Tax Saving Moves for 2021

What is going on with government spending, debt limit, and other important bills? Are you familiar with the Secure Act 2.0? Anticipated tax changes for major business purchases.

As small and midsize business owners prepare for the homestretch of 2021, and the upcoming holidays, I sat down with nationally recognized tax expert Barbara Weltman to discuss some of the important tax decisions facing these same business owners.

Below are excerpts from our conversation. To listen to the entire conversation, click the link above in the podcast player.

Brian: Congress must address the December 3rd deadline for government spending and the debt limit as well as the infrastructure and reconciliation bills. Their decisions will have a major impact on small business owners, both in 2021 and 2022. What do you anticipate will happen in the next six weeks?

Barbara Weltman: Historically, Congress seems to wait till the very last minute to make these types of decisions. In addition to the points you made, Congress is also looking at the Secure Act 2.0, which is a slew of rule changes to retirement benefit. Lastly, they also have provisions expiring at the end of 2021 (“extenders”) that they must also review. They may address the debt limit first as it has a December 3rd deadline, and then focus on many of the bills before them with the hope of getting things passed by December 18th or 19th.

Brian: What’s happening with the Employee Retention Credit? The Senate passed a bill over the summer that gets rid of the deduction (up to $7,000 per employee, per quarter) in the 4th quarter. Is it possible for the House to review the bill given all the changes (e.g., Delta variant, supply chain issues, inflation, labor shortages) that have taken place since they voted on it?

Barbara: Given that we are in the fourth quarter of the year already, it would have to be a retroactive change. There has been pushback on the bill; I believe they will address it before the end of the year.

Brian: What about business purchases in 2021 vs 2022 and the anticipated tax changes?

Barbara: There are significant tax breaks for buying machinery and equipment. Essentially you can write off a hundred percent in most cases, whether you finance it or buy it. If you get a loan or vendor financing to purchase a new piece of equipment, you can take the hundred percent deduction on it…as long as you purchase it and place it in service before the end of the year. You can't just place your order; you must put it to use in your business. 

Brian: Business owners can also wait until next year to make the purchase and decide to write it off over five to seven years or take the 100% deduction in 2022.

Barbara: You bring up like a wonderful point, which is that tax advisors often tell their clients to defer income if they have the ability. For example. Wait to send out end of the year invoices until the following year. Then business owners are advised to accelerate their deductions (e.g., stock up on supplies and make equipment purchases now). But, because we're facing higher taxes next year, that advice is now turned upside down. Maybe it makes sense to take the income this year, at a lower rate and defer purchases until 2022 with higher tax rates.

Thanks, Barbara for all your fantastic tax advice for our small and midsize business owners.

Again, to listen to the podcast in its entirety, click the link above in the podcast player. Also, make sure to check out the resource page of this podcast on Small Business Edge to find links to Barbara’s 2022 tax book, ways to follow and connect with Barbara on social media, and other valuable resources.