Special 100 Percent Bonus Depreciation—Under the TCJA, businesses are able to deduct 100% of the cost of new OR used business assets purchased and placed in service beginning on September 27, 2017. if they have a useful life of 20 years or less. The 100% deduction is only available through 2022 and is phased down to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
Section 179 Deduction—Section 179 allows businesses to expense the full cost of new or used equipment. The 2021 limit is $1,050,000 for qualifying property. Section 179 expensing is subject to phase outs if a business added more than $2,620,000 of assets; the deduction is reduced dollar for dollar.
Section 1202 Qualified Small Business Stock—Taxpayers may exclude 100% of gain on the sale or exchange of Qualified Small Business Stock held over five years. Certain restrictions apply in determining eligibility of the stock, and the exclusion from gross income is limited to the greater of $10,000,000 or ten times the taxpayer’s stock basis.
Section 199A Qualified Business Income Deduction—Taxpayers who have qualified business income (QBI) related to their pass-through activities or solely owned businesses may qualify for the deduction. While subject to several limitations and exceptions, many taxpayers will be able to deduct up to 20% of their QBI.
Repair Regulations—Under the De Minimis Safe Harbor rules, taxpayers may deduct up to $2,500 per invoice for items related to repairs or improvements of property. Due to the complexity of these rules, you should discuss any plans you may have with us.
Hot Button Issues:
State and local taxes that will be coming into effect beginning on January 1, 2022:
- 7% Capital Gains Tax for Washington State Residents on certain long-term capital gains.
- Up to 2.4% City of Seattle payroll tax expense on compensation paid in Seattle to employees during the period of January 1, 2021, through December 31, 2040. Certain businesses are exempt from this tax.
- Clients with sales in multiple states should remain aware of the rules and economic nexus thresholds for each state. In light of the 2018 Wayfair decision, states will be more assertive in subjecting business located outside of their borders to sales tax and other business tax reporting requirements. Washington state has declared that remote sellers with $100,000 or more in retail sales to Washington purchasers must collect and remit sales tax.
Given the uncertainty regarding new tax law, your safest course of action is to keep apprised of any changes that may impact your situation. Feel free to give us a call with any questions you have. Remember, the IRS issued a Taxpayer Bill of Rights to help you better understand your rights in dealing with the U.S. tax system. However, if you receive any IRS correspondence, do not ignore this notice. You should contact your tax professional to appropriately respond to this notice to avoid or reduce potential charges. We would be happy to set up a meeting or assist you in any additional ways that we can.