Smart Money: Preparing for a tax season like no other
Major changes to the business tax code for 2020 include new tax credits and loan programs — such as the Paycheck Protection Program — to help businesses weather the effects of COVID-19.
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EDITOR'S NOTE: This article is adapted from the 2021 edition of Northern Nevada Smart Money, a specialty magazine of the Northern Nevada Business Weekly. Look for this article and others in the 4th edition of Smart Money, inserting for subscribers in the Wednesday, March 24, 2021, edition of the NNBW. You may also view the digital edition here. Please note that this article went to press in late February; since its publication, the IRS announced the federal income tax filing due date for individuals for the 2020 tax year will be extended from April 15, 2021, to May 17, 2021.
The year 2020 was unlike any year our nation, state and city have ever experienced. From historic economic challenges, major shifts in the job market and the passing of legislation to assist both citizens and businesses alike, it was a significant year. Last year also brought about the much-needed Paycheck Protection Program (PPP). With over $660 billion, PPP provided funds to small businesses to cover payroll, employee benefits, and certain overhead costs. As of December 27, 2020, expenses paid under the provisions of the PPP program are also tax deductible, and proceeds from forgiven PPP loans are tax-exempt. Looking at 2021, it is important to understand this year may be filled with even more historic change. With getting the economy and job market back on track, to staying up to date with the regulations as legislation is passed, it is crucial to be aware of how this can affect businesses as owners navigate the new environment. For this coming tax season, it is paramount that businesses stay organized and communicate with their tax preparer, as there are new forms, credits and requirements in 2021. Last year’s tax return, accurate information regarding all expenses, revenue and deductions, along with all employee information including annual payroll records, will need to be readily available. Additionally, knowing the dates and deadlines for the tax season is critical for all entities. As it stands, all tax deadlines as they apply to individuals and businesses will revert to the traditional schedule, and changes in due dates due to shutdowns in 2020 will not be carried forward into 2021. Tax Day for Partnerships and S Corporations is Monday, March 15, while calendar year C Corporations and individuals have until Thursday, April 15, to file a return or extension. The preparation for this year is going to be different, especially for businesses or organizations that received PPP funds and the provisions in the Tax Cut and Jobs Act. Major changes to the business tax code for 2020 include new tax credits and loan programs to help businesses weather the effects of COVID-19. Additionally, businesses saw many new tax incentives, breaks and rules as the government worked to address COVID-19's toll on the economy. New programs and changes include the CARES act, the Economic Injury Disaster Loan (EIDL), the Employee Retention Tax Credit (ERTC), Families First Coronavirus Response Act (FFCRA) and the option for some business entities to increase the interest expense deduction. All these programs played key roles in assisting businesses to navigate the storm in 2020. It is important to know how these changes can affect taxes in 2021 and which programs or regulations apply to each business. For businesses that received any governmental assistance during 2020 or that opted to defer tax payments, it is vital to ensure the use of the loans, grants or extensions received are accurately tracked and reported when preparing to file taxes. For individuals, COVID legislation most notably included economic impact payments of $1,200 and $600 respectively, more generous rules on distributions from IRAs and other retirement plans, a suspension of the RMD requirement for older Americans, and a $300 above-the-line deduction for charitable contributions for taxpayers who would not typically itemize.
Other provisions provided renter protections and student loan deferments to those struggling financially. Additionally, the Tax Cuts and Jobs Act significantly changed Sec. 274 of the Internal Revenue Code by eliminating the deduction for any expenses considered entertainment, amusement or recreation. Of course, December 2020 legislation then provided a 100% deduction for meals (but still 0% for entertainment) for 2021 and 2022 when purchased from a restaurant. While intended as a benefit for a restaurant industry decimated by COVID, this is still a welcome break for small businesses. As the nation saw last year, regulations are constantly changing. From new deadlines, increased loan amounts or additional rules associated with PPP funds, it is important to stay up to date on the ever-changing news and ensure your organization is prepared as guided by a qualified professional. This article was provided by the team at Barnard Vogler & Co. in Reno. Go to bvcocpas.com to learn more.