Small business owners, are these COVID-related Acts confusing you? Do taxes seem extra daunting this year? Do you need help with small business tax planning? This guide can explain the main points you need to know for tax season 2021.
Normally, tax season is stressful and burdensome. Today, we remain in a global pandemic, and the deadline for taxes is creeping around the corner.
COVID-19 caused a burdensome process to seem even more daunting. Citizens are afraid that the tax process will be merciless this year. Small business owners must be in a frenzy, considering how intricate their taxes are.
Tax season 2021 is off to a late start
The IRS announced that this tax season will open on February 12, 2021. Usually, tax season begins around January 27, so we’re starting over two weeks later than normal. Cool, guess we’re getting some extra time this year for tax document preparations? Nope, think again. The deadline is still April 15, 2021.
The IRS asserts that the date change will “ensure IRS systems run smoothly.” The agency claims that the new date will facilitate expedited refunds. The IRS further declared that the belated date would allow for the remaining stimulus money to be promptly distributed.
More small business owners may need to hire professionals for their taxes this year
The time allotted for this tax season is much shorter than normal. The recent COVID Acts created several relief options and tax breaks. As an owner, how comfortably can you do your taxes? Did you hear about all the recent developments caused by COVID? How about the new tax strategies for small businesses?
Maintaining a business through such fickle times has enough stress by itself. Maintaining a small business is even more personally demanding since there’s no one to fall back on but yourself. Instead, hire a professional this year for your small business tax bookkeeping and document preparations.
Already, everyone has less time to file this year. By hiring an expert, the bookkeeping and document preparations won’t be your problem anymore. It’s the professional’s job to be versed in small business tax planning. The Small Business Administration is increasing its auditing to follow up on the business loans. Why risk it? Hire a professional and be prepared for an audit.
If you find yourself in a bad position and your business is depleting, please consider receiving foreclosure help. An expert can navigate you through issues like how to file business taxes with no income. Get experts fighting in your corner and let them fight for you. In return, you can finally get some ease in this volatile time.
Not convinced that hiring is in your best interest? Consider the numbered reasons listed below. The COVID Acts created new items to consider for taxes. A professional has a thorough understanding of these fluctuating changes. Proceed below for 5 reasons that small businesses should hire tax professionals this year — all accompanied by explanations.
- Business tax obligations and PPP loan forgiveness have evolved.
The two pieces of pandemic-response legislation or “the COVID Acts:”
H.R. 133 was signed on December 27, 2020, enacting the Consolidated Appropriations Act, 2021 (“CAA”).
H.R. 748 was signed in March 2020, enacting the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act conceived the Paycheck Protection Program (“PPP”). Applicants of the CARES Act could apply for PPP benefits from March 1st to June 30, 2020.
For qualifying small business owners, the CARES PPP distributed forgivable loans. The loans allow consistent pay to be provided to the workers. As long as the consistency with the employees’ payroll maintains, the loans will be forgiven. This forgiveness remained for 8 weeks.
- Small business owners made the specified showing of the injuries to their business caused by COVID-19.
- Acceptance of the PPP application occurring between February 15th and June 30, 2020.
- Active business prior to or on February 15th.
Once the CARES Act ceased, the CAA reinstated the PPP application until March 31, 2021. There are several changes between the CARES Act and the CAA. In conjunction with re-opening for first-time applicants, second-time applicants can apply for a PPP2. Publicly traded companies are barred from the new PPPs.
The U.S. Bankruptcy Code was adapted by the CAA. Debtors who fit certain criteria can also receive expedited PPP loans to help pay debts. These loans aren’t forgiven. In fact, they’re given a “super-priority” status for bankruptcies. This means that this PPP loan will be the first loan paid by your assets if you file for bankruptcy.
Past PPPs were only permitted loan forgiveness for payroll continuance. Now, the PPPs can go towards utilities, rent, and mortgage interest. All these expenses will receive loan forgiveness too. Additionally, the PPPs can go towards other expenses, but these listed expenses cannot be forgiven:
- group medical expenses,
- debt interest, and
- compensation for employees exceeding the allowed amount for forgiveness.
PPP forgiveness isn’t counted as taxable income. The expenses paid towards forgiven loans are deductible. Any attributable taxes remain.
- States can decide their own tax deadlines and small business tax incentives.
Since all 50 States in the U.S. have their own sovereign governments, each State determines its own deadlines and incentives. Check what your State requires and offers. Be sure to be familiar with your State’s rules. It’s more than likely that the requirements were adjusted for the pandemic.
- Setting up a retirement account could offer you some tax breaks this year.
The CARES Act § 2202 created tax breaks for certain retirement plans. The retirement plans listed by the IRS:
- 401(k) plans, and
- 403(b) plans.
- 2202 “provides for expanded distribution options and favorable tax treatment for up to $100,000” generated during COVID. The eligible COVID-distributions are from January 1st to December 30, 2020. The usual 10% tax for retirement distributions won’t be applied to the COVID-distributions. Essentially, it’s a really good time to create a retirement plan if you don’t already have one. Maximize the plan’s benefits.
- The SBA is auditing more small businesses in 2021.
The CAA requires the Small Business Administration (“SBA”) to set its auditing standards for PPP loan recipients. Loans below $2 million are automatically assumed as necessary due to fiscal instability. This doesn’t mean that all loan amounts can’t and won’t be audited. But it does mean that the smaller borrowers can breathe a little easier.
- There’s a new Form 1099 for independent contractors.
Typically, independent contractors are required to file Form 1099-MISC. However, 2020 introduced the Form 1099-NEC for “nonemployee compensation” for $600 or more. Now, the Form 1099-MISC will be used for specific types of income of $600 or more. 1099-MISC will no longer be used for independent contractors. Recipients should have their 1099s by February 1st.
Here are the key takeaways for small business owners trying to maneuver tax season 2021.
Filing taxes this year is a significantly different process. Since the pandemic continues, the Administration is trying to adjust accordingly. Small businesses normally go through the wringer during tax season. This year will be no different. Besides the usual intricacies, two COVID-response Acts were enacted. These Acts are complicated to maneuver on your own.
If you are a small business owner, please hire a tax professional for 2020. Don’t get side-swept by these changes. Hire someone to find which tax incentives apply to you and to help you apply for a PPP loan.
Yuriy Moshes is the CEO of Moshes Law and attorney with broad expertise. He has two bachelor’s degrees. Being an experienced expert, he is considered one of the most in-demand specialists in the real estate law field. Apart from that, he provides free consultation for everyone who faces foreclosure problems.