Filing Small Business Taxes
The coronavirus pandemic has changed the way small businesses run — and subsequently their business tax obligations.
What should small business owners know right now to prepare for tax season? Here are some guidelines for what entrepreneurs need to consider when preparing business taxes this year.
Be Aware of Upcoming Tax Deadlines
Individual taxpayers typically only think about meeting the April 15 tax deadline. However, small businesses have several dates that they need to keep in mind for tax purposes.
Some of these deadlines have already passed. By February 1, 2021 Form W-2 and Form 1099-MISC should have already been submitted to the IRS and mailed out to all employees and independent contractors. The S Corporation annual tax return deadline is March 15, 2021. Any extensions must be filed this date.
What about quarterly estimated tax payments? The first installment for sole proprietorships and self-employed individuals that owe $1,000 or more in taxes must be paid between January 1 and March 31, 2021. Below is the quarterly estimated tax payment timeline for 2021:
- April 15: Deadline for quarterly tax payments made between January 1 and March 31.
- June 15: Deadline for quarterly tax payments made between April 1 and May 31.
- September 15: Deadline for quarterly tax payments made between June 1 and August 31.
- January 15, 2022: Deadline for quarterly tax payments made between September 1 and December 31, 2021.
In addition to individual taxes, income tax and income tax return extensions for C Corporations must be filed by April 15.
Did Your Business Utilize any COVID-19 Resources?
New resources were introduced during 2020 for entrepreneurs in need of financial relief amid COVID-19. Here is what some of those programs may mean for your taxes.
- Paycheck Protection Program (PPP). Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the SBA launched the Paycheck Protection Program (PPP). This allows qualifying businesses to receive emergency loan assistance. Additoinally, they may receive forgiveness for loans that fund payroll costs, rent, and utility payments. Money that has been received and spent in the properly allocated manner is forgiven under the PPP. Anything that is not yet forgiven is taxable business income for 2020.
- Economic Injury Disaster Loan (EIDL). The SBA expanded the Economic Injury Disaster Loan (EIDL). This program helps businesses impacted by mandatory state shutdowns to receive financial aid. According to the SBA, these loans are not tax exempt. An EIDL is considered taxable income for 2020 if it is received by a small business.
- Employee Retention Tax Credit (ERTC). Businesses impacted by state shutdowns that were required to fully or partially close, such as restaurants and hair salons, could qualify for this credit to help retain staff.
- Families First Coronavirus Response Act (FFCRA). In 2020, a new law was introduced called the Families First Coronavirus Response Act (FFCRA). This Act allows certain employers to provide employees with paid sick leave and expanded family and medical leave for COVID-19 specific reasons. Tax credits may be available to businesses that made these payments.
Review Tax Deductions
Depending on the type of business you have incorporated as, you may be able to receive certain tax breaks and deductions.
Self-employed workers, for example, may be eligible to receive tax deductions for the following items.
- Home office. A dedicated workspace at home is often eligible for a home office deduction. This space must be used exclusively for business-related activities. Deductions typically amount to $5 per square foot and go up to 300 square feet. This also allows for a portion of your mortgage, or rent, to be deducted on taxes for self-employed workers.
- Office supplies. Everything on your desk from pens to staplers to desk lamps may be eligible for tax deductions.
- Vehicles. It is possible you were able to travel and safely meet with potential clients or vendors during 2020. A tax deduction may be possible for travel in your car, so long as you have the proper documentation relating to your car’s expenses.
- Phone and Internet expenses. This tax deduction may cover all or even part of your Internet and phone bills.
Self-employed individuals may also qualify for more tax deductions, including deducting self-employment taxes, retirement savings, and advertising their services.
Businesses that have incorporated as a limited liability company (LLC), for example, may be looking at similar tax deduction opportunities. Some of these include rent for their office space, utilities like electricity and internet that allow for running a business smoothly. They may even be able to deduct employee salaries.
Tax deductions will differ depending on your entity formation. It’s advised that you meet with a tax professional, like a CPA, to determine which deductions are applicable to your business and may receive a write-off.
Meet With a Tax Professional
You have an understanding of upcoming tax deadlines, COVID-19 programs and resources, and tax deductions that you may qualify for depending on your business entity. It is possible you may still have more questions about the tax process — and that’s okay.
If you have additional questions, please meet with a tax professional such as a qualified accountant or CPA. They can help guide you through the tax process, let you know about any other credits or deductions your business may be eligible for, and answer any questions you may have as it pertains to the 2020 tax year and small business taxes in general.
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.