As the whole business world is collectively celebrating the end of one of the most challenging fiscal years many of us have ever seen, just as quickly as we rejoice to see the back of 2020, the inevitable dread of tax season quickly creeps up on us.
Our usual tax routine has been thrown completely out of sorts this year with various COVID-19 related factors to take into consideration while we go through the motions. Below are some crucial factors to keep in mind when you are preparing your tax returns in a very different kind of business year.
Paycheck Protection Program (PPP)
When the nation faced a completely unprecedented economic climate earlier this year as Covid-19 disrupted businesses across the world, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was introduced to provide emergency relief for American workers and small businesses. As part of this, the Small Business Association (SBA), offered financial assistance through the Paycheck Protection Program (PPP), which helped businesses keep their workforce employed during the pandemic.
The question of whether the loans will be forgiven and therefore considered a grant, has been on the minds of many business owners. Essentially, borrowers may be eligible for forgiveness if they stuck to the terms of the agreement – meaning they were used for payroll costs, business mortgage interest payments, rent or utilities during the eight or 24-week period. Additionally, the government recently simplified the forgiveness applications for businesses that received less than $50,000. They need to provide a description of how much loan money was spent on payroll, and how many employees they were able to keep on as a result of the aid. Now, a new stimulus package is offering businesses a second instalment of aid, so make sure you know where you stand with the first in regards to taxes.
Disaster Related Losses
When president Donald Trump declared a state of emergency in the US in March, meaning every state and the five US territories were designated disaster areas, this meant businesses could receive Economic Injury Disaster Loans (EIDL) and would be eligible for tax refunds due to financial damage on their business caused by the pandemic. In sum, an EIDL loan is not forgivable unless it was an advance, meaning if you received the maximum of $10,000 issued, that may be forgiven and could be considered a grant.
The year-end deal struck by House and Senate leaders last week includes details of Covid-related tax relief, which clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied” by reason of the exclusion from gross income from forgiveness of PPP loans.
Other details in the act include the extension timeline for repayment of some deferred payroll taxes, additional recovery rebates of up to $600 per qualifying taxpayer, and other deductible Covid related expenses such as PPE.
If you look closely at the year-end Coronavirus relief bill, there are also a few other tax provisions to familiarize yourself with before filing your returns. These include temporary allowance of full deduction for business meals, depreciation of certain residential rental property, waste energy property eligible for energy credit, and modification of limitations on charitable contributions.
In addition, there are other terms of the CARES Act extension that businesses should review before carrying out their tax returns, including employee retention tax credit modifications, and extensions on the refundable payroll tax credits for paid sick leave.
Prepare in advance
Pleading ignorance will never allow a business any shortcuts when it comes to tax, but this year more than ever it’s essential to know where you stand as a result of government assistance and various Covid related rules. As a business, handling your own taxes is a challenging and inevitable risky task. But services like Ageras can pair you with an accountant best suited to your industry to make sure you don’t get caught out this year.
Carol Nachbaur is the U.S. Marketing Manager of Ageras USA, a matchmaking service that creates a transparent market for accounting, bookkeeping & tax services for the benefit of both clients and the industry. Her focus is to help create an ecosystem that can deliver a holistic group of accounting services for small and medium-sized companies.