If your business has not yet claimed the 2021 Employee Retention Credit (ERC), you still have time—but you must act soon.

What Is the ERC, and How Much Can You Claim?

The ERC is a refundable tax credit designed to support businesses that retained employees during the COVID-19 pandemic. For the 2021 tax year, eligible businesses can claim up to $7,000 per employee per quarter for the first three quarters—a total of up to $21,000 per employee.

For example, if your business qualifies and has 10 eligible employees, you could receive up to $210,000 in refundable tax credits.

Who Qualifies?

Your business may qualify if it meets one of the following conditions for Q1, Q2, or Q3 of 2021:

• Significant decline in gross receipts – Your business experienced at least a 20 percent decline in gross receipts compared to the same quarter in 2019.
• Full or partial suspension of operations – Your business faced a federal, state, or local government-ordered suspension of operations due to COVID-19 restrictions.
• New businesses (recovery start-up businesses) – If you started your business after February 15, 2020, you may qualify for a credit of up to $100,000.

Why You Must Act Now

The ERC is claimed by filing an amended payroll tax return (Form 941-X) for the relevant quarters. The deadline to file your 2021 ERC claims is April 15, 2025—and this date is fast approaching.

Many businesses have overlooked or misunderstood the ERC, assuming they do not qualify or it’s too late to apply. Even if you received a Paycheck Protection Program (PPP) loan, you may still be eligible for the ERC if you don’t use the same wages for both programs.

Time Is Running Out

If you are eligible for the 2021 ERC, you could have substantial money on the table. The IRS deadline to file amended payroll returns is April 15, 2025, and we strongly recommend beginning the process as soon as possible.

Beware of UBIT Lurking in Your IRA—It Causes Double Taxes

Do you own a traditional IRA, Roth IRA, SEP-IRA, or SIMPLE IRA? Usually, the income earned within these accounts is tax-free. This applies to common investments such as stocks, bonds, mutual funds, ETFs, CDs, and Treasury bills.

But if your IRA makes alternative investments, it may be subject to a special tax called the unrelated business income tax (UBIT)—and that’s true even if it’s a Roth IRA.

When Does UBIT Apply?

Investing in active businesses. If your IRA invests in an S corporation, a limited partnership, a regular partnership, or an LLC engaged in an active business, it may owe UBIT. This does not apply to investments in C corporations because such corporations pay their own taxes.

A common example of a UBIT-generating investment is an investment in a master limited partnership.

Using debt financing in a self-directed IRA. If your self-directed IRA buys real estate or other assets using debt, it may owe the UBIT on its unrelated debt-financed income.

For example, if your IRA buys a $500,000 rental property with $250,000 of debt, 50 percent of the rental income is subject to UBIT.

How UBIT Works

Tax rates. UBIT is taxed at trust tax rates, reaching the top 37 percent bracket at just $14,450 of taxable income.

Exemption. Each IRA gets a $1,000 exemption from UBIT annually.

Filing requirements. If an IRA generates more than $1,000 in unrelated business taxable income, it must file Form 990-T electronically and the IRA (not you personally) must pay the tax. The IRA custodian handles this filing separately. It’s not part of your personal tax return.

Double taxation for traditional IRAs. A traditional IRA paying UBIT faces double taxation—first at punitive trust rates and then at ordinary income rates when you, the traditional IRA owner, withdraw funds.

Key Point

IRAs should generally avoid investments that generate UBIT.

Heavy Vehicle + Deductible Home Office = Major Tax Savings

If you are considering purchasing a business vehicle, you may be eligible for significant tax deductions, especially when combined with a qualifying home office. Here’s how:

Heavy Vehicle Deductions

In 2025, businesses can take advantage of:

• Section 179 expensing – Deduct up to $1,250,000 of qualifying business equipment, including heavy vehicles. SUVs are subject to a $31,300 limit, while pickups and vans meeting specific criteria are not.
• Bonus depreciation – Claim 40 percent first-year depreciation on a qualifying heavy vehicle.
• Business-use requirement – You must use the vehicle more than 50 percent for business to qualify for these deductions.

A “heavy” vehicle has a gross vehicle weight rating (GVWR) of over 6,000 pounds. Certain SUVs, pickups, and vans qualify, but lighter vehicles are subject to much lower annual depreciation limits.

Home-Office Deductions

A deductible home office that meets the principal place of business test converts commuting miles into business miles, making it easier to meet the more-than-50-percent-business-use test. 

For your home office to qualify as your tax code–defined principal office, you must use it regularly and exclusively for your business, and the home office must serve as

• your primary income-generating space, or
• the location where you perform substantially all your administrative tasks.

Example of Tax Savings

A $90,000 heavy SUV used 100 percent for business could generate $61,824 in first-year deductions, while with a qualifying pickup truck, you could deduct the entire $90,000 in Year One under Section 179.

For Corporate Owners

If you own the vehicle personally but operate as a corporation, ensure your corporation reimburses you for business use to capture the full tax benefit.

How to Correctly Pay Yourself and Take Cash from Your Business

A common question among business owners is how to pay themselves from their businesses properly. The correct method depends on your business structure, so I wanted to give you this quick guide to help you navigate this issue.

Sole Proprietors and Single-Member LLCs

• You cannot be on payroll. Instead, you take owner’s draws as needed.
• You report net earnings on Schedule C of your personal tax return.
• You pay self-employment taxes (15.3 percent) on self-employment net income.

Partnerships and Multimember LLCs

Partners cannot receive W-2 wages. Instead, they receive:

• guaranteed payments for services, taxed as income and subject to self-employment taxes, and
• profit distributions, which are generally subject to self-employment taxes (except for passive limited partners).

Cash withdrawals are made through partner draws or profit distributions per the partnership agreement.

S Corporations

• You must pay yourself a reasonable salary as an employee via W-2 wages, which are subject to FICA taxes (15.3 percent, split between you and the corporation).
• Any additional profits are taxed to you personally but can be distributed tax-free.

C Corporations

The corporation pays taxes at a flat 21 percent rate.

You can receive compensation in two ways:

• W-2 wages, subject to payroll taxes, or
• dividends, which are taxed twice—once at the corporate level and again at your personal level.

Don’t Cheat Yourself: Get Partner-Paid Expenses Right

If you are a member of a multimember LLC taxed as a partnership (as most are) or a traditional partnership, you may sometimes pay for business expenses out of your pocket. These expenses can include travel and meals, car expenses, continuing education, professional dues, and home office costs.

There are two ways to handle these payments:

• the LLC/partnership can reimburse you, or
• you may be able to deduct them on your personal tax return.

Reimbursement by the LLC/Partnership

If your LLC/partnership reimburses you, the payment is (a) tax-free to you and (b) deductible by the LLC/partnership, provided that

• the expenses qualify as business operating expenses,
• you adequately document the expenses, and
• you submit them for reimbursement in a timely manner.

Deducting Unreimbursed Expenses on Your Personal Return

If your LLC/partnership does not reimburse certain expenses, you may be able to deduct them on your tax return—but only if your LLC/partnership has a formal policy of not reimbursing those expenses. This policy must be

• stated in the LLC/partnership agreement or another written document, or
• established as a consistent routine within the business.

Your LLC/partnership determines which expenses it will or won’t reimburse. 

If needed, the LLC/partnership can amend its agreements to formalize your reimbursement policy. This amendment must be made by the due date of the LLC/partnership tax return for the year (excluding extensions) and will apply to the entire tax year.

How to Claim the Deduction

You deduct unreimbursed expenses on IRS Schedule E. This deduction reduces your taxable income for income tax and self-employment tax purposes.

What’s the Best Approach?

In most cases, getting reimbursed by the LLC/partnership is the better option. But situations exist where members/partners prefer not to use LLC/partnership funds for these expenses.

If you have questions, don’t hesitate to contact me.

The purpose of these strategies is to get the IRS to owe you money.

Of course, the IRS will not likely cut you a check for this money (although in the right circumstances, that will happen), but you’ll realize the cash when you pay less in taxes.

Here are six powerful business tax deduction strategies you can easily understand and implement before the end of 2024. 

1. Prepay Expenses Using the IRS Safe Harbor

You just have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2024 prepayments cannot go into 2026. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.

For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Tuesday, December 31, 2024, you mail a rent check for $36,000 to cover all of your 2025 rent. Your landlord does not receive the payment in the mail until Thursday, January 2, 2025. Here are the results:

• You deduct $36,000 this year (2024—the year you paid the money).
• The landlord reports $36,000 as rental income in 2025 (the year he received the money).

You get what you want—the deduction this year. 

The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable. 

2. Stop Billing Customers, Clients, and Patients

Here is one rock-solid, straightforward strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2024. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

Customers, clients, and insurance companies generally don’t pay until billed. Not billing customers and clients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example. Jake, a dentist, usually bills his patients and the insurance companies at the end of each week. This year, however, he sends no bills in December. Instead, he gathers up those bills and mails them the first week of January. Presto! He postponed paying taxes on his December 2024 income by moving that income to 2025.

3. Buy Office Equipment

Increased limits on Section 179 expensing now enable 100 percent write-offs on most equipment and machinery, whereas bonus depreciation enables 60 percent write-offs. Either way, when you buy your equipment or machinery and place it in service before December 31, you can get a big write-off this year.

Qualifying Section 179 and bonus depreciation purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).

4. Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.

If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.

But suppose you operate your business as a corporation and you are the personal owner of the credit card. In that case, the corporation must reimburse you if you want the corporation to realize the tax deduction, which happens on the reimbursement date. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.

5. Don’t Assume You Are Taking Too Many Deductions

If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL. And the good news is that NOLs can turn into future cash infusions for your business because you carry 2024 NOLs forward to future years.

What does this mean? Never stop documenting your deductions, and always claim all your rightful deductions. We have spoken with far too many business owners, especially new owners, who don’t claim all their deductions when those deductions would have produced a tax loss.

6. Deal with Your Qualified Improvement Property (QIP)

QIP is any improvement made by you to the interior portion of a building you own that is non-residential real property (think office buildings, retail stores, and shopping centers)—if you place the improvement in service after the date the building was placed in service.

The big deal with QIP is that it’s not considered real property that you depreciate over 39 years. QIP is 15-year property, eligible for 

• immediate deduction using Section 179 expensing, and 
• 60 percent bonus and MACRS depreciation. 

To get the QIP deduction in 2024, you need to place the QIP in service on or before December 31, 2024.

2024 Last-Minute Vehicle Purchases to Save on Taxes

Here’s an easy question: Do you need more 2024 tax deductions? If the answer is yes, continue reading. 

Next easy question: Do you need a replacement business vehicle? 

If so, you can simultaneously solve or mitigate the first problem (needing more deductions) and the second problem (needing a replacement vehicle) if you can get your replacement vehicle in service on or before December 31, 2024. Don’t procrastinate. 

To ensure compliance with the “placed in service” rule, drive the vehicle at least one business mile on or before December 31, 2024. In other words, you want to both own and drive the vehicle to ensure that it qualifies for the big deductions.

Now that you have the basics, let’s get to the tax deductions.

1. Buy a New or Used SUV, Crossover Vehicle, or Van

Let’s say that on or before December 31, 2024, you or your corporation buys and places in service a new or used SUV or crossover vehicle that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more. This newly purchased vehicle gives you four benefits: 

1. Bonus depreciation of 60 percent
2. Section 179 expensing of up to $30,500
3. MACRS depreciation using the five-year table
4. No luxury limits on vehicle depreciation deductions

Example. You buy a $100,000 heavy SUV, which you will use 90 percent for business use. Your write-off will look like this:

• $30,500 in Section 179 expensing
• $35,700 in bonus depreciation
• $4,760 in 20 percent MACRS depreciation, or $1,190 if the mid-quarter convention applies because you placed more than 40 percent of your MACRS assets in service in the final quarter of the year

So the 2024 write-off on this $90,000 (90 percent business use) SUV can be as high as $70,960 ($30,500 + $35,700 + $4,760).

2. Buy a New or Used Pickup

If you or your corporation buys and places in service a qualifying pickup truck (new or used) on or before December 31, 2024, then this newly purchased vehicle gives you four big benefits: 

1. Bonus depreciation of up to 60 percent
2. Section 179 expensing of up to $1,220,000
3. MACRS depreciation using the five-year table
4. No luxury limits on vehicle depreciation deductions

To qualify for full Section 179 expensing, the pickup truck must have

• a GVWR of more than 6,000 pounds, and
• a cargo area (commonly called a “bed”) of at least six feet in interior length that is not easily accessible from the passenger compartment.

Example. You pay $55,000 for a qualifying pickup truck that you use 91 percent for business. You can use Section 179 to write off your entire business cost of $50,050 ($55,000 x 91 percent). 

Short bed. If the pickup truck passes the more-than-6,000-pound-GVWR test but fails the bed-length test, the tax code classifies it as an SUV. That’s not bad. The vehicle is still eligible for expensing of up to the $30,500 SUV expensing limit and 60 percent bonus depreciation. (See the example above for how the SUV treatment works.)

3. Buy an Electric Vehicle

If you purchase an all-electric vehicle or a plug-in hybrid electric vehicle, you might qualify for a tax credit of up to $7,500. You take the credit first, and then follow the rules that apply to the vehicle you purchased.

2024 Last-Minute Year-End Retirement Deductions

The clock continues to tick. Your retirement is one year closer.

You have time before December 31 to take steps that will help you fund the retirement you desire. Here are five things to consider.

1. Establish Your 2024 Retirement Plan

First, a question: Do you have your (or your corporation’s) retirement plan in place? 

If not, and if you have some cash you can put into a retirement plan, get busy and put that retirement plan in place so you can obtain a tax deduction for 2024.

For most defined contribution plans, such as 401(k) plans, you (the owner-employee) are both an employee and the employer, whether you operate as a corporation or as a sole proprietorship. And that’s good because you can make both the employer and the employee contributions, allowing you to put a good chunk of money away.

2. Claim the New, Improved Retirement Plan Start-Up Tax Credit of up to $15,000

By establishing a new qualified retirement plan (such as a profit-sharing plan, 401(k) plan, or defined benefit pension plan), a SIMPLE IRA plan, or a SEP, you can qualify for a non-refundable tax credit that’s the greater of

• $500 or
• the lesser of (a) $250 multiplied by the number of your non-highly compensated employees who are eligible to participate in the plan, or (b) $5,000.

The law bases your credit on your “qualified start-up costs.” For the retirement start-up credit, your qualified start-up costs are the ordinary and necessary expenses you pay or incur in connection with

• the establishment or administration of the plan, and
• the retirement-related education of employees for such plan.

3. Claim the New Small Employer Pension Contribution Tax Credit (up to $3,500 per Employee)

The SECURE 2.0 Act, passed in 2022, added an additional credit for your employer retirement plan contributions on behalf of your employees. The new up-to-$1,000-per-employee tax credit begins with the plan start date. 

The new credit is effective for 2023 and later.

Exception. The new $1,000 credit is not available for employer contributions to a defined benefit plan or elective deferrals under Section 402(g)(3).

In the year you establish the plan, you qualify for a credit of up to 100 percent of your employer contribution, limited to $1,000 per employee. In subsequent years, the dollar limit remains at $1,000 per employee, but your credit is limited as follows:

• 100 percent in year 2
• 75 percent in year 3
• 50 percent in year 4
• 25 percent in year 5
• No credit in year 6 and beyond

Example. You establish your retirement plan this year and contribute $1,000 to each of your 30 employees’ retirement. You earn a tax credit of $30,000 ($1,000 x 30).

If you have between 51 and 100 employees, you reduce your credit by 2 percent per employee in this range. With more than 100 employees, your credit is zero.

Also, you earn no credit for employees with wages in excess of $100,000 adjusted for inflation in increments of $5,000 in years after 2023.

4. Claim the New Automatic-Enrollment $500 Tax Credit for Each of Three Years ($1,500 Total)

The first SECURE Act added a non-refundable credit of $500 per year for up to three years, beginning with the first taxable year (2020 or later) in which you, as an eligible small employer, include an automatic contribution arrangement in a 401(k) or SIMPLE plan.

The new $500 auto-contribution tax credit is in addition to the start-up credit and can apply to both newly created and existing retirement plans. Further, you don’t have to spend any money to trigger the credit. You just need to add the auto-enrollment feature (which does contain a provision that allows employees to opt out).

5. Convert to a Roth IRA

Consider converting your 401(k) or traditional IRA to a Roth IRA.

You first need to answer this question: How much tax will you have to pay to convert your existing plan to a Roth IRA? With this answer, you now know how much cash you need on hand to pay the extra taxes.

Here are four reasons you should consider converting your retirement plan to a Roth IRA:

1. You can withdraw the monies you put into your Roth IRA (the contributions) at any time, both tax-free and penalty-free, because you invested previously taxed money into the Roth account.
2. You can withdraw the money you converted from the traditional plan to the Roth IRA at any time, tax-free. (But if you make that conversion withdrawal within five years of the conversion, you pay a 10 percent penalty. Each conversion has its own five-year period.)
3. When you have your money in a Roth IRA, you pay no tax on qualified withdrawals (earnings), which are distributions taken after age 59 1/2, provided you’ve had your Roth IRA open for at least five years.
4. Unlike with the traditional IRA, you don’t have to receive required minimum distributions from a Roth IRA when you reach age 73—or to put this another way, you can keep your Roth IRA intact and earning money until you die. (After your death, the Roth IRA can continue to earn money, but someone else will be making the investment decisions and enjoying your cash.)

If you have questions, don’t hesitate to contact me.