5 essential tax tips for small business leaders
As a small business leader, you know the pain all too well. So many businesses closed their doors for longer than expected. In some situations, businesses shuttered indefinitely.
While the pandemic’s financial ramifications vary from business to business, there’s no doubt that your taxes will be unlike any other in recent memory. As you prep for an unusual tax season, we put together four pieces of advice that can help your business get ahead of this tax season.
#1 – The employee retention credit
In this provision of the Cares Act, businesses that retain their employees during the pandemic will receive help.
Businesses that suspended operations or those that suffered declines in sales of over 50% are eligible for the employee retention credit.
Under recent guidance, businesses CAN receive both the Paycheck Protection Program funds and the Employee Retention Credit. In fact, a business can back elect for this if they didn’t take the Employee Retention Credit in 2020 (if they qualify). Note that amendments will be required on the payroll tax returns.
However, wages paid by the PPPL cannot count as eligible wages under the Employee Retention Credit so be careful in your calculations. That would be double-dipping eligible expenses/credits.
- Note: As it stands right now, the PPPL forgiveness is non-taxable on the federal side only. California does not currently conform to this and it IS considered taxable until we receive further guidance. We will likely not receive word of this until sometime in April so companies should have gone onto extension to avoid amendments.
#2 – Families First Coronavirus Response Act
We know how painful it was for you to see your employees feel the impacts of the pandemic. This is where the Families First Coronavirus Response Act comes in. It provides emergency family and sick leave aid to employees related to COVID-19. You were willing to step up, and now there’s relief to you as a business owner.
If you extended these benefits to your employees, you will get a fully refundable tax credit for paid sick leave and family leave that you provided to your staff.
#3 – The Paycheck Protection Program
For many, the PPP was a blessing. It propped up businesses and their employees during an extremely challenging time. This tax season, businesses should keep track of how much they received and the amount that was forgiven.
No need to worry. The money that is forgivable will not hurt you, as it is not considered taxable income (on the federal side). For any funds that went unforgiven, they will need to be accounted for when it’s time to file.
For QuickBooks users, tracking your spending with the usage of the PPP funds can be easily accomplished through class-coding.
#4 – Home office expenses
The world flipped upside down. We spent more time at home telecommuting and learning new work norms.
Unfortunately, home office deductions aren’t considered a tax deduction for employees on their personal tax return. That should be negotiated as a reimbursed expense from the employer directly. It may qualify as a tax deduction on the state side, but that depends on the state and income limits that may apply.
- Sole Proprietors filing a Schedule C for business operations may qualify for a home office deduction under certain rules. The office must be designated and solely used for business and should be the primary location for the taxpayer. So, if the taxpayer pays for a separate brick/mortar location with an office, the home office deduction does not apply unless the home office is necessary (i.e. there aren’t enough offices at the business location to accommodate the business owner and a 2nd location is therefore necessary).
- Very specific rules/regulations apply to how C-Corp and S-Corp owners may apply a home office deduction. This is not done on the personal return. Contact us for more guidance on this.
#5 – Unemployment
Under the most recent federal guidance, the first $10,200 of unemployment compensation (per taxpayer) is considered non-taxable if the AGI is below $150,000 (CA had already made this exempt from income). We are receiving word from the IRS that we should not yet amend returns or submit returns until they can roll-out schedules to accommodate this recent change.
You likely have many questions. As you work through this tax season, know that we are here to help.
Our consultative and tax services provide the resources and guidance to tackle any and all tax complexities, especially in a year like this. We are prepared to help you hit your numbers and reach your goals through our various business services, including year-round tax help.
Ultimately, our objective is to support your operational needs so that you can focus on what you love the most: running and growing your business.