Latest Tax News for Small Business
Tax Increase and Mandate Proposals in Washington Could Break The Small Business Recovery
Washington’s latest multi-trillion-dollar infrastructure proposals may target the largest corporations to pay for their spending, but unfortunately, the plans would more heavily burden many of America’s small businesses, family-owned businesses, and farms.
An American recovery depends on the small business recovery. To protect America’s small businesses from new proposed taxes and mandates that could break the fragile small business recovery, NFIB has launched the Small Business Survival campaign.
Congress is considering the following harmful tax increases and new mandates for small business:
- Limiting the Small Business Deduction (IRS Section 199A)
- Raising the corporate tax rate from 21%
- Raising the top income tax rate on individually- and family-owned businesses from 37% to 39.6%
- Expanding the estate tax’s reach
- Increasing the top capital-gains tax rate
- Imposes the 3.8% tax (NIIT, SECA) on all business income earned by S corporations, partnerships, and LLCs
- Enacting elements of the Protecting the Right to Organize (PRO) Act
- Mandating that employers provide paid sick leave and retirement accounts
- Establishing a complicated and inflexible new federal-government-run family and medical paid leave program
COVID-19 Recovery Tax Provisions:
Several new tax provisions have been added for small businesses, as a part of the federal response to the COVID-19 pandemic. These benefits include:
- Extended paid leave credit: The Family First Coronavirus Relief Act (FFCRA) permits employers to provide up to 80 hours of paid sick leave and up to 12 weeks of paid family leave to those affected by COVID-19. Through Sept. 30, 2021, employers can offset the costs of paid sick and family leave against payroll taxes.
- Extended family leave and sick leave credit: Many business owners choose to provide employees the flexibility to take time off to care for themselves and their family. Through Sept. 30, 2021, small business owners have the opportunity to take care of themselves as well by receiving a tax credit for providing paid leave to their employees.
- Employee Retention Tax Credit (ERTC): The ERTC program has been extended through December 31, 2021, offers a more generous tax credit, and eliminates a previous restriction for those with a Paycheck Protection Program (PPP) loan.
Tax Relief for Small Businesses:
In 2017, NFIB and others worked with Congress to provide significant tax relief for small businesses. And a survey on these tax changes confirmed that the overwhelming majority (82%) of small business owners believe the 2017 tax relief had a positive effect on the economy, prior to the COVID-19 pandemic.
Small Business Deduction
The centerpiece of the pro-small business tax changes is Section 199A, the Small Business Deduction. Approximately 75 percent of NFIB members are organized as pass-throughs (S corporations, LLCs, sole proprietorships, or partnerships), not as C corporations.
Pass-through business owners (S corporations, LLCs, sole proprietorships, or partnerships) – regardless of the type of business they own – can claim up to a 20% tax deduction on their share of the business’s income up to $164,900 in tax year 2021, or $329,800 for those filing jointly. For small business owners whose taxable income exceeds the threshold, the deduction is subject to formulaic limitations. You can still benefit from the deduction if your business is employee intensive, or you make capital expenditures.
More than 81% of small business owners believe the Small Business Deduction is important to the health of their business. However, without additional congressional action, this important small business provision is scheduled to expire after 2025 alongside other helpful tax benefits. Read more about the Small Business Deduction here.
Standard Tax Deduction
In 2018, the standard deduction nearly doubled to simplify filing taxes for Americans. For tax year 2021, the standard deduction is $12,550, or $25,100 if you’re filing jointly.
Small business owners were already able to immediately deduct some of the costs of equipment purchased for use in their business. The maximum deduction in tax year 2021 is $2,620,000. Unlike other tax relief, Section 179 is permanent.
Eligible assets that depreciate over time are now eligible for “bonus expensing” where instead of expensing a fraction of the price per year of use, you can expense the entire purchase at once. The maximum bonus expensing limit is $1,050,000. Bonus expensing phases out in 2024.
Family and Medical Leave Tax Credit
The TCJA provides eligible employers who offer paid family and medical leave to their employees a tax credit for tax years 2018 and 2019. The Consolidated Appropriations Act of 2021 (CAA) extends this helpful credit through 2025. Additional information from the IRS is available here, although at the time of this writing, the IRS webpage has yet to be updated to reflect the new CAA extension.