Small biz tax tips for 2021
Running a small business in 2020 came with a lot of headaches, and filing your 2020 taxes will take extra attention if you received a PPP loan or other assistance last year.
The 2021 tax season will be like no other, mostly because you’ll be filing your taxes for 2020, a year like no other. While you’re likely doing everything in your power to forget about 2020, if you’re a small business owner there will be some special considerations to keep top of mind this year.
Notably, the Internal Revenue Service (IRS) has already pushed back the start of tax filing season this year. Normally, the IRS begins accepting and processing tax returns by the end of January, but this year the federal agency has moved the start of filing to Feb. 12 in an effort to ensure its systems are up to date on the recent year-end tax changes approved by Congress in the waning days of 2020, as well as to give filers time to receive their second round of stimulus payments.
However, the delayed start of filing has not changed the filing deadline, which still stands on April 15 as of now. The IRS maintains it will be able to issue refunds quickly, despite the shortened filing window.
Further, while there haven’t been any major changes to the federal tax code since the 2017 Tax Cuts and Jobs Act (TCJA), which went into effect in 2018, there were still some notable new programs, tax incentives, breaks, and rules that the U.S. government put into place during 2020 in an effort to thwart COVID-19’s toll on the economy.
According to Business.com, among the ones that will matter most for small business owners are:
- Coronavirus Aid, Relief, and Economic Security (CARES) Act: The CARES Act established the Paycheck Protection Program (PPP), which provided billions of dollars for emergency loans to small businesses. The PPP is a forgivable loan as long as the funds are used specifically for payroll, rent/mortgage, and utility payments. Any funds that a business received and were forgiven through the PPP are not considered taxable income for 2020, though if there are funds that were not forgiven, those will be taxable business income. However, the IRS notes that any expenses a business owner paid with money from those PPP loans cannot be deducted from their taxable income. Additionally, PPP loans are not automatically forgiven; business owners have to first get their loan forgiveness application approved by the U.S. Small Business Administration (SBA) before they’re off the hook for the amount they borrowed.
- Economic Injury Disaster Loan (EIDL): To assist businesses impacted by mandatory shutdowns or economic slowdowns caused by the COVID-19 pandemic, the SBA expanded the EIDL program. Any business receiving funding from an EIDL is still required to pay income taxes on this loan.
- Employee Retention Tax Credit (ERTC): Businesses that have been affected by COVID-19 can use the ERTC for staff retention. To qualify, the business must have been fully or partially closed due to a government-mandated shutdown or experienced a decline in gross receipts of more than 50% for any given quarter when compared with the same quarter in 2019. Employers that qualify for the ERTC are eligible for a tax credit equal to 50% of qualifying wages, up to $10,000 per employee between March 13, 2020, and Jan. 1, 2021.
- Families First Coronavirus Response Act (FFCRA): The FFCRA required most businesses to provide sick or family leave to employees who were directly impacted by COVID-19. Businesses that made these payments can receive tax credits for 100% of the cost of sick-leave pay, family-leave pay, qualified health care plan expenses, and the employer’s share of FICA taxes for sick-leave expenses they incurred under the FFCRA.
- Business interest expense deduction increases: Lastly, under the CARES Act, the allowable business interest expense deduction was increased for some business entities from 30% to 50% of adjusted taxable income.
Additionally, if you’re wondering how those $1,200 stimulus checks issued in the spring as part of the CARES Act’s $2 trillion relief package will affect your taxes, there’s some good news. The stimulus funds do not count as taxable income. Instead, the stimulus checks are being treated like a refundable tax credit for 2020, meaning it’s essentially just an advance on money you would have received anyway as part of your personal tax refund in 2021, if you qualify for a refund.
Key filing season dates
The important dates taxpayers should keep in mind for this year’s filing season:
Jan. 15: IRS Free File opens. Taxpayers can begin filing returns through Free File partners; tax returns will be transmitted to the IRS starting Feb. 12. Tax software companies also are accepting tax filings in advance.
Jan. 29: Earned Income Tax Credit Awareness Day to raise awareness of valuable tax credits available to many people — including the option to use prior-year income to qualify.
Feb. 12: IRS begins 2021 tax season. Individual tax returns begin being accepted and processing begins.
Feb. 22: Projected date for the IRS.gov Where’s My Refund tool being updated for those claiming EITC and ACTC, also referred to as PATH Act returns.
First week of March: Tax refunds begin reaching those claiming EITC and ACTC (PATH Act returns) for those who file electronically with direct deposit and have no issues with their tax returns.
Apr. 15: Deadline for filing 2020 tax returns.
Oct. 15: Deadline to file for those requesting an extension on their 2020 tax returns.
Click here to sign up for the free IB Ezine — your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.