Monthly Archives: September 2021

Tax Update September 30, 2021 – Business Tax Breaks and the Self Employed

There are lots of breaks for buyers of business vehicles under the tax laws. The annual depreciation caps for passenger autos rise a bit in 2021. If bonus depreciation is claimed, the first-year ceiling is $18,200 for new and used cars first put in service this year. The second- and third-year caps are $16,400 and $9,800. After that…$5,860. If no bonus depreciation is taken, the first-year cap is $10,200.  Buyers of heavy SUVs used solely for business can write off the full cost, thanks to bonus depreciation. SUVs must have a gross weight rating over 6,000 pounds.

Also, up to 100% of the cost of a big pickup truck can be expensed. When expensing business assets, the amount expensed can’t exceed taxable income from the taxpayer’s business. Bonus depreciation does not have this limit.

Leasing a vehicle to use in your business is much cheaper taxwise in 2021. If a car that is worth more than $51,000 is first leased for business during the year, the lessee must pay income tax each year on an amount spelled out in IRS tables.  For example, on a three-year lease for a $75,000 car with a lease term starting in 2021, you reduce the size of your tax deductions for the monthly payments on the vehicle by $8 in 2021, $18 the next year and $26 in 2023. See Rev. Proc. 2021-31.

S corporations that pay low salaries to owners should be a bigger IRS target,  Treasury inspectors say. Many S corporation shareholders take low salaries so the bulk of their profits are passed through to their own 1040 individual returns free of Social Security and Medicare taxes. The Service may balk at this practice, but it is falling behind on enforcing the rules. In 2018, IRS audited a measly 0.2% of all S corporations. Even when the agency does select a firm for examination, half of the time its revenue agents don’t even evaluate officer compensation.

IRS says its policies and procedures properly address the compliance risk.

Real estate professionals must meet two tests to beat the passive-activity loss rules and deduct their rental losses in full. They must spend over half their working hours and more than 750 hours a year materially participating in real estate activities.  IRS often has success in court when challenging real-estate pro status.

Self-employeds can deduct their Medicare premiums above the line. Medicare premiums paid by a self-employed individual are included in the deduction for health insurance on Schedule 1 of the 1040. This also applies for partners, provided the partnership reimburses the partner for the premiums and the amounts are reported as guaranteed payments that are taxed as income. Similar rules apply to S corporation shareholders who own more than 2% of the firm when the shareholder pays the premiums and then gets reimbursed by the S firm. Note that the premiums must be included as wages on the shareholder’s W-2 form.

Filing Deadline – 10/15/21

Clients who requested extensions to file their 2020 tax returns of the upcoming Oct. 15 due date. People who asked for an extension should file on or before the extension deadline to avoid the penalty for filing late.

The third batch of advance Child Tax Credit payments for the month of September, totaling about $15 billion, is reaching about 35 million families across the country. Under the American Rescue Plan, most eligible families received payments dated July 15 and Aug. 13, along with the Sept. 15 payment. For these families, each payment is up to $300 per month for each child younger than age 6 and up to $250 per month for each child ages 6 through 17.