While the recently passed Infrastructure Investment and Jobs Act primarily addresses infrastructure-related issues, it includes several tax provisions affecting individuals and small business taxpayers. Let’s take a look:

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As we close out the year and get ready for tax season, here’s what individuals and families need to know about tax provisions for 2021.

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Cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for 2022 are as follows:

401(k), 403(b), 457 plans, and Thrift Savings Plan. Contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, up from $19,500. The catch-up contribution limit for employees aged 50 and over remains unchanged at $6,500.

SIMPLE retirement accounts. Contribution limits for SIMPLE retirement accounts for self-employed persons increases from $13,500 to $14,000. The catch-up contribution limit for employees aged 50 and over remains at $3,000.

Traditional IRAs. The limit on annual contributions to an IRA remains at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions; however, if during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If a retirement plan at work covers neither the taxpayer nor their spouse, the phase-out amounts of the deduction do not apply.

The phase-out ranges for 2022 are as follows:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $68,000 and $78,000, up from $66,000 and $76,000.
• For married couples filing jointly, where a workplace retirement plan covers the spouse making the IRA contribution, the phase-out range is $109,000 and $129,000, up from $105,000 and $125,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $204,000 and $214,000, up from $198,000 and $208,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Roth IRAs. The income phase-out range for taxpayers making contributions to a Roth IRA is $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Saver’s Credit. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000.

If you have any questions about retirement plan contributions, don’t hesitate to call.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

With many businesses facing a tight job market, employers should know about a valuable tax credit available to them for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment. If your business is hiring right now, the Work Opportunity Tax Credit (WOTC) may help.

Background

Legislation enacted in December extended the WOTC through the end of 2025. This long-standing tax benefit encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment. Millions of Americans have been out of work at one time or another since the pandemic began, but one of these targeted groups is long-term unemployment recipients who have been unemployed for at least 27 consecutive weeks and have received state or federal unemployment benefits during part or all of that time.

Eligible Employees

The other groups include certain veterans and recipients of various kinds of public assistance, among others. Specifically, the 10 groups are:

• Temporary Assistance for Needy Families (TANF) recipients,
• Unemployed veterans, including disabled veterans,
• Formerly incarcerated individuals,
• Designated community residents living in Empowerment Zones or Rural Renewal Counties,
• Vocational rehabilitation referrals,
• Summer youth employees living in Empowerment Zones,
• Supplemental Nutrition Assistance Program (SNAP) recipients,
• Supplemental Security Income (SSI) recipients,
• Long-term family assistance recipients,
• Long-term unemployment recipients.

Qualifying for the Credit

To qualify for the credit, an employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA). Do not submit this form to the IRS.

Form 8850 must be submitted to the SWA within 28 days after the eligible worker begins work. Eligible businesses claim the WOTC on their federal income tax return. It is generally based on wages paid to eligible workers during the first year of employment. The credit is first figured on Form 5884, Work Opportunity Credit, and then is claimed on Form 3800, General Business Credit.

Though the credit is not available to tax-exempt organizations for most groups of new hires, a special rule allows them to claim the WOTC for hiring qualified veterans. These organizations claim the credit against payroll taxes on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations.

If you’re a small business owner who wants to take advantage of this tax saving credit, but aren’t sure you qualify, help is just a phone call away.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

If you’ve recently started a business – or are thinking about starting a business – you should know that as an owner, all eligible costs incurred before beginning to operate the business are treated as capital expenditures. As such, they are part of the cost basis for the business.

Generally, the business can recover costs for assets through depreciation deductions. Businesses with costs paid or incurred after September 8, 2008, can deduct a limited amount of start-up and organizational costs. This enables business owners to recover the costs they cannot deduct currently over a 180-month period. This recovery period starts with the month the business begins to operate active trade or as a business.

Business Start-up Costs

Start-up costs are amounts the business paid or incurred for creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business.

Examples of start-up costs include amounts paid for the following:

• An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
• Advertisements for the opening of the business.
• Salaries and wages for employees who are being trained and their instructors.
• Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
• Salaries and fees for executives and consultants, or for similar professional services.

Qualifying Costs.A start-up cost is recoverable if it meets both of the following requirements:

• It’s a cost a business could deduct if they paid or incurred it to operate an existing active trade or business, in the same field as the one the business entered into.
• It’s a cost a business pays or incurs before the day their active trade or business begins.

Nonqualifying Costs.Start-up costs don’t include deductible interest, taxes, or research and experimental costs.

Purchasing an Active Trade or Business.Recoverable start-up costs for purchasing an active trade or business include only investigative costs incurred during a general search for or preliminary investigation of the business. These are costs that help in deciding whether to purchase a business. Costs incurred to purchase a specific business are capital expenses that can’t be amortized.

Disposition of business.If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business.

Questions about deducting startup costs for your small business? Help is just a phone call away.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

As part of Wheeler Accountant’s ongoing effort to give to the community, many members of the Wheeler Team stepped up to develop a financial literacy presentation for local Adult Education Centers this quarter. We’re happy to announce that the presentation will be given to students of Silicon Valley Adult Education and Campbell Adult and Community Education this December.

The presentation contains relevant topics such as available community resources, tax preparation tips, higher education financing options, and how to evaluate income opportunities. Team members Anthony Luna, Sue Conners, Joe Castillo, Sydni Andrus, Tanya Perez and Shiloh Kauk were all instrumental in putting together the materials, along with an amazing slide deck. Additional hats off to Anthony and Sue for volunteering to present the materials.

We are especially proud of our Events Committee and volunteers for the time and effort they’ve put into the financial literacy presentations – great work to everyone involved!

The holidays have arrived and, as in past years, Wheeler Accountants will be matching employee contributions to the charity of each participant’s choice.

This proud Wheeler tradition is held in place of sending holiday cards to our clients and referral sources, and we believe it is a great way to honor the spirit of giving during what can be a tough time of year for many. The process this year will be the same as last year: any employee can choose a qualifying public charity or private foundation and make their donation, which the firm will then match (up to $50).

We thank our participating employees for their generosity and for keeping this tradition alive!

As a small business owner, you may be able to deduct advertising and marketing expenses that help them bring in new customers and keep existing ones. Even better is that these deductions help small businesses save money on their taxes.

Generally, small businesses can’t deduct amounts they pay to influence legislation, which includes advertising in a convention program of a political party or any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Here’s what else you need to know about this valuable tax deduction:

Advertising and marketing costs must be ordinary and necessary.

An ordinary expense is one that is common and accepted in the industry. A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary. Advertising and marketing costs that are ordinary and necessary are tax-deductible.

Advertising expenses include:

• Reasonable advertising expenses that are directly related to the business activities.
• An expense for the cost of institutional or goodwill advertising to keep the business name before the public if it relates to a reasonable expectation to gain business in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross or to participate in similar causes is usually deductible.
• The cost of providing meals, entertainment, or recreational facilities to the public as a means of advertising or promoting goodwill in the community.

As always, don’t hesitate to call if you have any questions regarding tax deductions that benefit your small business.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500