Marcum 2021 Year-End Tax Guide

• Acquire Assets. Acquiring business assets may be a good tax planning strategy, depending on the business situation. For assets with a useful life of more than one year, the cost must be depreciated over an IRS- determined period of years, depending on asset type. As a part of the Tax Cuts and Jobs Act (TCJA), the following favorable provisions were revised and made available for depreciating fixed assets, thus maximizing deductions: » Section 179 Expensing Election – This election allows a deduction of 100% of the cost of qualifying assets, rather than recovery through depreciation. The maximum amount that can be expensed for 2021 is $1.05 million. This amount is reduced (but not below zero) by the amount by which the cost of total qualifying property exceeds $2.62 million. » Bonus Depreciation – The TCJA established a 100% first-year deduction for qualified assets placed into service through December 31, 2022, with a recovery period of 20 years or less. This provision applies to both new and used property and was expanded to include qualified film, television and live theatrical productions. (For the period January 1, 2023 – December 31, 2026, bonus depreciation is scheduled to be gradually reduced.) The useful life of qualified improvement property has been corrected through the CARES Act to 15 years (previously 39 years under TCJA) to be bonus depreciation-eligible. » States may or may not conform to these federal provisions and so should be considered separately. MEDICAL DEDUCTIONS For 2021, medical expenses can be deducted to the extent that expenses exceed 7.5% of adjusted gross income (unchanged from 2020). Eligible expenses include health insurance premiums (if not deducted elsewhere on your income tax return), long-term care insurance premiums (subject to limitations), medical and dental services, and prescription drugs. The CARES Act also added over-the- counter medications as qualified medical expenses.

Planning Opportunities:

• Consider electing installment sale treatment so that gains are spread over a number of years. By spreading the income over multiple years, current year net investment income and MAGI may be reduced to minimize or eliminate the 3.8% tax for the current and future tax years. • Consider selling unrealized loss positions in your investment portfolio to offset capital gains recognized earlier in the year. • Tax exempt income is not subject to the 3.8% tax. Consider switching investments to tax exempt investments if it makes sense for your portfolio. State taxation of such investments should also be considered. SMALL BUSINESS OWNERS For those who own a business, consider the following strategies to minimize taxes: • Claim the Employee Retention Credit (ERC). If your business has employees, it can claim up to $7,000 per employee per quarter to offset payroll tax liabilities. However, ERC cannot be claimed using the same wages for which PPP loan forgiveness is applied. • Defer income. If a business uses the cash method of accounting, billing and collections for products or services can be deferred until year-end. Accrual method taxpayers can delay shipping products or delivering services. • Accelerate expenses. Cash basis taxpayers can consider accelerating expenses by paying for business • Employ your child. Business owners or those who are self-employed can consider employing their children to work in the family business. The child will be taxed at his or her rate on earnings (earnings are not subject to “Kiddie Tax”). Wages paid by sole proprietors to children age 17 or younger are exempt from Social Security, Medicare and federal unemployment taxes. Make sure wages paid are reasonable given the child’s age and work skills. • Claim a home office deduction. Eligible expenses may be deducted by taxpayers who maintain a home office used primarily for business activities. An optional standard deduction of $5 per square foot of home used for business purposes, up to 300 square feet, or a maximum $1,500 deduction, may be used. expenses by year-end. Credit card payments are deductible in the year charged rather than paid.

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