2021 New Tax Plan Schedules

2021 new tax plan schedules & how they will affect your tax planning strategy going into the new year, 2021. Below we’ve shared an example proposed;

Schedule C to C-Corp – New 2021 Tax Plan Example

  • C Corporation income is taxed at the C Corporation level, net business income is not taxed on the individual level as it is with a Schedule C, S Corp, or Partnership
  • Currently, C Corporations are taxed at 21%. The Biden Plan will have a tax INCREASE income at 28%
  • In addition to the increased tax rate at the C Corporation level, the owners of the C Corporation could potentially be subject to INCREASED tax on the income they take out of the business!

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New Tax Plan 2021

The year 2020 is marked as a year of drastic changes. From US general elections to the global pandemic, everything has impacted the economic environment in which businesses operate. The new tax plan of President Biden aims to increase the additional tax revenue to almost $4 trillion in a conventional way. His tax plan mainly involves increasing taxes for individuals having more than $400,000 in income.

This new tax plan’s main highlights include raising social security payroll to 12.4 %, increasing corporate tax to 28%. Introducing a corporate minimum tax on book income, repealing the  Tax Cuts and Jobs Act (TCJA) provisions for high-income filers, and increasing the tax rate from 10.5% to 21% on (Global Intangible Low Tax Income) GILTI earned by US foreign subsidiaries.

On the other hand, the global economy is suffering due to Covid-19 where several businesses have been forced to shut down. So the tax policies also needed to provide immediate relief to the struggling individuals and businesses.  Current tax policy reliefs involve increasing deductions and easing down restrictions on utilizing losses, thus providing an opportunity for businesses to claim refunds by carrying back their net operating losses (NOLs). It also includes reducing the interest expense deduction by limiting it to 30%, of EBIT instead of EBITDA. Other reliefs in tax policies include expanded Child Tax Credit and Earned Income Tax Credit Proposal. Full refund on minimum tax credits is proposed under CoronaVirus Relief and Economic Security Act (CARES). It also involves delays in general tax filings and payments i.e. employer and self-employment payroll taxes, provided that the taxpayer is not availing of PPP (Paycheck Protection Program) loan forgiveness. 

Employers are facing difficult challenges due to the global pandemic. CARES Act provides certain businesses a refundable payroll tax credit for 50%, of at most $10,000 wages paid to employees. This Employee Retention Credit is designed to support employers to keep their employees on their payroll. The eligible employers include those employers whose operations have been severely affected. Those being i.e. partly or completely suspended during Covid with at least a 50 percent reduction in their gross receipts. Also, the eligible employers who pay qualified sick leave wages and have less than 500 employees are entitled to paid sick leave credits as well. Moreover, taxpayers can take a charitable deduction of $300 at most for their cash transactions contributions that are made in 2020. Regulations for the cloud transaction and digital content have been published in 2019 by the US Treasury Department under the rules of the Internal Revenue Code. These regulations consider cloud computing transactions either as a lease of property i.e. cloud services or as a provider of services for income tax purposes. Also, these regulations introduced a single source rule that considers the income generated from digital transactions at the place where the digital content has been downloaded. Thus through this rule, the problem of passage of title in the sale of digital content has been eliminated. Also, the income from selling digital content to a foreign consumer will be treated as US source income.