2021 Increases to tax-related limits affecting businesses

The IRS has released 2021 changes to tax-related limits. Although many have increased for 2021, like the increase of business meals deduction to 100% deductibility, others stayed the same due to low inflation over the past year.

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).

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 your Rudler, PSC advisor at 859-331-1717.

RUDLER, PSC CPAs and Business Advisors

This week's Rudler Review is presented by Lisa Dooley, CPA and Chris Guidugli, CPA.

If you would like to discuss your particular situation, contact Lisa or Chris at 859-331-1717.


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