or even use additional available cash to fund tax-deferred retirement plans like a 401(k) or IRA.

If you’d prefer to pay taxes this year because you’re currently in a significantly lower tax bracket than you are likely to be in future years—or you have losses that will be expiring to offset your income—you should increase this year’s income. One way you can generate more revenue now is by offering year-end discounts on products and services that may not need to be delivered until next year.

Managing when your company receives income and pays expenses in this manner can save you big money on your taxes, not just for 2021, but every year. And this type of creative tax planning is just one small part of an effective tax-saving strategy.

There are countless other ways you can strategize to keep more of the money you earn working for you, rather than giving it to the government. To learn about all of the potential ways you can save on your 2021 taxes and beyond, contact us, your Family Business Lawyer™ today.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.