Here are several tax planning moves to consider this summer for your business. Also read about why a buy-sell agreement is a document you’ll want to have for your business.
Tax planning for small businesses isn’t restricted to the end of the year. There is plenty you can do in the summer months to reduce your 2021 tax liability. Find out about several tax planning moves to consider now.
Also read about a vital document your business should have, preferably way before you actually need it.
Please call if you would like to discuss your tax or business questions. If you know someone who can benefit from this newsletter, feel free to send it to them.
Summertime Planning for Business Taxes
As a small business owner, there is plenty of tax planning and reviewing you can do in the summer months to reduce your 2021 tax liability.
While conducting this review, remember that there is uncertainty surrounding possible tax hikes to take into account. The White House is proposing an increase to the corporate tax rate from 21% to 28%. The top tax rate that could hit passthrough entities might increase from 37% to 39.6%. Here are several moves to consider now.
- Plan business equipment purchases. The Section 179 and bonus depreciation deduction are two of the most valuable tax planning tools for small businesses. In 2021, you can deduct up to $1.05 million of equipment purchases courtesy of the Section 179 deduction. The bonus depreciation deduction permits you to deduct 100% of an equipment’s price tag. Look ahead to the second half of 2021 and plan any future equipment purchases by December 31.
- Plan purchase of business meals. Plan your business meals to take advantage of the temporary 100% deductibility available for qualifying meals prepared by a restaurant. The IRS has guidance on what is considered a restaurant for purposes of this 100% deduction. If food is purchased from a non-restaurant establishment, the traditional 50% deduction limitation still applies.
- Keep vehicle logs current. If your business has one or more vehicles for which you take a deduction, keep your mileage logs current. Whether your logs are kept on either physical paper or in a software app, remember that the IRS requires contemporaneous documentation of all business activity related to a vehicle. If you don’t keep track of your vehicle expenses as they occur, your deduction could be disallowed.
- Hire your children. Your kids could provide a valuable tax break for your business, but be sure to follow certain steps to ensure the wages are fully deductible. The child must have a real job that helps the business, and the wages must be reasonable for the work performed. In addition, depending on how your business is organized and the age of your child, you may be able to avoid paying Social Security, Medicare, and unemployment taxes on their wages. To qualify, you must be a sole proprietor or a husband-wife/eligible partnership and your child must be under the age of 18.
These are just some of the many ways your business can cut its tax bill. Call today to start your 2021 tax planning.
Does Your Business Have This Vital Document?
Does your business have a buy-sell agreement?
If you retire, become disabled or pass away unexpectedly, you’ll want to have the means to transfer your business interests. A buy-sell agreement lets you plan for many contingencies over which you would otherwise have little control.
Here are some of the advantages of having a buy-sell agreement:
- Provides a framework for dealing with owner disputes and ensures a smooth transition of control and power to the owner’s successor.
- Facilitates estate planning objectives and can help minimize certain estate taxes. Can be structured to take advantage of favorable redemption rules upon death.
- Forces shareholders to deal with liquidity issues and addresses how a possible buyout would be funded.
- Helps prevent loss of tax benefits, especially for S corporations in which transferred stock could lead to termination of the S election. It can disallow the transfer of shares without the consent of the owners.
What you should do
Here are several ideas to consider when putting together your own buy-sell agreement.
- Develop it early. Create the framework of a buy-sell agreement well before you need it. Even if you need to amend the buy-sell agreement in the future, you’ll at least have the framework of the agreement ready to go.
- Agree to the valuation method. You should agree to how the price of the business is determined. Who will conduct the valuation? Which valuation method will be used? You could also consider allowing an independent valuation expert to determine the most appropriate method to value the business.
- Involve your entire team of trusted advisors. There are many moving parts to a buy-sell agreement, so be sure to involve your entire team of trusted advisors, including your attorney, tax accountant, and a third-party valuation professional, while crafting the agreement.
Something as valuable as the ownership and management of a small business should not be left to chance. The agreement needs to satisfy all parties involved, including the IRS requirements for tax purposes. Please call for assistance in drafting a buy-sell agreement or in updating your current buy-sell agreement.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.