Ask the Expert: Taxes 2021

Editor’s note: Back by popular demand: our column in which readers ask Len Green of The Green Group for advice on reducing taxes on their horse-related businesses.

What changes to tax legislation can I take advantage of this year to maximize my tax savings?

–Kerry L., Lexington, KY

2021 has been another exciting year when it comes to delivering new laws that can save you taxes.

1. First-year expenditures for qualified property put into service are authorized up to $1,050,000. This would include the purchase of horses and other capital assets used in your trade or business.

2. Allowable business income deduction

If you are a sole proprietor or have an interest in a general partnership, limited liability company (LLC) or Sub S corporation, you may be eligible for a tax deduction of up to 20 % of your qualified business income.

It is important to note that, if you are eligible, this is considered a personal deduction and can be used even if you take the standard business deduction.

3. There are also positive changes in:

A. Child tax credit
B. Dependent care credit and exclusion
C. Earned income tax credit
D. Charitable Contributions

I own stallion shares. One of the stallions I own was sold abroad this year. Can I replace this with a new season to avoid paying taxes at any time of the year?

–John S., New York, NY

Excellent question.
Prior to this year, there was a section of the tax code (Section 1031) that allowed tax-free exchange of similar assets.
If you follow the rules, it was possible to carry over the win, if there was one.
Under the new rules, Section 1031 only applies to real estate.
But can you achieve your goal in another way.
If you sell the stallion’s shares and the sale is more than what you paid for the shares, you will realize a gain.
If you buy a new stock or personal property (a horse or farm equipment) and it qualifies for a one-year write-off (Section 179) or an expense write-off in the first year, you could potentially offset the above gain with the tax deduction resulting from the use of either method.

I bought a yearling in September and plan to sell him at the March 2 year old sales. Is it the same season? Or two different years?
–Gregory L., Montclair, NJ

I assume that, like most taxpayers, you are on a calendar year for filing taxes.
Thus, the purchase of the yearling will be counted one year and the sale another year.
If this is your usual activity, we can call you a “pinhooker”.
You would record the purchase as inventory in the year of purchase and the cost of the animal one year would offset the sale price the following year when the animal is sold.
If you weren’t a pinhooker but bought the yearling to race but decided to sell the following year, there may be different alternatives to how you handle the transaction.

What is premium amortization and how is it affecting my internship activity this year?
–Vicky F., Paris, KY

Bonus depreciation is defined as the additional first-year depreciation (Section 168(k)) of the Internal Revenue Code.
It can be claimed in addition to any first-year expense described earlier in the article.
A depreciation bonus can be claimed for eligible property, whether new or used.
Something new: this also includes “eligible improvement property”.
Items included in this special section are:
Any improvement to the interior portion of a building of an existing building made after the building has been commissioned.
Example of qualifying assets: fences, watersheds, extra stalls and barns

I plan to start a small thoroughbred business. Can you explain the difference between S Corp and LLCs when it comes to taxes?
Tom C., Louisville, Kentucky

There are many advantages to operating your trade or business as a limited liability company or S sub-corporation.
The protection against possible lawsuits is in itself an excellent reason to do so. There are also certain tax advantages.
To maximize tax benefits, you should form an LLC with at least two partners.
By making the decision to form either of these entities, you will demonstrate that you are taking steps to manage your operation in a professional manner.
You will not confuse your personal expenses with your business expenses.
LLCs offer more flexibility and many other advantages over S Corps. The only advantage of an S Corp over an LLC would be the avoidance of self-employment tax.
Is it too late now to make changes that will help me save money on my 2021 taxes?
–Susan M., Chicago, IL

The answer is usually no if you report your income and deductions on a cash basis.
But here are a few:

  1. Find out if you qualify for a pension plan deduction for 2021.

The rules are complicated and you need to check that you are not covered by another company plan.
But assuming you’re eligible, some pension plans (SEP IRA, IRA) allow you to claim a tax deduction for 2021 as long as the pension payment is made before April 15, 2022 (or the extended due date for a SEP).

  1. If you purchased certain business equipment and put it into use, even if you didn’t pay for it in full by 12/31/21, you may be able to deduct the cost of the equipment in 2021.
  1. If you paid estimated state tax payments on 1/15/22 and your total tax liability did not exceed $10,000, a portion of the 1/15/22 payment may be tax deductible. tax.

It’s not too late to submit your own question before tax season and get an answer from Len Green. E-mail [email protected]

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