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Many tax amounts affecting businesses have increased for 2021

Posted by Admin Posted on Mar 03 2021



A number of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2021. Some stayed the same due to low inflation. And the deduction for business meals has doubled for this year after a new law was enacted at the end of 2020. Here’s a rundown of those that may be important to you and your business.

Social Security tax

The amount of employees’ earnings that are subject to Social Security tax is capped for 2021 at $142,800 (up from $137,700 for 2020).

Deductions

  • Section 179 expensing:
    • Limit: $1.05 million (up from $1.04 million for 2020)
    • Phaseout: $2.62 million (up from $2.59 million)
  • Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
    • Married filing jointly: $329,800 (up from $326,600)
    • Married filing separately: $164,925 (up from $163,300)
    • Other filers: $164,900 (up from $163,300)

Business meals

Deduction for eligible business-related food and beverage expenses provided by a restaurant: 100% (up from 50%)

Retirement plans

  • Employee contributions to 401(k) plans: $19,500 (unchanged from 2020)
  • Catch-up contributions to 401(k) plans: $6,500 (unchanged)
  • Employee contributions to SIMPLEs: $13,500 (unchanged)
  • Catch-up contributions to SIMPLEs: $3,000 (unchanged)
  • Combined employer/employee contributions to defined contribution plans: $58,000 (up from $57,000)
  • Maximum compensation used to determine contributions: $290,000 (up from $285,000)
  • Annual benefit for defined benefit plans: $230,000 (up from $225,000)
  • Compensation defining a highly compensated employee: $130,000 (unchanged)
  • Compensation defining a “key” employee: $185,000 (unchanged)

Other employee benefits

  • Qualified transportation fringe-benefits employee income exclusion: $270 per month (unchanged)
  • Health Savings Account contributions:
    • Individual coverage: $3,600 (up from $3,550)
    • Family coverage: $7,200 (up from $7,100)
    • Catch-up contribution: $1,000 (unchanged)
  • Flexible Spending Account contributions:
    • Health care: $2,750 (unchanged)
    • Dependent care: $5,000 (unchanged)

These are only some of the tax limits that may affect your business and additional rules may apply. If you have questions, please contact us.

© 2021

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This blog site is intended for educational purposes directed towards our clients and provides general information about tax, accounting and business related topics.  It is not intended to provide professional advice.  We are not investment advisors. Accordingly, we suggest that you seek the advice of qualified investment advisors appropriate to each investment being considered. By using this blog site, you understand that there is no CPA/client relationship between you and Hyde & Company CPAs, P.C. or its employees.  The blog and website, including all contents posted by the author(s), should not be used as a substitute for competent counsel from a qualified advisor in your state.  Hyde & Company CPAs, P.C. posts are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes.  Tax rules are frequently changed, added, amended, and/or left to expire – always check with your CPA or accountant regarding the most current tax rules and how they apply to your specific tax issue