Business Tax Quick Guide: Tax Year 2021-2022

We bring to your attention this quick guide to use during tax season.

BUSINESS TAX QUICK GUIDE: YEAR 2021-2022

We bring to your attention this quick guide to use during tax season:

C CORPORATION INCOME TAX

■  Taxable income of a C corporation: Taxed at a flat rate of 21%.

QUALIFIED PERSONAL SERVICE CORPORATION TAX

■  Taxable income of a qualified personal service corporation is taxed at the regular corporate tax rate of 21%.

ACCUMULATED EARNINGS TAX

■  20% of accumulated taxable income (in addition to regular corporate income tax).

PERSONAL HOLDING COMPANY TAX

■  20% penalty on undistributed personal holding company income.

■  No foreign tax credit allowed against personal holding company tax.

SELF-EMPLOYMENT TAX

Tax rate: 15.3% (12.4% OASDI tax plus 2.9% Medicare tax).

■  Surtax: 0.9% Medicare surtax on self-employment income in excess of $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately).

■  Wage base: $142,800 of self-employment income for OASDI (maximum OASDI tax of $17,707.20; no ceiling on Medicare tax).

SOCIAL SECURITY TAX

■ Tax rate: 7.65%, imposed on both employer and employee (6.2% OASDI tax plus 1.45% Medicare tax).

■  Wage base: $142,800 of wages for OASDI (maximum OASDI tax of $17,707.20; no ceiling on Medicare tax).

FEDERAL UNEMPLOYMENT TAX

■  Tax rate: Employers pay 6% on first $7,000 of wages paid to each employee.

■  Credit: Maximum amount of 5.4% for contributions paid to state unemployment insurance funds.

ESTIMATED TAX

■  Corporations owing $500 or more in income tax for the tax year must make estimated tax payments equaling the lesser of 100% of the prior-year or current-year tax liability. Large corporations must base the last three payments on the current-year tax liability.

■  Due on the 15th day of the fourth, sixth, ninth, and 12th months of the corporation’s tax year (April 15, June 15, Sept. 15, and Dec. 15 for calendar-year corporations).

CORPORATE ALTERNATIVE MINIMUM TAX (AMT)

■  AMT no longer applies to corporations.

NONRESIDENT AND FOREIGN CORPORATIONS

■  Taxed on U.S.-source investment income at 30% (or lower under treaty).

■  Net income effectively connected with a U.S. trade or business taxed at regular U.S. tax rates.

■  Accumulated earnings tax of 20% of accumulated taxable income.

■  Branch profits tax of 30% on dividend equivalent amount.

■  4% tax on U.S.-source gross transportation income that is not effectively connected with a U.S. trade or business.

FILING DEADLINES

■  Form 1120, U.S. Corporation Income Tax Return: April 15 for calendar-year corporations (extension to Oct. 15 available (Form 7004, Application for Automatic Exten- sion of Time to File Certain Business Income Tax, Informa- tion, and Other Returns)); 15th day of the fourth month following the close of the corporation’s tax year for fiscal years ending other than June 30 (six-month extension available); Sept. 15 for corporations with a June 30 fiscal year end (extension to April 15, 2023, available).

■   Form 1065, U.S. Return of Partnership Income: 15th day of the third month following the close of the partnership’s tax year (six-month extension available (Form 7004)).

■  Form 1065, Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc.: Due to partners on or before the date the partnership files Form 1065.

■  Form 1120-S, U.S. Income Tax Return for an S Corporation: 15th day of the third month following the close of the corporation’s tax year (six-month extension available (Form 7004)).

■  Form 1120-S, Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc.: Due to shareholders on or before the date the S corporation files Form 1120-S.

STANDARD MILEAGE RATE

■  For business use of auto: 56 cents per mile (note that unreimbursed employee business expenses are no longer deductible as a miscellaneous itemized deduction).

■  Deemed depreciation: 26 cents per mile.

GLOBAL INTANGIBLE LOW-TAXED INCOME

■  U.S. persons owning 10% or more of the stock (by vote or value) of a controlled foreign corporation (CFC) must include in currently taxable income “global intangible low-taxed income” (GILTI), effective with the CFC’s first tax year beginning after Dec. 31, 2017, regardless of whether any amount is distributed to the shareholder.

■  Corporations may claim a deduction of 50% of GILTI.

■  U.S. persons owning 10% or more of the stock (by vote or value) of a “deferred foreign income corporation” must increase the foreign corporation’s Subpart F income for the last tax year of the foreign corporation that begins prior to Jan. 1, 2018, by an amount equal to its “accumulated post-1986 deferred foreign income.” Taxpayers generally may elect to pay the tax resulting from the inclusion in eight annual installments.

FOREIGN-DERIVED INTANGIBLE INCOME 

■  Domestic corporations (other than regulated investment companies and real estate investment trusts) can deduct 37.5% of the corporation’s “foreign derived intangible income.”

BUSINESS INTEREST DEDUCTIONS

■  Business interest deductions are limited to the sum of

1. Business interest income;

2. 30% of the taxpayer’s adjusted taxable income for the tax year; and 3. The taxpayer’s floor plan financing interest for the tax year.

■  Any disallowed business interest deduction can be carried forward indefinitely (with certain restrictions for partnerships).

NET OPERATING LOSSES

■  Limited to 80% of taxable income.

■  Can be carried forward indefinitely; cannot be carried back (except for farming businesses).

LIKE-KIND EXCHANGES

■  Limited to real property not primarily held for sale.

TRAVEL PER DIEM RATES

■  High-low method: $292 per day ($71 for meals) through Sept. 30, $296 per day ($74 for meals) after Sept. 30, for high-cost localities; $198 per day ($60 for meals) through Sept. 30, $202 per day ($64 for meals) after Sept. 30, for other localities in the continental United States (CONUS).

■  Transportation industry meals and incidentals: $66 per day through Sept. 30, $69 per day after Sept. 30 (CONUS); $71 per day through Sept. 30, $74 per day after Sept. 30 (outside CONUS).

SEC. 179 AND BONUS DEPRECIATION

■  Sec. 179 expense deduction: $1,050,000 with $2,620,000 threshold limit.

■  Bonus depreciation: 100% of the cost of eligible property placed in service in 2021.

DIVIDENDS-RECEIVED DEDUCTION

■  From a domestic corporation: 50%.

■  From a domestic corporation owned 20% or more: 65%.

■  From a member of an affiliated group filing a separate return: 100%.

■  From a qualified 10%-owned foreign corporation: 50% of the U.S.-source portion; 100% of the foreign-source portion.

S CORPORATIONS

■  Built-in gains tax: Corporate tax rate times net recognized built-in gain (imposed during the recognition period on S corporations that were formerly C corporations).

■  Excess net passive income tax: Imposed if an S corporation has accumulated earnings and profits at the end of the tax year and its passive investment income exceeds 25% of the corporation’s gross receipts. Corporate tax rate times excess net passive income.

■  LIFO recapture amount: Excess (if any) of the inventory amount under FIFO over the inventory amount under LIFO at the close of an S corporation’s last C corporation tax year must be included in the corporation’s gross income in the last C corporation tax year.

BUSINESS AUTO DEPRECIATION LIMITS 

For vehicles placed in service during 2021.

* Including trucks and vans.

† No bonus depreciation is available if vehicle was acquired before Sept. 28, 2017, and placed in service after 2019.

Source: Journal Of Accountancy