The pandemic took everyone by surprise and its effect on small businesses across the country has been a topic of interest. The COVID-19 relief support options that subsequently followed have added many additional items that need to be considered when planning your taxes and could potentially raise some questions for your small business—loans, deductions, tax deferral options, to name a few.
If you manage your own taxes or you’re working with a tax expert, there’s a list of things that every small business should acknowledge when it comes to this year’s tax planning. These tips and tricks will help you make the most of this tax season when it comes time to filing your business return.
1. Understand Your PPP Loans
The Coronavirus Aid, Relief, and Economic Security (CARES) Act established the Paycheck Protection Program (PPP) to provide loans to small businesses impacted by the COVID-19 pandemic—a much-needed life raft for many. While helpful, the program has left many small business owners wondering how it will impact their 2020 tax filing.
Many small businesses were granted loans to cover employee salaries and other select expenses. If your business has participated in the PPP, expenses used for payroll, interest on a covered mortgage obligation, any covered rent obligation payment and any covered utility payment are eligible for loan forgiveness. It is important to note that while forgiven PPP loans are not federally taxable, they are considered to be taxable income in Utah at a state level.
Be sure to identify which of your loans will be forgiven and create a strategic plan for how you will repay the others.
2. Determine when is the best time to pay back payroll taxes
While the struggle many businesses faced making payroll was no surprise, the CARES Act provided a bit of relief by giving employers the option to defer the deposit and payment of their 6.2% share of Social Security payroll taxes. The deferral was applied to the wages paid from March 27 – December 31, 2020.
Employers have fortunately been given some flexibility to choose when would be the most realistic time to pay back the balance owed, as long as at least 50 percent of the owed amount is paid by December 31, 2021 and the remaining 50 percent is paid by December 31, 2022.
Evaluating your company’s 2020 hurdles and successes and looking into 2021 and 2022’s projections is the best time to chat with a professional to determine what an appropriate repayment timeline would be.
3. Know what small business tax deductions you are eligible for
A tax deduction can properly be defined as an expense that you can deduct for your taxable income—reducing your tax bill. However, it is important to note that the IRS has specific criteria that the expenses must meet.
The IRS provides some of the traditional tax deductions that should be considered by small businesses, but here are a few of the commonly overlooked deductions that could be available to your small business:
- Business meals
- Work related travel expenses
- Work related car use
- Office and home office expenses
- Phone and internet expenses
- Business interest and bank fees
- Salaries and benefits
- Child and dependent care
- Medical expenses
- Real estate taxes
- Moving Expenses
- Retirement contributions
- Advertising and promotion
- Client and employee entertainment
4. Are there any new tax laws in 2020?
Small business owners don’t have to plan for the 2020 tax season alone—consult your accountant or tax preparer to get advice on how to manage your tax liabilities, avoid mistakes and adjust for any new tax laws. Proactive consultation can help avoid tax problems and position your business well for 2021. If you’re uncertain about the advice you are getting, obtain a second opinion. Contact Altabank today.