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After a tumultuous 2020, it’s safe to say that most of us were happy to put last year behind us. And while you may not want to think about 2020 again any time soon, the April 15th deadline for filing last year’s business taxes is rapidly approaching. With new tax credits, revised provisions, and new rules and guidelines, this tax season is sure to be a complex one to navigate.
Remember, it’s best to consult with a tax professional to find out exactly what deductions your business is eligible for. But be sure to do your research and familiarize yourself with as much of the process as you can. Being a business owner and your company’s best advocate, it’s important to have a basic understanding of tax deductions and fundamental requirements.
As you prepare to file your 2020 business taxes, here are 6 things to keep in mind:
With the changes from the recent stimulus bill that was signed into law in December, forgivable PPP loans are no longer considered taxable business income for 2020. Remember that in order to qualify for full PPP loan forgiveness, you must spend a minimum of 60% of your funds on payroll. The remaining 40% can be spent on non-payroll eligible expenses such as rent, utilities, operating costs, mortgage interest, covered supplier costs, property damage costs due to looting or vandalism during the events of 2020, and PPE expenditures to protect employees. Keep in mind that any PPP funds that are not deemed forgivable will be considered taxable business income.
Another important change to note is that that eligible expenses paid with a PPP loan are now tax-deductible.
Business that received forgivable a $10,000 EIDL Advance Grant can breathe a sigh of relief since the grant is not considered taxable business income. But, if your company took an EIDL loan, you are required to pay income taxes on the loan.
Family First Coronavirus Response Act (FFRCA) Credit
Your business may be eligible for tax credits for 100% of the costs incurred under the FFCRA such as qualified healthcare plan expenses, expanded family and medical leave pay, and your share of FICA taxes for medical leave costs. It’s also worth noting that the FFRCA credit has been extended to March 31, 2021.
Employee Retention Credit
Guidance from the IRS states that, “the Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns.”
Home Office Deductions
As many Americans were forced to work remotely last year, both you and your employees may be wondering if you’re entitled to a home office deduction. Unfortunately for most people, home office deductions are reserved for those business owners who have a dedicated workspace and whose principal place of business is their home office.
Keep Clear Records of Your Paperwork
The IRS recently announced that they will be increasing the amount of small business audits by 50% this year. It’s more important than ever to make sure your credit card statements, payroll documents, receipts, and bank statements are all in order and don’t forget to retain copies of everything.
With all of the complexities involved in tax season this year, it’s a good idea to enlist the help of a CPA to prepare your business taxes. By hiring a professional, you’ll get the peace of mind that the paperwork is filed properly and that your deductions are maximized. And in the unfortunate event of an audit, you’ll be well positioned to get through it with a CPA representing you to the IRS.
For more small business resources from SBG Funding, click here.
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