While the last major change to the tax code occurred in 2018 with the Tax Cut and Jobs Act (TCJA), each year can bring updates and small changes that can easily get missed if you’re not keeping up with updates. To help you prepare and plan your finances in 2021, our small business accountants in Raleigh are sharing the changes to the tax code in 2021 that may affect your business.
Due to the COVID-19 pandemic, we saw numerous updates and changes to small business taxes in 2021. With new tax incentives, breaks, and rules, most business owners will see a reduction in their tax burden. In 2021, this can include:
We understand that COVID-19 tax benefits may be beneficial for your business, but they can also be confusing come tax time. Make sure you speak with a CPA to see how these programs affect you.
If you own a small business that’s a sole proprietorship or LLC, these are pass-through businesses, meaning the income passes through to your personal tax return. Thus, it’s important to look at how tax brackets and deductions change.
In 2021, the standard deduction will be:
The standard deduction for people whose parents or caregivers can claim them as a dependent can’t exceed either $1,100 or $350 plus the dependent’s earned income.
While the tax rates themselves aren’t changing, the brackets are, so, depending on your income, you may see some changes. In 2021, the brackets look like this:
The maximum earned income credit is $6,728 who have three or more qualifying children.
Again, there’s not much changing here overall – the contribution limits for Roth IRA and traditional IRAs are the same as they are for 2020. However, income limits have changed, so if you make above a certain amount you may not be able to contribute to a Roth IRA, which is a common retirement savings account for self-employed people and business owners.
The updated filing status for the Roth IRA phase-out range is:
If you’re unsure how the changes to the tax code will affect you or are simply ready to turn over the stress and time of tax preparation over to an experienced team of accountants, we can help. Contact our small business accounting team by calling us at 919-420-0092 or complete our contact form to get started today!