The past two years have been very challenging for business owners and organizational leaders – we’ve had everything from the great resignation to inflation to pandemic-related compliance. It’s never been harder to spend the time working in and out of your business.
But despite the challenges, there are still some great tax benefits and opportunities for businesses and their owners. While 2021 has ended, there are even some steps you can take now to possibly reduce your tax burden from last year.
The Big Picture for Businesses
Despite these many challenges, we have clients that have had some of their best years ever, and not just those providing goods and services in COVID-related sectors.
The common factor between these clients is being anticipatory in nature, having organization agility and pivoting to segments with high profit margins. There is profit to be made in the market if your organization is setup to take advantage of new opportunities.
Watch a video of our business tax planning advice for 2021 and 2022 below:
(Video courtesy of WMFZ-TV)
Tax Insights for Your 2021 Return
Employee Retention Credit
There are still a few programs that can boost your bank account as we head into tax season this year.
You’ve probably heard of the Employee Retention Credit but you may be wondering what it is and how you get the money into your bank account.
It’s a phenomenal program - the reason why it’s so beneficial is back in 2020, the credit was $5,000 per employee on an annual basis but in 2021, it was increased to $7,000 per employee per quarter.
We’ve consulted on these credits with companies all around the country. About a year ago, this program became much more popular when the rules changed that you could collect both Paycheck Protection Program loans and the Employee Retention Credit and the credit was increased to $7,000 per employee per quarter. It’s been a pretty substantial credit for some companies, and we’ve seen some companies get up to seven figures in credits quarterly in 2021.
READ MORE: The Employee Retention Credit: The Improved Benefits for Businesses in 2021
So how can you qualify? There are two ways. The first is if you have a significant decline in gross receipts. Basically you take your quarterly gross receipts, compare them from 2021 to 2019 and 2020 to 2019. If you've had a drop of 50% for 2020 and a drop of 20% when you're comparing 2021 to 2019, that's the first way to apply for the credit. That's where we usually start when assessing whether companies qualify.
The second way to qualify has a little bit more nuance to it and requires a little more research in determining eligibility, which is the suspension of operations. An obvious example in Pennsylvania is restaurants – when the governor had indoor dining capacity limitations going back to the middle of 2020 through to 2021 – that’s a clear example of suspension of operations.
To see if you qualify, look at your quarterly revenue to see if there’s a significant decline, or if you’ve been affected by a government order that limited your business, reach out to your CPA.
The great part with Employee Retention Credits is you have three years from when your quarterly returns were originally filed to request the credits. So there's a lot of money out there with this program yet we suggest you take advantage of.
Charitable Contributions
Another tax strategy you can still take advantage of for 2021 is charitable contributions. They’re limited to 100% of adjusted gross income for your 2021 return, much like last year. It’s going to go back to 60% coming up for this year for cash.
Net Operating Losses
Ever since they made the wages for Paycheck Protection Program loans deductible, a lot of businesses had net operating losses last year that hadn't before. If that’s your situation, make sure you're accelerating those benefits as fast as possible. Depending on what year they were generated, you’ll either want to carry them back, or if not, carry them forward.
Tax Filing Deadlines
We haven’t heard anything from the IRS yet about any changed tax filing deadlines so we assume they’re going to be March and April for businesses and individuals, much like they were before the pandemic. We don't foresee that changing at all this year.
Tax Insights for 2022
The biggest impact to taxes for 2022 will depend on if the federal Build Back Better bill is passed or not, and if so, which version. While that is still up in the air, it’s likely some tax changes will happen in the next couple years, whether it be through BBB or if nothing else, when many of the tax provisions in the Tax Cuts and Jobs Act sunset at the end of 2025.
WATCH MORE: President Biden's Tax Proposals
Regardless of when federal tax changes might happen, two of the most important things you can take advantage of now is reviewing your estate plan and your will. If you have a short-term goal of selling your business, now is a great time to look into that because the top capital gain rate is still at 20%, which is a preferential rate. And the estate tax exemption is still at roughly $12 million for 2022.
Some versions of Build Back Better propose getting rid of the capital gains preferential rates and cutting the estate tax exemption. So it’s never been a better time to review your estate plan. If you're looking to sell your business, we've seen some phenomenal valuations in the market over the past 18 to 24 months. It's really a perfect time to go back and look at your plans.
Concannon Miller has advised businesses and their owners on tax strategy for more than 60 years. Please contact us if you need assistance obtaining any of these benefits.