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LIDO INSIGHTS | Small Business Owners Year-End Planning 2021

Published 09-24-2021

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This has been a year of unique challenges. Year-end planning for 2021 may require more strategy than any other year in recent history. Business owners have been managing through a pandemic that has impacted them with remote working, supply chain issues, business disruption, travel restrictions, etc. The pandemic has resulted in the implementation of many regulatory and legislative changes that should be considered for year-end planning.

While we can’t ignore the standard year-end business and tax strategies such as income deferral or acceleration, funding of retirement plans or accelerated depreciation on capital purchases (IRS code sections 179 and 168(k)), the uniqueness of 2021 requires additional considerations of the following:        

  • State and Local Tax (SALT) Deduction: The Tax Cuts and Jobs Act (TCJA) limits the amount of state and local taxes an individual can deduct for federal tax purposes to no more than $10,000.00. Many states have enacted legislation to offer taxpayers a “workaround” to the SALT cap by enacting passthrough entity-level taxes. Effectively imposing the tax liability to owners of passthrough entities (PTE) instead of directly on the PTE. These new state PTE taxes provide an opportunity for owners to avoid SALT limit by allowing their share to be paid at entity level utilizing the “trade or business” exemption. The following states have enacted SALT cap workaround laws: Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Georgia, Idaho, Louisiana, Maryland, Minnesota, New Jersey, New York, Oklahoma, Rhode Island, South Carolina and Wisconsin.

  • Home Office Deduction: The pandemic has forced remote working for many businesses. Business owners may be able to claima home office deduction for mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent on IRS Form 8829. Generally, there are two basic requirements: (1) Exclusive use of a portion of the home for conducting business on a regular basis and (2) Home must be taxpayer’s principal place of business – includes managerial and administrative activities conducted at the home and there is no other location to perform these duties.

  • COVID-19 Economic Injury Disaster Loans Program (EIDL): The U.S. Small Business Administration made the following significant changes to the program:
    • Raised the EIDL loan cap from $500,000.00 to $2,000,000.00.
    • Added commercial debt and federal business debt payments to the following approved uses – working capital, payroll and purchasing equipment.
    • Implemented deferred payment period: Repayments will not have to begin until two years after loan origination.
    • The COVID-19 EIDL program runs through December 31, 2021. The program offers 30-year loans with fixed rates of 3.75% for small businesses including sole proprietors and independent contractors, and 2.75% for not-for-profits. 
  • Employee Retention Credit (ERC): For 2021, the Employee Retention Credit is a quarterly tax credit against the employer’s share of certain payroll taxes. The tax credit is 70% of the first $10,000 in wages per employee in each quarter of 2021. This translates to a $7,000 credit per quarter and up to $28,000 per year, per employee. This credit applies to your business under the following conditions:
    • Company was at least partly closed due to a government or the business’s revenue declined by 20% or more for any quarter this year, compared to the same quarter in 2019 (or 2020 if company wasn’t in existence in 2019).
    • Company kept employees on payroll.

  • COVID-era property tax relief planning: Economic and business conditions caused by the pandemic may have impacted property values. There may be an opportunity to document COVID-related valuation losses to save property taxes for business owners. The appealing process should be initiated well before deadline for property tax return amendment and real estate tax protest. The following COVID-related conditions should be reviewed for purposes of protest: Impact on sales revenue, additional expenses incurred, facility and equipment utilization rates, impact of workforce/headcount and impact on supply chain.

Given the circumstances surrounding business conditions in 2021 we would recommend an early start on your year-end business and tax planning. We suggest you discuss these matters with your financial advisor and tax professional.

The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.

Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call (310) 278-8232, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.

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Lido Advisors, LLC is an investment advisor registered with the Securities & Exchange Commission. SEC registration does not denote competence, ability, or expertise.  As an SEC-registered advisor, we are required to publicly file certain information with the SEC as well as furnish or provide you with the opportunity to obtain information about our principals, employees, products, services, and fee schedules.  Please review our Form ADV, which provides this information, at adviserinfo.sec.gov, call us at (310) 278-8232, or mail us at 1875 Century Park East, Suite 950, Los Angeles, CA 90067 for a copy of our Form ADV.

The future is uncertain and cannot be predicted.  Past performance is not indicative of future performance. These materials are provided for informational and illustrative purposes only and should not be relied upon as the basis of an investment decision. You should not construe this as investment advice or an offer to buy or sell securities.  All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment before making a decision to invest.

Not all investments are suitable for all clients. Investing carries a risk of loss, including the complete loss of principal. Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable or suitable for your financial situation or risk tolerance.  Any references to projected or future expected returns or risk are not guarantees, promises, or assurances that these outcomes will be achieved.  Before investing, you should seek financial advice regarding the appropriateness and suitability of the contemplated investment as not all investments are suitable for all investors.

We do not provide legal or tax advice.  Any investment has tax and legal consequences.  You should consult with a licensed professional prior to making any investment.