Important information to file taxes as a business owner

*Information provided by Molen & Associates*

We all know that this year started out as anything but normal and now with the recent freezing temperatures, power and water outages, the trend continues.

Tax Season Deadline Extended for Texas – June 15, 2021

Due to the recent winter storm, the Internal Revenue Service (IRS) has extended tax season for Texas residents. There is more guidance needed on who will qualify and what documentation may be needed, but it is likely that the extension applies to individuals and businesses in the state of Texas. Taxpayers in other areas that were impacted by the storms and received disaster declarations from the Federal Emergency Management Agency will also be eligible, the IRS said. This extension of time will help allow for additional time to use a tax professional to be sure you are taking advantage of all the deductions and credits which you are entitled to. There are quite a few big changes a trusted tax advisor like Molen & Associates can help you be aware of.

Federal Tax Season Extension

Due to COVID-19, the House of Representatives committee made a case on February 18, 2021 to automatically extend the Federal deadline for all taxpayers in order to provide additional time to file and eliminate unnecessary taxpayer and practitioner anxiety. The IRS has not publicly responded to the committee’s request. The request from the House Ways and Means committee did not specify a particular extension date but if this request is granted, the S-Corp and Partnership as well as the Individual and C-Corp filing deadlines may mimic last year’s extension deadline of July 15, 2021.

How Paycheck Protection Program (PPP) May Affect Your 2020 Tax Filings

Money received from the PPP was offered to struggling business owners in order to cover business expenses such as payroll, rent or interest on their mortgage payment, and utilities. This money is not counted as taxable income and in December of 2020 the IRS announced that any expenses paid for with these funds can still be deducted from your business income. Just don’t forget to submit your forgiveness application to be approved by the SBA!

How Will Stimulus Check Payments Be Accounted For On My Taxes?

Most Americans received their first stimulus check payment in March or April of 2020 and a second round was received in December of 2020 or January of 2021. If you have not yet received either of these payments, when you file your 2020 tax return you can add the missing amount to your tax refund. The stimulus checks will not count as taxable income, but instead are being treated like a refundable tax credit for 2020. This means, the stimulus checks acts similar to an advance on money you would have received anyway as part of your tax refund in 2021. In the current coronavirus relief plan, there is a plan for a 3rd round of checks to be paid out, once passed. These payments would likely be for $1400 per person and have similar income phase out ranges to the first two rounds of payments. You may have seen a form 1444 and/or 1444-B be mailed around the same time as your stimulus check. The IRS recommends retaining this notice with your other important tax records such as W-2s or 1099s.

General Small Business Tax info for 2020

• The IRS delayed the filing season by 2 weeks later than normal on February 12, 2021 

• Economic Injury Disaster Loan (EIDL) funds do not need to be counted as taxable income and do not need a forgiveness application. These are treated similarly to any other business loan. 

• If you were forced to fully or partially suspend business operations during any quarter of 2020 or your gross receipts substantially declined, you may be eligible for the Employee Retention Tax Credit (ERTC) 

• If you elected to do Payroll Tax Deferral for employee wages in 2020, you will be required to pay half of the deferred amount by December 31, 2021 and the remaining balance by December 31, 2022. 

• Employers and self-employed individuals who provided sick or family leave to employees affected by the pandemic are eligible for the Families First Coronavirus Response Act (FFCRA) tax credit that accounts for 100% of sick-leave pay or family-leave pay. 

• There are a myriad of deductions available for self-employed individuals including travel expenses and home office deductions, but if you are one of the millions of workers who worked from home, you won’t be able to claim the home office deduction as it is reserved for self-employed individuals only. 

• C Corps can temporarily raise the limit for cash donations from 10% to 25% for the 2020 tax year due to the expansion of Charitable Gift Deductions. 

• For the 2019 and 2020 tax years, the business interest expense deduction increased to 50% of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). 

• If you are wishing to claim business losses on your individual returns, the previous limitations were suspended for 2018-2020 tax years ($500,000 for married filing joint and $250,000 for single filers). 

• The Tax Cuts and Jobs Act (TCJA) provided the following changes for businesses - these changes are currently in effect: 

  • C Corps are now taxed at 21%. 

  • Pass-through entities (sole proprietorships, partnerships, S Corps, and LLCs) can deduct up to 20% of net business income from their income taxes through 2025. 

  • Businesses can claim a 100% depreciation deduction in the first year of use for depreciable business assets such as machinery, equipment, computers, and appliances.

Other Information to Note for 2020 Tax Filing 

• In a recent stimulus package, the House Ways and Means Committee proposed that the current $2,000 per child tax credit to be increased to $3000 per child in an attempt to lower child poverty. If passed, this would be a temporary increase, but some are asking for the change to be made permanent. 

• The IRS is currently having delays in processing paper returns. It is not uncommon to be waiting up to 6 months for this process – be sure to eFile if possible. 

• For the Americans who were without employment for part of this year after the pandemic shut down, expanded unemployment benefits were offered as an additional aid. This income will be taxable. It is worth noting, that there is current proposed legislation to waive the first $10.2k of 2020 unemployment benefits from being taxed. 

• The Standard deduction for 2020 was increased to $12,400 for single filers and $24,800 for married couples filing jointly. Income tax brackets also increased in 2020 to account for inflation. This means you can make more income and it will be taxed at a lower tax bracket. 

• The CARES Act allows you to deduct up to 100% of your adjusted gross income (AGI) via charitable contribution. There is also a $300 “above the line” deduction for charitable contributions you made in cash. 

• The CARES act allows some people to take retirement distributions and spread the taxable amount over 3 years and eliminate a 10% penalty. If you withdrew money from your 401(k) or IRA as a special CARES act early withdrawal, be sure to consult your tax advisor to ensure you qualify for special treatment with the updated guidance received in January of 2021.

Conclusion

Each tax season brings new changes and this year is no exception. As tax advice is specific to your individual facts and circumstances, be sure to consult your tax advisor before acting on any of the information above. Happy tax season!