Tax Prep 2020: What Small Business Owners Need to KnowPosted on February 10th, 2021
As the filing deadline for a year like no other approaches, it’s important to review some of the potential tax changes and issues that 2020 presented. What are the deadlines, how might PPP loans and other legislation impact filings, and what incentives or tax breaks might be available? Let’s discuss what business owners should know as they prepare to file for 2020.
What Are the Deadlines?
Tax deadlines are usually fairly consistent, but one of the lessons of 2020 has been to expect the unexpected. While filing dates were shifted last year during the early days of the pandemic, the IRS recently announced the upcoming tax deadlines for 2021 and they signal a welcome return to normalcy.
Tax season will begin on Friday, February 12th as the IRS will begin accepting 2020 returns on this date. This “allows the IRS time to do additional programming and testing of IRS systems following the December 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.” Those who use tax preparation software, including IRS Free File partners, are welcome to begin the process at any time and their returns will be transmitted on the 12th.
Following a delayed deadline in 2020, the filing deadline in 2021 returns to the traditional date of Monday, March 15th for Partnership (Form 1065) and S Corporation (Form 1120S) returns and Thursday, April 15th for Corporation (Form 1120) and Individual (Form 1040) returns. Those who request an extension will be required to file their 2020 taxes no later than six months following their original due dates, which are Wednesday, September 15th and Friday, October 15th, respectively.
Estimated tax payments for self-employed people or independent contractors have also returned to their usual dates after being delayed in 2020. Those deadlines are April 15th for estimated tax for the period of January 1st to March 31st, June 15th for the period of April 1st to May 31st, September 15th for the period of June 1st to August 31st, and January 15th, 2022 for the period of September 1st to December 31st.
Major New Legislation and its Effects
The coronavirus pandemic spurred several major pieces of legislation that will have an impact on 2020 taxes for small businesses and pass-through corporations. These include the CARES Act, EIDL, ERTC and FFCRA, which all offered relief for small businesses in different ways. These laws probably had some effect on your business operations in 2020 – here’s how they will affect your taxes.
CARES Act – PPP
Paycheck Protection Program loans secured under the CARES Act are fully forgivable, as long as the funds are used for approved purposes, which include payroll, rent or mortgage, and utility payments. Forgiveness is determined by your PPP lending institution, and forgiven loan amounts are not considered taxable income for 2020. Any portion of the PPP loan that is not forgiven, however, will need to be paid back to the SBA and be reflected as a liability of the company at year end.
In addition, expenditures funded by PPP loans are eligible for inclusion among your tax deductions. Speak with a knowledgeable tax professional to learn more!
EIDL Emergency Cash Advances
Emergency Cash Advances through Economic Injury Disaster Loans, which were up to $10,000 and received through the SBA are considered taxable business income and must be included in your tax filing as they are not required to be repaid.
If your business qualifies for the Employee Retention Tax Credit if your operations were fully or partially suspended for governmental orders which limited commerce or there was a significant decline in gross receipts, you “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.” Wages that may be qualifying cannot be used for both PPP forgiveness and ERTC purposes.
The Families First Coronavirus Response Act required some businesses to provide sick leave to employees affected by COVID-19. If your business made these payments, you “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”.
Net Operating Losses
One of the less-discussed benefits of the CARES Act is the ability for businesses to carry back losses incurred over recent years into a tax refund from the prior year’s income. If your company experienced significant losses (or even temporary or permanent closure) due to the effects of the pandemic, this change offers a ray of hope. As CNBC reports, “Under the CARES Act… losses generated this year can be deducted from taxable income going back to 2015.”
Enlist the Experts to Maximize Your Refund
It’s always a good idea to work with a reputable tax professional to ensure that your tax filing is complete and accurate, not to mention able to take advantage of any incentives or credits that are available to you. After a year like 2020, it’s more important than ever that your small business taxes make the most of the relief that has become available.