By Michelle Loredo
The Biden Administration has presented the Build Back Better Agenda aims to fund initiatives such as paid leave, childcare, and helping small business owners.
We have put together all you need to know about small business tax, deductions and other tax-related changes in 2021.
Overview of the Administration Plan, 2021
The new plan aims to create a fair playing field for small business owners versus large corporations by protecting 97 percent of small business owners from income tax increases.
Here are a few examples.
Enact 15 Percent Minimum Tax on Large Corporations
Enforce Tax Avoidance Prevalent in Large Corporations
Raise Corporate Income Tax Rate to 28 Percent
How Will Small Businesses Be Affected
The tax plan aims to make the tax code fairer and close help bridge the gaps.
One of the points of the plan is to restore the corporate tax rate halfway back to pre-2018, and this action will not hurt small businesses that registered as LLCs, S-Corps, and sole proprietorships. The restoration of the pre-2018 levels will only raise taxes for the wealthiest people by 2.6 percent. It is estimated that less than 3 percent of small businesses will be affected.
Small Business Tax Cuts in Healthcare
The American Rescue Plan was enacted, and it changes some of the tax policies. In 2021, the Child Tax Credit is now $3,000 per child between the ages of six to seventeen and $3,600 for children six and younger. It is fully refundable and payable in advance, but it will go back to $2,000 in 2022 if nothing changes.
If you have children, the dependent tax credit has also increased in 2021. It can go from $4,000 to $8,000 for two or more people that qualify, and it is refundable for a portion of the population.
If you are 19 or older, you are now able to apply for the Earned Income Credit. Before, you had to be 25 years or older to qualify for the EIC.
If you are covered by the Affordable Care Act, the American Rescue Plan enacted premium reductions will be effective for the upcoming two years.
If you are a small business owner offering healthcare for employees, you do not have to worry about rises in premiums. In the new plan, premiums will face permanent reductions. It is estimated that 1.2 million small businesses will save hundreds of dollars yearly, and 4 million people without insurance will now receive health services.
Small Business Retainment and Paid Time Off
For small businesses, it can be difficult to retain employees versus corporations. People working in the private sector are the lowest-paid individuals and do not have access to paid leave.
The Build Back Better Agenda aims to help small businesses and employee retainment:
12 Week Paid Leave (Familial, Personal, Illness, etc.)
Three Days of Bereavement
Federal Government Wage Replacement
Small Business Funding Opportunities
With the new plan, government procurement is going to launch different national-wide networks to help start a new business, offer more government procurement opportunities, and increase lending capital via the Small Business Administration 7(a) loan program.
There is going to be a new grant program aimed to help minority-owned small businesses receive monetary help via the Minority Business Development Agency.
SBDC Small Business Resources
The UH SBDC Network is here to help you in your business process and tax inquiries. We have recorded and live webinars that can help you in this process. We also have no-cost business advising sessions where you can receive help one-on-one.
Here are three webinars with in-depth small business tax breakdowns: