Small Business Taxes & ManagementTM--Copyright 2021, A/N Group, Inc.
The Build Back Better Act is far from a done deal, but since we're so close to the end of the year it could weigh heavily on your year-end tax planning. Again, nothing is final, but the House version could be close to what the final will look like if it's actually passed. Keep in mind that the Democrats have little wiggle room. At lot must fall into place, and that's rare in politics these days. And some of the provisions could change. Finally, we've ignored a number of provisions that have no effect on individuals or small business (e.g., the 15-percent minimum tax on large corporations and the 1 percent tax on corporate stock buybacks of publicly traded companies).
Child Tax Credit The higher child tax credit would be extended through 2022 and the refundable amount would be made permanent. The advance payment of the credit would also be extended through 2022.
State and Local Tax Deduction The $10,000 SALT cap would be increased to $80,000 for for most taxpayers ($40,000 for married filing separate and for estates and trusts). On the negative side, the SALT limitation was to expire in 2026, but would be extended through 2031.
Earned Income Tax Credit The enhanced earned income tax credit in the American Rescue Plan Act of 2021 would be extended through the end of 2022.
Premium Tax Credit The premium tax credit would be increased and extended through 2025. The bill would exclude a portion of lump-sum Social Security benefits from the household income test as well as up to $3,500 of income of dependents under age 24. Some low-income employees that are offered coverage under an employer's plan may be able to claim the credit. The Section 35 health coverage credit would also be made permanent.
Wash Sale Rules Under the proposed law, Section 1091 (wash sale rules) would apply to cryptoassets, commodities, and foreign currencies.
Income Tax Surcharge on High Income Taxpayers The bill would impose a surcharge on high income individuals and trusts. A 5 percent surcharge tax would apply to taxpayer's adjusted gross income (AGI) that exceeds $10 million ($5 million for married filing separate) and an additional 3 percent of a taxpayer's AGI in excess of $25 million ($12.5 for married, filing separate).
Small Business Changes
Net Investment Income Tax While the tax is reported on your individual tax return, it directly affects business owners. Under current law income from a trade or business such as an S corporation or partnership that is non-passive to the taxpayer (e.g., an entity in which you materially participate) is not subject to the net investment income tax. The bill would remove that exemption for taxpayers with taxable income of more than $500,000 for married filing joint and surviving spouses, $400,000 for single filers or $250,000 for married taxpayers filing separately.
Excess Business Losses Under the bill the limitation on excess business losses of noncorporate taxpayers (Sec. 461) would be made permanent.
Exclusion of Gain on Stock Sale Currently, the law allows investors in qualified small business companies to exclude as much as 100 percent of the gain on the disposition of such stock if held for more than five years. Under the proposed change the gain exclusion would not be allowed if the taxpayer's AGI is over $400,000 or for trusts or estates.
Green Energy The bill provides for a number of green energy provisions. They include extending the credit for energy production from renewable source and the investment tax credit for some energy property. The Section 48 credit for wind and solar energy would rise. Also included is an extension of the credit for residential energy efficient property, the credit for energy-efficient homes and the credit for nonbusiness energy property. There's also a new credit for manufacturing facilities for the production of energy property such as solar cells, wind turbines, etc.
Electric Vehicle Tax Credits The bill provides for various credits for plug-in vehicles. The credit would be as much as $8,500 with a cap based on the cost of the vehicle ($80,000 for vans, trucks, and SUVs and $55,000 for other vehicles). There would be a phase out for taxpayers with AGI of $500,000 or more (married joint) or $250,000 for single taxpayers. A 30 percent credit would be available for qualified commercial electric vehicles. Qualified bicycle commuting benefits would be reinstated, with the maximum amount going to $81 per month (from the prior $20).
Copyright 2020 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 12/01/21