THE TAX LANDSCAPE FOR 2021 - W ith President Joe Biden beginning his rst term - Crain's New York Business
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SPONSORED CONTENT January 25, 2021 S1
THE TAX LANDSCAPE FOR 2021
W
ith President Joe Biden beginning his first term Joe Bublé leads Citrin Cooperman’s tax practice
in office and the second stimulus bill in motion, and is a partner in the firm’s New York City office.
2021 will usher in a number of changes to He concentrates on strategic tax planning, mergers
the tax environment that will affect businesses and and acquisitions, and sophisticated tax research for
individuals. businesses and individuals. He has extensive experience
with the taxation of partnerships, limited liability
Building on the Consolidations Appropriations Act, which companies, C corporations, S corporations and high-
was signed into law in December in the second stimulus net-worth individuals.
round, Biden recently unveiled a third stimulus plan,
for $1.9 trillion, to fight the pandemic, roll out vaccines
and help individuals who are struggling financially. His
American Rescue Plan would bring changes to the tax
landscape. In addition to expanding the child tax credit,
it would add to the $600 stimulus check (also claimable JOE BUBLÉ, CPA
as a refundable tax credit) that the second stimulus law Partner, New York City
Citrin Cooperman
provided for each eligible family member, bringing the
(212) 697-1000
total to $2,000 per family member. He plans to seek this jbublé@citrincooperman.com
initiative in the first few months of his presidency.
The second stimulus will bring a number of changes to
the tax landscape. A big one is the Employee Retention
Tax Credit, a refundable tax credit for wages. It was to
have ended in December, but it will continue until July 1.
In addition, the package provides a five-year extension Jay Sussman is a partner in Marks Paneth’s Private
for the Work Opportunity Tax Credit, which incentivizes Client Services Group, specializing in tax planning,
employers to hire workers from disadvantaged groups. consultation and preparation services for high-net-
Meanwhile, the New Markets Tax Credit, created to worth individuals, trusts and estates, partnerships
encourage investment in low-income communities has and corporations. He has additional expertise in
been extended through 2025. This new law temporarily tax planning and preparation for nonresident alien
allows for a 100% allowance for deductions for business individuals, controlled foreign corporations and
meals, although some critics have questioned how easy passive foreign investment companies, as well as treaty-
it will be for businesses to use it, with dining out limited based returns and foreign reporting for U.S. resident
during the pandemic. taxpayers.
For individual taxpayers, the second stimulus also has
made permanent the Health Coverage Tax Credit, a
deduction for medical expenses above 7.5% of their
income, rather than 10%, the percentage that people JAY SUSSMAN, CPA
Partner, Private Client Services Group
under 65 years old previously could claim. In addition, Marks Paneth LLP
the second stimulus extends the $300 charitable (212) 201-2285
deduction for people who don’t itemize their taxes. jsussman@markspaneth.com
Beyond these laws, businesses will be busy at tax
time taking into account pandemic aid received in
2020 under the Coronavirus Aid, Relief and Economic
Security Act, the original $2.2 trillion stimulus bill passed
by Congress and signed into law in March 2020. For
Robert L. Tobey is a partner in the tax services
instance, businesses can now deduct eligible expenses
practice at Grassi Advisors & Accountants. Tobey
they covered with a Paycheck Protection Program
advises clients on the complexities of tax planning
loan that has been forgiven, or they anticipate will be
and compliance on the federal, state and international
forgiven, under a recent guidance. Many will juggle
levels. He specializes in helping pass-through entities,
applications for forgiveness with applications for a new
multistate corporations, high-net-worth individuals
round of PPP funding authorized under the Cares Act.
and investors meet their business, tax savings and
wealth preservation goals. With special expertise in
To provide clarity on what’s ahead during tax season
the financial services sector, he has helped hedge,
and beyond, Crain’s spoke with three certified public
venture, real estate and private-equity funds structure
accountants with expertise in taxes at the beginning of
their businesses, develop tax mitigation strategies and
the year.
understand the complex regulations of their industry.
ROBERT L. TOBEY, CPA
Partner
Grassi
(212) 223-5029
rtobey@grassicpas.com
S2 January 25, 2021 SPONSORED CONTENT SPONSORED CONTENT January 25, 2021 S3
The credit is applied against structure less appealing for new decided, what does the U.S.-based businesses with the same. We believe the best
THE TAX LANDSCAPE FOR 2021
employment taxes. The credit business owners. tax landscape look like foreign subsidiaries and U.S. place to start the conversation
was to have expired Dec. 31, but for the small business in individuals living abroad with with clients is to gather their
it was extended with various Tobey: The possibility that a global market? foreign businesses—they should financial information and
modifications. President Biden will be able anticipate that their U.S. tax current legal documents, then
to accomplish many of his tax Bublé: With the runoff burden will go up. speak to the clients about what
“TAXPAYERS SHOULD TAKE THE TIME Crain’s: If a business law objectives in his first term election now decided and the their objectives are.
Crain’s: How is the Biden will affect individuals
TO UNDERSTAND FULLY THE LAWS AND administration likely and businesses. What is applying for loan should play into any major Democratic Party in control Crain’s: In light of the
to affect readers’ tax expanded or extended forgiveness through the tax decisions that have long- of the Oval Office and both Georgia runoff results, Sussman: While we don’t
REQUIREMENTS RELATED TO CHANGING A planning strategies this provisions are most Paycheck Protection term implications. During chambers of Congress, cross- what are some of the know exactly what President
DOMICILE, AND THEY SHOULD CAREFULLY year? significant? Which can Program, will this affect the campaign, the president border small businesses may planning considerations Biden will do with the
provide the most benefit its 2021 tax obligation? proposed raising the tax rate well be in for another turbulent people should be current tax law, his proposed
MAINTAIN DETAILED DOCUMENTATION Tobey: C Corporations, pass- to taxpayers? for C Corporations from 21% tax ride. The Tax Cuts and thinking about for tax changes include raising
SUPPORTING THEIR CLAIM.” —JOE BUBLÉ through shareholders and high- Bublé: The Consolidated to 28%. If pass-through entities Jobs Act of 2017 put in place a income taxes and estate the corporate tax rate and
net-worth individuals would Sussman: In addition to the Appropriations Act of 2021 lose the 199A deduction, as the one-size-fits-all set of federal and gift taxes? maximum individual tax rate,
Crain’s: What do you and their clients may be these forgiven loan funds will all lose significant Tax Cuts provision stating that expenses overturned a previous IRS president also has proposed, international tax rules that eliminating the preferential tax
expect will cause the left scrambling to properly be treated for tax purposes and Jobs Act tax benefits under paid with forgiven PPP loans ruling and now clarifies that the C Corporation still has the do not seem to consider the Bublé: The results of the rate on long-term capital gains
biggest challenge navigate the complex maze will vary by state. The first Biden’s proposed tax plan. are now deductible, the act expenses paid with the proceeds greater tax benefit. Choosing practical impact to cross-border Georgia Senate runoff election, for taxpayers earning more
for accountants and of the Cares Act and the round of PPP funds was mostly While it remains to be seen includes the extension of the of a PPP loan that is forgiven a business structure for small businesses. President in many people’s opinion, make than $1 million and reducing
their clients during the Consolidated Appropriations distributed in 2020 but typically whether his administration will $300 charitable deduction for are deductible. This is a major maximum tax benefit is highly Biden’s tax proposals would it more likely that there will be the estate tax exemption to its
upcoming 2021 tax Act of 2021. Contained within will be forgiven in 2021, which be able to pass any significant non-itemizers for 2021 (the victory for taxpayers. dependent on the individual appear to modify or eliminate substantial changes in estate 2009 level. It’s possible that
season? these two major pieces of will add complications in tax reform this year, it is wise maximum increased to $600 for situation and tax mitigation some of these provisions, and gift taxes. The lifetime Congress could even pass a
Covid-19 relief legislation preparing financial statements to assess which of your tax married couples filing jointly); Tobey: On the federal level, goals of the business owner(s) resulting in a potential increase exemption might be decreased, retroactive tax increase this
Jay Sussman: Tax are tax provisions affecting and tax returns this year. strategies could be affected. a permanent reduction in the we know that PPP funds and should be carefully assessed to the current tax burden on the estate and gift tax rate might year. If changes like these
deadlines are always a all facets of individual and We expect to see additional For example, tax deferral medical expense deduction will not be treated as taxable and reviewed with a CPA who the U.S. cross-border small be increased, and the step up in occur, taxpayers should be
headache, but they may be corporate tax credits and recovery legislation in 2021, strategies this year could be floor, which allows individuals income, nor will forgiven specializes in corporate tax business community. Without basis rules could be repealed. prepared to work with their
even worse this year. At the deductions. which will add complexities largely obsolete if the tax rates to deduct unreimbursed PPP funds be considered a matters. any targeted carve-outs or We believe that uncertainty will accountant to reevaluate
start of the pandemic in early for accountants and clients increase in 2022. Businesses medical expenses exceeding cancellation of debt. We also revisions to these rules for such likely affect the decisions that all tax-planning strategies
2020, most clients already Robert L. Tobey: The alike. Finally, dealing with the may want to consider delaying 7.5% of adjusted gross income now know that expenses Bublé: As a result of the Tax businesses as part of any future clients make with respect to and adjust as necessary to
had filed their business tax intersection of PPP loans IRS and other tax authorities major deductible expenses instead of 10%; permission paid with forgiven PPP funds Cuts and Jobs Act and the Cares tax reform, the U.S. tax burden planning. The approach at the help mitigate additional tax
returns or extensions on and business taxes will be a to resolve issues will continue into future years if the tax for taxpayers to roll over are fully deductible on the Act, business owners have a will likely rise. This includes outset, however, should still be implications.
March 15, and the IRS moved challenge for many borrowers to be challenging during the rate is expected to increase unused amounts in their health borrower’s federal tax return. number of items to consider
quickly to extend the April and their CPAs this year. pandemic. Getting amended under the new administration. and dependent care flexible What we do not know is how when determining the most “WHILE WE DON’T KNOW EXACTLY WHAT PRESIDENT
15 filing deadline to give The IRS saved us one major returns to claim refunds Biden’s plan also calls for the spending arrangements from individual states will treat the advantageous way to structure
accountants and taxpayers headache by ruling that from the carryback of net phaseout of the Section 199A 2020 to 2021 and from 2021 loan funds for tax purposes, a new business venture. The BIDEN WILL DO WITH THE CURRENT TAX LAW, HIS
more time to gather data and expenses paid for with forgiven operating losses also has been deduction for taxpayers earning to 2022; and the temporary which will be a major source Tax Cuts and Jobs Act resulted PROPOSED TAX CHANGES INCLUDE RAISING THE
file returns. This year, without PPP funds will be deductible. discouraging for taxpayers and more than $400,000, which allowance of 100% business of concern and uncertainty in a decrease in corporate tax
the extension, accountants But on the state level, how practitioners. will affect many pass-through expense deduction for food this tax season. Nonprofits rates from a maximum rate CORPORATE TAX RATE AND MAXIMUM INDIVIDUAL
shareholders’ tax planning or beverages provided by and businesses alike should of 35% to a flat rate of 21%. TAX RATE.” — JAY SUSSMAN
strategies. a restaurant. Each of these also ensure that expenses The issue of double taxation
provisions can yield favorable paid with forgiven PPP funds on distributions, however,
Sussman: President Biden tax outcomes for taxpayers and are not also reimbursable by continues to have a major
has proposed a number of should not be overlooked in tax other federal grant dollars, effect on shareholders, since Advisory | Tax | Audit
significant tax policy changes planning. which would trigger a double- the dividend rate is generally
for individuals, corporations dipping event. 20%, plus an additional net
and estates, and with Crain’s: What tax investment income tax at a
Democrats now in control of incentives should Crain’s: For people rate of 3.8%. Companies that
Congress, it is more likely that employers keep in mind looking to start a new will not distribute out profits,
some of these proposals will
become law. If so, the timing
when planning their
2021 workforce?
business this year,
are there any new or
however, may benefit by this
reduced rate. Confidence delivered
with every tax solution.
» YEAR-ROUND of these changes will have the imminent issues they
STRATEGIES TO MAKE biggest impact on tax-planning Tobey: The employee should consider when Regarding pass-through
THE TAX LAWS WORK strategies. If, for example, retention tax credit is a huge choosing an entity entities, the Qualified Business
FOR YOU. CITRINCOOPERMAN.COM increased tax rates and limited factor to keep in mind when structure? Income deduction allows
deductions for individuals deciding to retain, furlough or certain business owners to Grassi tax planning, compliance and controversy services
earning more than $400,000 a terminate any employees. The Sussman: Business owners deduct up to 20% of income
in the process of deciding taxed at the individual level.
provide the certainty you need to take advantage of all
year were to take effect in 2022, new stimulus package allows
then 2021 income-tax planning for a credit of up to $14,000 what entity structure to use For example, an individual available tax savings and minimize your tax risk.
would take this into account. per employee for qualifying should pay close attention to taxed at a 37% marginal tax
Citrin Cooperman advises closely-held and public
companies, both domestic and internationally- The same is true for estate wages paid from Jan. 1 to June any upcoming tax law changes rate will have an effective tax
based, on their tax strategies. Our tax planning—in anticipation of 30 of this year. Because this introduced by President Biden. rate of 29.6% with the QBI
professionals work with their clients to tailor a future reductions to the lifetime is an immediate credit, it can In 2017, when the Tax Cuts and deduction. Although this
plan that strategically minimizes tax obligations, estate and gift tax exemption, potentially turn 70% of up to Jobs Act reduced the corporate rate is higher than the 21%
allowing business owners to focus on what individuals may seek to finalize $10,000 of eligible wages paid tax rate to a historically low corporate rate, the issue of
counts: improving their bottom line.
their estate-planning strategies per employee per quarter into a 21%, the corporate structure double taxation is minimized.
now under the current law to significant source of cash flow. became an appealing choice In addition, the Biden
maximize their tax benefit. for businesses. Some of the administration has said the
Joe Bublé: It should be tax law changes proposed by corporate tax rate may increase
Crain’s: The noted that the Employee Biden, such as increasing the to 28%, along with other Jeffrey G. Cohen, CPA
Joe Bublé, Partner Consolidated Retention Tax Credit applies corporate tax rate and the tax additional rate increases at the Partner, Tax Services Leader
joeb@citrincooperman.com | 646.695.7876 Appropriations Act of to eligible employers whose rate on qualified dividends for individual level. 516.336.2475 | jcohen@grassicpas.com
2021, nearly 6,000 pages business operations were taxpayers earning more than grassicpas.com
long, contains a number fully or partially suspended $1 million, could change the Crain’s: With the Georgia
of tax provisions that because of Covid-related issues. analysis and make the corporate Senate runoff election
S4 January 25, 2021 SPONSORED CONTENT
THE TAX LANDSCAPE FOR 2021
Tobey: Having employees resident status and applicable
“ WE EXPECT TO SEE ADDITIONAL RECOVERY work remotely from another filing requirements for 2020.
state is a situation that can have
LEGISLATION IN 2021, WHICH WILL ADD unintended consequences. Tobey: If a taxpayer lived in
COMPLEXITIES FOR ACCOUNTANTS AND CLIENTS Generally, states impose entity- New York City for fewer than
level taxes based on the extent 184 days last year, he or she
ALIKE.” —ROBERT L. TOBEY of the entity’s connection with may not be obligated to pay
a state (that is, the nexus). 2020 New York City resident
Employees working from income taxes. A sudden stop in
Tobey: President Biden’s win offset this spending. Until the tax, and each state and local home in a state in which the these tax payments, however,
and the unexpected Democratic Democrats introduce income jurisdiction has its own rules business formerly did not could trigger a residency audit,
sweep in the Georgia special legislation, we don’t know regarding this situation. The have a nexus could create which the city is known for
election may not bode well for which reduction or deferral good news for New York that connection. This would aggressively pursuing. This is a
the longevity of some aspects strategies to employ. My businesses is that several nearby expose the entity to state particularly complicated matter
of the Tax Cuts and Jobs Act viewpoint: Carry on and be states, including New Jersey income, franchise, sales tax for taxpayers who move out
of 2017. Nevertheless, I believe ready to pivot if necessary. and Pennsylvania, have issued and perhaps business license of the city but still live in New
it will be difficult for Biden to guidance providing temporary taxes. Also, it may expose the York state, since the taxpayer,
enact any major tax reform early Crain’s: What is the relief from these statutory nexus employee to additional state job and family are already
in his presidency. The number effect of state and local thresholds while employees work income-tax withholding, and domiciled to the state.
of moderate Democrats in taxes on businesses from home because of Covid-19. the potential of double taxation
Congress makes this unlikely having employees So if employees are working on their wages. Congress If a taxpayer is going to claim a
until at least after the midterm telecommuting from home in New Jersey solely proposed, but did not pass, change in domicile status, it is
2022 elections (this is, 2023). throughout the U.S., as a result of a shutdown or an legislation to address the state critical that he or she compiles
Taxation of corporations and either temporarily employer’s social-distancing income-tax implications of documentation that supports
those who are perceived as the during the pandemic or efforts, no sales- or income- tax interstate telecommuting. I that claim, in the event of an
wealthy, however, are often permanently after the thresholds will be considered expect to see this legislation audit. Documentation should
some of the first targets when pandemic or both? to have been met. If the work- reintroduced this year. Another include the obvious records,
the federal government looks from-home practice continues consideration are the cross- such as address changes on the
to increase revenue. Because of Sussman: Businesses should post-pandemic, businesses will border tax implications of U.S. driver’s license, utility bills and
the pandemic, the federal deficit be aware that having employees need to ensure familiarity and employees being marooned voter registration, as well
and debt are quickly growing. At working remotely from a compliance with all state and outside of the U.S. as well as as those that indicate a lifestyle
some point, additional federal different state may create the local sales- and income-tax non-U.S. employees being change, such as membership
revenue will be necessary to nexus for income and sales thresholds. marooned in the U.S. Keep in local clubs, community
a close watch on how this involvement and contributions
situation evolves. to charities outside New
York City.
Crain’s: Many
individuals left their Bublé: Historically, New
primary residences in York has devoted significant
New York City in the resources to auditing taxpayers
pandemic, an action claiming a change in domicile,
that can have tax while other states, New Jersey
implications. What among them, have devoted few
should taxpayers resources. New York’s vigorous
be aware of as they enforcement efforts will likely
prepare to file in 2021? continue if not increase. At this
time it is unclear whether a state
• Sussman: If an individual’s such as New Jersey can and
primary residence was in New will increase its audit activity
York City before Covid-19, on this issue. Regardless,
• it is likely that the individual taxpayers should take the time
will still be considered a to understand fully the laws
• New York City resident for and requirements related to
• tax purposes in 2020. New changing a domicile, and they
York City requires residents should carefully maintain
• to pay income taxes on their detailed documentation
income regardless of where the supporting their claim. If a
income was actually earned. If, state decides to audit a taxpayer
however, that individual moved claiming a change in domicile
to another residence in a in 2020, the notification of
different state during Covid-19, the audit may not be sent
such as a vacation home, there until 2024. Therefore, it is
is the potential for dual- important to create an audit
residency (and dual-taxation) file contemporaneously as
INSIGHTS AND EXPERTISE TO
issues to arise. If more than opposed to years after the
D R I V E Y O U R B U S I N E S S F O R W A R D. 183 days of 2020 were spent change. As with all tax matters
SUCCESS IS PERSONAL in a second home out of state, in a fast-changing and complex
©2021 Marks Paneth LLP
M A R K S PA N E T H . C O M consult with your tax adviser environment, excellent record
regarding possible dual- keeping is essential.
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