Year-End Tax Planning and the American Rescue Plan

We’re in the final quarter of what has been a challenging year for pretty much everyone. Small businesses have felt the effects of rising inflation, pandemic uncertainty, and a weakening labor force. Tax deadlines were changed and extended, and various stimulus plans changed work priorities for many Americans. But relief is on the way, and with the recent passing of the American Rescue Plan, people across the country are finding some much-needed reassurance. This legislation comes with some significant tax implications for small businesses, and there are still actions you can take to favorably impact your bottom line and your tax bill for 2021.

This blog will take a closer look at the American Rescue Plan, how it affects small businesses, and the steps you can take now to reduce your tax liability for 2021.

What Does the American Rescue Plan Mean for Small Business Year End Tax Planning?

Since 2020, the government has made efforts to alleviate the economic effects of the pandemic. Here are two aspects of the American Rescue Plan that can affect your taxes in 2021:

Employee Retention Credit (ERC)
The ERC first began in 2020. It’s a refundable credit businesses can claim on qualifying wages, including certain health insurance costs, that were paid to employees in 2021. Eligibility for this tax benefit is linked to an employer’s size, the impact of the pandemic on an employee’s ability to provide services, and the suspension of operations because of government mandates or reductions in quarterly gross receipts. Employers can both receive Paycheck Protection Plan (PPP) loans and claim Employee Retention Tax Credit benefits, but there are limits on “double-dipping.” The American Rescue Act also makes the tax credit available to “recovery start-up businesses” that began after February 15, 2020 and have annual gross receipts of $1 million or less.

Families First Coronavirus Response Act
The American Rescue Plan Act does not reinstate the FFRCA’s requirement to provide paid leave, but it extends the tax credits for qualifying family leave and sick leave wages that an employer voluntarily paid between April 1, 2021 and September 30, 2021. The measure provides a new yearly allotment of up to 80 hours per employee of qualifying paid sick leave available for 2021 tax credits. Again, this does not make an employer obligated to provide additional leave, but allows employers to offer a new bucket of leave to employees if they so choose.

How To Start Tax Planning for 2021

Tax planning is a high-level examination of how your financial decisions during a fiscal year will impact your tax liability at tax time. This takes into consideration the size and timing of capital purchases, profits, losses, and credit opportunities, among other financial decisions. What are the overall goals of tax planning?

Save Time and Reduce Errors
An effective tax strategy is one that guides decision-making during the year. Whether it’s time spent weighing the pros and cons of a capital purchase or trying to determine what you owe at tax time, having a plan in place and following it will save your business time and effort. When a small business owner takes on their own taxes, the chance for errors increases significantly.

Reduce Overall Tax Liability
By planning for taxes, your business can take advantage of every opportunity available, from tax deductions for costs incurred over the year to credits you never knew existed.

Adjust for the Year’s Events and New Laws That Affect Taxes
A professional tax advisor is an important advantage for businesses that need to navigate complicated taxes, and 2021 is a prime example. This article is meant to provide a simple overview, and while each tax situation is unique, so too are the effects of recent legislation like the American Rescue Plan.

Rubino’s Tax Advisory Services Will Take the Guesswork Out of Your Tax Situation

At Rubino, our corporate tax experts understand current tax laws, including the American Rescue Plan. This means they can apply complex tax codes to your operations and help you plan for new regulations to mitigate their potential impact on your business. Corporate tax services are just one way Rubino is committed to your business and your specific goals.

Business taxes are never easy. One of the best decisions you can make is to find a dedicated financial advisor who can help you develop a sensible tax strategy. At Rubino, we add value to every partnership by understanding changes to the tax codes and laws that directly affect our partners. There’s no reason to stay in the dark. Reach out to us today for a free consultation and take charge of your taxes.

The content of this blog is intended to provide an overview of the subject matter, and employers should always consult with a professional about their specific circumstances.