Key U.S. Tax Filing Changes You Should Know for Your 2021 Taxes

Preparing and executing your tax preparation plan is a daunting task. While there are many aspects that can make filing taxes complex, one of the primary nuances is because of the changes that happen every year. For the 2021 tax year, there have been changes in standard deductions, tax brackets, and pandemic-related tax provisions that can have looming effects on your process and preparation.

While it sounds like tax returns are a bit more complex this year, the good news is that most of these changes have positive implications for taxpayers. As long as you can navigate through the changes and identify them, you can use them to benefit your business and get more out of your 2021 returns.

Below, you can find a summary of some of the bigger and more significant changes you should consider. For a full and extensive list of these tax changes from the IRS, you can click here.

Employee Retention Credit

The Employee Retention Credit was a product of the CARES Act created in 2020 and ended this past September. This fully refundable payroll credit was for employers to add up to $70,000 per quarter, and encouraged businesses of all kinds to utilize the added flexibility to keep employees on the payroll.

The ERC program underwent a few changes in the past couple of years which is why many business owners weren’t able to capitalize or apply for it. For example, it was originally not available to businesses who took out PPP loans, which changed shortly thereafter. The actual amount available to eligible businesses also changed in that time period, and ultimately rules were loosened on how much businesses could get.

Charitable Donations Changes

In the past, taxpayers who are eligible for the standard deduction cannot claim a deduction for charitable contributions. However, a temporary tax change enacted in the CARES Act allows taxpayers to claim a deduction of up to $300 for cash contributions made to qualifying charities in the year 2021. It increases to $600 for those filing married and filing jointly for income taxes.  If you’re donating gifts as a corporation, you can claim up to 75% annually, applying your donation as a deduction against taxable income.

For taxpayers who itemize their deductions, they can also deduct 100% of the adjusted gross income (AGI) in their qualified charitable contributions. Previously, taxpayers could only deduct a range of 20% to 60% of AGI, depending on the type of contribution and category of a charitable organization. Remember, you can use the IRS’s Tax Exempt Organization Search tool to see the categories and if a potential charity is registered. Generally, most religious, environmental, animal, educational, and health-related charities qualify.

For more tax credits small business owners should know about, click here.

Operating Loss Changes

In the wake of the pandemic and the CARES Act, TCJA rules were waived and business owners were given the opportunity to carry back net operating losses generated after Dec 31, 2017, and before Jan 1, 2021, for up to five additional years. The cap for the business interest was also adjusted and raised from 30% to 50% of business income.

The rules around how business interest expenses and net operating loss can be used have changed back to what they were before the pandemic. The limits on net operating losses could mean additional income tax payments.

For instance, if a business owner had a net operating loss back in 2018, then had taxable income in 2019, they could use the net operating loss to decrease their 2019 taxable income. Under the CARES Act that could also be carried backward if they had a taxable income in 2017. That’s now coming to an end, and if applicable, you should make your adjustments as necessary.

Deferred Social Security Payments

Under the CARES Act, employers could defer deposits of the employer portion of Social Security. Now, those payments are due. Half was due at the end of 2021, and the other half is due at the end of this year. Since the payments have already been deferred, the IRS has warned that there will be penalties for any taxpayers who miss the Dec. 31 deadline.

Through the CARES Act, deposits of the employer portion of Social Security could be deferred by employers. Now, those payments have come due. For most employers, half of that amount was due at the end of 2021, and the final half is due at the end of 2022. The IRS has warned that they will be issuing penalties to any taxpayers who miss those specific deadlines.

With all the changes in tax rules and a lot of regulations returning to their pre-pandemic form, it’s important to collaborate and cross-reference with your accountant or tax professional more than ever. Not only is this tax season coming equipped with the usual stresses, but the IRS is also dealing with an overwhelming amount of volume with returns, and a general lack of responsiveness.

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