If your small business is planning for payroll next year, be aware that the “Social Security wage base” is increasing. The Social Security Administration recently announced that the maximum earnings subject to Social Security tax will increase from $137,700 in 2020 to $142,800 in 2021. Wages and self-employment income above this threshold aren’t subject to Social Security tax. For 2021, an employer must withhold: 6.2% Social Security tax on the first $142,800 of employee wages, plus 1.45% Medicare tax. In addition, there’s a 0.9% additional Medicare tax on all employee wages in excess of $200,000.

Read More

The passive activity loss rules affect business ventures you’re engaged in or might engage in. If the ventures are passive activities, the passive activity loss rules prevent you from deducting expenses that are generated by them in excess of their income. You can’t deduct the excess expenses (losses) against earned income or against other nonpassive income. Nonpassive income for this purpose includes interest, dividends, annuities, royalties, gains and losses from most property dispositions, and income from certain oil and gas property interests. There are different rules for rental activities

Read More

Do you buy or lease computer software to use in your business? Do you develop software for use in your business, or for sale or lease to others? You should be aware there are complex rules that may apply to determine the tax treatment of the expenses. The rules depend on whether the software is purchased, leased or developed by your business. For example, you must deduct amounts you pay to rent leased software in the tax year they’re paid, if you’re a cash-method taxpayer, or the tax year for which the rentals are accrued, if you’re an accrual-method taxpayer.

Read More

The business use of websites is widespread. But determining the proper tax treatment for the costs involved in developing a website can be difficult. The IRS hasn’t yet released formal guidance on when website costs can be deducted, so you must apply existing guidance that’s available on other costs to the issue of website development costs. The exact treatment of website design costs depends on whether they’re software or hardware and whether they’re part of a start-up business. If you hire third parties to set up and run your website, payments are currently deductible as ordinary and necessary business expenses.

Read More

Here are a few key tax-related deadlines for businesses and other employers during Quarter 4 of 2020. OCT. 15: If you’re the owner or operator of a calendar-year C corp. which filed an extension, file a 2019 income tax return. NOV. 2: Report income tax withholding and FICA taxes for Q3 2020 (unless you’re eligible for a Nov. 10 deadline because you deposited on time (and in full) all of the associated taxes due). DEC. 15: If a calendar-year C corp., pay the fourth installment of 2020 estimated income taxes.

Read More

The IRS has issued guidance to employers about the presidential action to allow employers to defer certain payroll taxes. Notice 2020-65 was issued to implement President Trump’s executive memo signed Aug. 8. The deferral involves wages or compensation paid to an employee beginning Sept. 1, 2020, and ending Dec. 31, 2020, but only if the amount paid for a biweekly pay period is less than $4,000, or an equivalent amount in other pay periods. The guidance postpones the withholding and remittance of the employee share of Social Security tax until the period beginning Jan. 1, 2021, and ending April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021.

Read More

You’re probably aware of the 100% bonus depreciation tax break that’s available for a wide variety of qualifying property. There are some important points to be aware of when it comes to this powerful tax-saving tool. For example, bonus depreciation is available for new and most used property. And it’s scheduled to phase out. Under current law, 100% bonus depreciation will generally be phased out in steps. An 80% rate will apply to property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, and a 0% rate will apply in 2027 and later years. Asset depreciation can be a complex area of tax law.

Read More

The CARES Act made changes to excess business losses that affect those who hold an interest in a business (or may do so in the future). This includes changes that are retroactive and there may be opportunities to file amended tax returns. The CARES Act made several retroactive corrections to the excess business loss rules as they were originally stated in the 2017 Tax Cuts and Jobs Act. Most importantly, the law clarified that deductions, gross income or gain attributable to employment aren’t taken into account in calculating an excess business loss. This means that excess business losses can’t shelter either net taxable investment income or net taxable employment income.

Read More

President Trump has signed a Presidential Memorandum to defer the employee portion of Social Security taxes for some people. The action only defers the taxes, which means they must be paid in the future. However, the action directs the U.S. Treasury Secretary to explore ways to eliminate the obligation to pay the taxes deferred. Employers have questions and concerns.

Read More

If your business got a Paycheck Protection Program (PPP) loan taken out due to the COVID-19 crisis, there are potential tax implications. The PPP allows eligible businesses to receive loans that will be forgiven if they spend the proceeds on certain items within a certain period of time. In general, the reduction or cancellation of non-PPP debt results in cancellation of debt (COD) income to the debtor. However, forgiveness of PPP debt is excluded from gross income. The IRS has stated that expenses paid with PPP proceeds can’t be deducted, because the loans are forgiven without having taxable COD income and are tax-exempt income. Deducting the expenses would result in a double tax benefit.

Read More