Filing Your 2020 Taxes, What You Need To Know
Tax Season is here and for many small businesses and how hard 2020 was with the coronavirus pandemic, there were a few changes to business taxes in 2021. Businesses saw many new tax incentives, breaks, and rules as the U.S. government tried to combat COVID-19’s toll on the economy.
Here are some of the new programs and changes:
- Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act introduced the Paycheck Protection Program (PPP) as an emergency loan that allocated billions of dollars to small businesses. The PPP is a forgivable loan, so long as the funds are utilized to fund payroll, rent/mortgage and utility payments. Any money a business received and was forgiven through the PPP is not considered taxable income for 2020, though any amount that is not forgiven is taxable business income. However, some uncertainty does remain about whether business expenses paid for with the loan will be deductible.
- Stimulus Payments. First, some good news, If you received a stimulus check from the March CARES Act or the December stimulus bill, that does not count as taxable income, and will not impact your return. Nor will those payments count as income for determining whether you’re eligible for federal government assistance or benefit programs.
- Economic Injury Disaster Loan (EIDL). To help businesses affected by mandatory shutdowns or economic slowdowns caused by the coronavirus pandemic, the U.S. Small Business Administration (SBA) expanded the EIDL program. A business that receives funding from an EIDL is still required to pay income taxes on this loan.
- Employee Retention Tax Credit (ERTC). Businesses affected by COVID-19 can use the ERTC to retain staff members. To qualify, a business has to have been fully or partially closed due to a government-mandated shutdown or experience 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 certain businesses to provide sick/family leave to employees who were affected by COVID-19. Businesses that made these payments are eligible for tax credits for 100% of the cost of sick-leave pay, family-leave pay, qualified healthcare plan expenses, and the employer’s share of FICA taxes for sick-leave expenses they incurred under the FFCRA.
- Business interest expense deduction increases. Finally, under the CARES Act, the allowable business interest expense deduction was increased for some business entities from 30% to 50% of adjusted taxable income.
With so many changes in place, how you file your taxes this year could have a huge impact on how much you pay your taxes. It’s always important to have your CPA look at how much money will be owed and how much you will be able to keep in your pocket. If you have any questions about your taxes, feel free to reach out and schedule a time to speak with your CPA. Happy Filing.