As of December twenty seventh, 2020 the Paycheck Safety Program is again, and Biz2Credit can get your business started with a straightforward course of that can assist you get funded rapidly.
The earlier yr was a troublesome one for a lot of small companies. With 2020 within the rearview mirror, it’s time to consider submitting taxes and the way new provisions like Paycheck Safety Program (PPP) loans and the Worker Retention Tax Credit score can have an effect on the way you file with the Inner Income Service (IRS). We’re going to give attention to how these provisions affect enterprise tax submitting for 2020, and what deductions your small business could also be eligible for this time round.
This text will look at the affect of provisions particular to small enterprise tax submitting in 2020, together with:
- Tips on how to file your taxes
- COVID-19 tax credit and loans
- Tax deductions
- Potential tax aid
The tax season begins on February 12, 2021, and the due date for tax submitting is April 15, 2021.
Submitting Your Taxes as a Small Enterprise Proprietor
The final main piece of laws was the 2017 Tax Cuts and Jobs Act. Most of that Act doesn’t pertain to small companies, although, so nearly all of adjustments this tax yr shall be because of the pandemic.
Small enterprise house owners must navigate by means of tax credit, mortgage applications, and Acts that had been put in place to assist small companies through the COVID-19 pandemic. The idea of those applications comes from the CARES Act, which handed in March and created the Paycheck Safety Program and expanded the Financial Damage Catastrophe Mortgage (EIDL) program.
As a small enterprise, there are four primary taxes to find out about:
- Income tax. All companies will file an annual revenue tax return.
- The one exception is partnerships, which file info returns as an alternative.
- Employment taxes. As a small enterprise with workers, you may have taxes (and forms) associated to payroll taxes:
- Social Safety and Medicare taxes
- Federal revenue tax withholdings
- Federal unemployment tax
- Excise tax. These taxes are for purchases of particular items – and are usually included within the product value. A full checklist of excise taxes will be discovered here, they usually embody:
- Excise tax on coal
- Sports activities wagering
- Motor gasoline excise tax
- Estimated taxes. Some companies must pay quarterly estimated tax funds. This is applicable if you happen to should not have taxes withheld from every paycheck. Many sole proprietors and people must make these funds.
Considered one of your main obligations, as a small enterprise proprietor with workers, is to arrange and file Form W-2, Wage and Tax Statement to report wages, suggestions, and different compensation paid to an worker. Chances are you’ll also be liable for property tax and gross sales tax – the latter usually comes out of products and providers bought.
In case you are self-employed or a sole proprietor, there are different taxes and issues to know. We shall be operating a separate article on submitting taxes as a single-employee enterprise quickly.
COVID-19 Credit and Mortgage Data
Congress and the IRS approved tax deductions, breaks, incentives, and credit for companies this yr attributable to COVID-19. We’re going to cowl the brand new tax credit and loans right here, however the IRS has a full checklist of basic tax credits available.
Typically, enterprise tax credit are utilized in opposition to the taxes owed and corporations are in a position to subtract them from the whole. They’re completely different from a deductible as a result of
- tax credit offset the quantity of taxes owed, and
- deductibles give attention to the taxable revenue earlier than taxes owed.
Enterprise tax credit are designed to encourage particular behaviors by the enterprise – similar to holding workers on the payroll throughout an financial disaster – and supply a direct discount in taxes by the federal government. There are 4 particular tax credit that occurred this yr as a direct results of the pandemic and coronavirus help that small companies acquired.
Financial Damage Catastrophe Loans
Should you utilized for and acquired an Financial Damage Catastrophe Mortgage (EIDL) to assist through the COVID-19 financial disaster, that cash is tax-free. It is going to not be included in your taxable revenue once you file. You can deduct bills lined through the use of the EIDL. It is a change for the EIDL that got here from the Coronavirus Response and Reduction Supplemental Appropriations Act (CRRSAA) and is mirrored within the December laws.
Worker Retention Tax Credit score
The Employee Retention Tax Credit is a totally refundable tax credit score obtainable to eligible companies that retained workers. It is the same as 50 % of certified wages – compensation, wages, and certified well being plan bills – paid through the pandemic.
Eligible employers are companies that
- had been compelled to totally or partially shut attributable to a government-mandated shutdown, or
- skilled a big decline in gross receipts – greater than 50 % for any given quarter (after the primary quarter in 2020) compared with the identical quarter in 2019.
Not everyone seems to be eligible for this tax credit score.
- The CARES Act didn’t require employers to pay certified wages, and a few employers opted to not pay workers throughout this time. They don’t seem to be eligible for the tax credit score.
- An employer that acquired a PPP mortgage can be not eligible for the Worker Retention Tax Credit score.
The IRS states that employers are eligible for a tax credit score equal to 50 % of qualifying wages, as much as $10,000 per worker for wages paid between March 13, 2020, and December 31, 2020.
Households First Coronavirus Response Act (FFCRA)
The FFCRA requires public employers and personal employers with lower than 500 workers (which incorporates most small companies) to supply paid sick go away and paid household go away choices for workers because of the coronavirus pandemic. Workers can request go away in the event that they:
- have been informed to quarantine or self-isolate
- are experiencing signs
- are caring for somebody who’s quarantining or self-isolating
- caring for a kid whose faculty has closed or care supplier is unavailable attributable to COVID-19
The Act designates three types of paid go away:
- Two weeks (as much as 80 hours) of paid sick go away on the common price of pay as a result of the worker has to quarantine and/or is experiencing signs.
- Two weeks (as much as 80 hours) of paid sick go away at two-thirds the common price of pay as a result of the worker has to look after a person quarantining or has to care for a kid whose faculty or baby care supplier has closed.
- As much as a further 10 weeks of paid expanded household and medical go away at two-thirds the common price of pay as a result of an worker has to care for a kid whose faculty or baby care supplier has closed.
- That is for workers which have been employed with the enterprise for at the least 30 days.
Based on the IRS, eligible employers who contribute certified sick go away wages and certified household go away wages for workers – per the FFCRA – can claim a refundable tax credit score value one hundred pc of the certified wages.
Paycheck Safety Program
The Coronavirus Response and Reduction Supplemental Appropriations Act, handed in December 2020, modified loads of the rules for the Paycheck Safety Program. Among the big changes that may have an effect on small enterprise house owners submitting taxes this yr are:
- A forgiven PPP mortgage is totally tax-exempt and subsequently not taxable revenue.
- Payroll, lease, and utilities can nonetheless be written off as tax deductions if you happen to used a PPP mortgage to pay for them.
- Companies can take out a PPP mortgage and procure the Worker Retention Credit score (see above) for each 2020 and 2021 so long as the 2 don’t cowl the identical payroll bills.
- Employers can defer paying payroll taxes – even after a PPP mortgage is forgiven.
- 50 % of the deferred taxes amassed in 2020 have to be paid by December 31, 2021, with the opposite 50 % paid by December 31, 2022.
The Paycheck Safety Program’s second spherical of funding is live now.
Small Enterprise Tax Deductions
Tax deductions – or write-offs – are bills that you could deduct out of your taxable revenue. (Taxable income is usually your adjusted gross revenue – after deductions or exemptions – that’s used to calculate how a lot you might owe in taxes that fiscal yr.) Deductions will be for business expenses and costs which might be odd and crucial, similar to:
- Lease. The price of workplace house or a retail location is absolutely deductible.
- Residence Workplace. In case you have a dedicated workspace in your house – which might be relevant to many small enterprise house owners this yr – then you might be eligible to deduct expenses from that portion of your property.
- The simple deduction lets you deduct mortgage curiosity and actual property taxes in addition to an ordinary deduction of $5 per sq. foot of the house used for enterprise (most 300 sq. toes).
- Promoting. Enterprise playing cards, flyers, and digital advertising are all absolutely deductible bills. Any promotional supplies for your small business may help cut back your taxes.
- Automobile. Should you can confirm that the automobile is used for the enterprise, then you may deduct operation prices.
- There’s a simple deduction possibility that lets you deduct “57.5 cents per mile pushed for enterprise use.”
- Utilities. Costs such as warmth, lights, energy, phone providers, and water and sewage are deductible so long as they don’t seem to be for private use.
- Journey. Though the coronavirus pandemic has enormously restricted journey, if you happen to incurred any enterprise journey prices this yr – similar to flights, lodges, and different transportation – then you may deduct these.
- Workers pay. Wages, salaries, bonuses, non-cash compensation, and advantages for workers are tax-deductible.
All of those deductions will assist decrease your taxable revenue and cut back the quantity of taxes it’s important to pay this yr. Eligibility is decided by the IRS and may change. That is only a basic overview, so it’s best to work with a CPA or tax preparer to make sure you are getting all of the deductions relevant to your small business.
Extra Potential Tax Reduction?
Though there isn’t a extra official tax aid coming to small companies quickly, there are applications within the works from Congress and the Biden administration. In particular, the American Rescue Plan would prolong the refundable tax credit for worker go away that covers one hundred pc of the price for small enterprise employers.
On February 4, 2021, after an all-night voting session in preparation for the American Rescue Plan, Senators agreed to a movement to dam tax price will increase on small companies through the coronavirus pandemic. The plan – from Senators Marco Rubio (R-FL), Tim Scott (R-SC), and James Lankford (R-OK) – ensures that “small companies don’t face tax hikes whereas they’re struggling to maintain their doorways open throughout this public well being disaster,” Senator Rubio stated in a statement.
Small companies suffered throughout one of many worst financial depressions in a technology because of the COVID-19 pandemic. Many had been compelled to shut and won’t be able to file taxes this yr attributable to misplaced income and closed doorways. However for these small companies nonetheless open, they’re submitting taxes with hope for aid sooner or later.
Submitting This Yr
Though we’re going by means of a few of the fundamentals of tax submitting for 2020, it can be crucial that you’re engaged in your organization’s tax planning. This might imply utilizing a tax skilled or tax software program to file and compiling all crucial tax kinds and tax paperwork out of your firm and the IRS website.
With the issues for filers this yr, because of the coronavirus pandemic, it’s endorsed that you simply work with a CPA or tax preparer earlier than submitting to make sure that you’re using the entire potential tax breaks and tax refunds obtainable to you.
This tax-filing piece is tailor-made to small enterprise house owners, and we shall be publishing one other piece on submitting as a sole proprietorship, self-employed particular person, contractor, or single-employee enterprise (together with LLCs) quickly.