COVID-19 has taken a financial toll, and the recovery process is in full swing. To give Americans a little push in the right direction, the U.S. government and the IRS are adjusting several deductions, most of which will help you keep a little extra money in your pocket.
Read on to discover these new business and personal deductions so you can save during tax season this year.
Business Deductions
The following new deductions apply to businesses.
100% of Business Meals Are Deductible
If you treat a partner or prospect to lunch, you can deduct the entire expense. Even though it only applies to 2021 and 2022, it could keep a little extra money in your wallet.
New Mileage Rate for 2021: $0.56/Mile
You can count $0.56 for every mile you drive for business. If you’re an active duty member of the military, you can deduct $0.16 for every mile. Also, if you drive for a charitable organization, you can deduct $0.14 for each mile driven, which is the same as it was for 2020.
20% Deduction for Pass-Through Income Gets Higher Thresholds
If you’re self-employed, own an LLC, S corporation, or another pass-through business, you can deduct 20% of qualified business income, and limitations are higher: $329,800 if you’re filing jointly and $164,900 for single filers.
Deduction for Expenses Paid with PPP Loan Proceeds
You can deduct the full amount of expenses paid using proceeds from a PPP loan.
Accelerated Depreciation of Residential Rental Property for Electing Trade or Business
You may choose to make an election if you engaged in real property trades or have a business that’s subject to the interest expense limitations of 163(j). There will be no interest limitations, but you have to use the ADS depreciation rules, which results in a longer, useful life and lower depreciation expense each year. This would result in a change from 40- to 30-years of ADS useful life if the property was placed in service before January 1, 2018. This change only applies if you weren’t subject to ADS before January 1, 2018.
Personal Deductions
The following new deductions concern individuals.
Removal of 10% Pre-59 ½ Penalty for Retirement Accounts
As long as the withdrawal from your IRA or retirement plan isn’t more than $100,000, you don’t have to pay the 10% penalty you would usually get for withdrawing before age 59½.
Gift Tax Exclusion of up to $30,000
You can gift as much as $30,000 for each child, grandchild, or others in 2021 if your spouse agrees without having to file a gift tax return or accessing your lifetime estate and gift tax exemption. If you’re doing it on your own, you can give as much as $15,000.
Higher Cap on Deductible Contributions to HSAs in 2021
The deductible contributions for HSAs went up for 2021. It’s $3,600 if you have coverage only for yourself and $7,200 if you have family coverage. If you were born before 1967, you could add in an extra $1,000. Your qualifying insurance policy needs to limit your out-of-pocket costs to $14,000 for a family health plan and $7,000 for an individual plan. The minimum deductibles are $2,800 for a family plan and $1,400 for individuals.
Higher Limits for Deductions of Long-Term Care Premiums
If you’re 71 years of age or older, you can deduct as much as $5,640 for each person. If you’re between 61 and 70 years old, you can deduct $4,520. Those between the ages of 51 and 60 can deduct up to $1,690, and between 41 and 50 can deduct as much as $850. Those under 40 years old can deduct up to $450.
Optimize Your Deductions with Expert Guidance
Regardless of whether you’re planning on taking advantage of business deductions, personal deductions, or both, you can hire a professional bookkeeper to get the guidance you need and maximize your savings. Reach out to Guardian Business Services today to learn more.