As we approach tax season, there are many questions surrounding the whirlwind that was 2020. As a shop owner, you may have questions regarding shop closures, tax credits, the PPP and subsequent forgiveness, what’s new for 2021 etc. Things are likely to look a little different this year what with the many programs that were created to help small businesses.
FFCRA Tax Credit Extension
The Families First Coronavirus Response Act (FFCRA) required employers to provide family and sick leave to employees who were unable to come to work due to certain COVID-19 related reasons. This requirement expired on December 31, 2020. While employers are no longer required to provide this, the FFCRA tax credit was extended through March 31, 2021 for those employers who chose to continue to offer this leave. Employees do not need to use their own PTO for this.
Employee Retention Credit
As a shop owner, you may also be eligible for the Employee Retention Credit even if you received a PPP loan. This credit is available to businesses with fewer than 500 employees who either suspended, or partially suspended their business due to COVID because of a government order OR experienced a significant decline in sales. Per the original CARES Act, if sales are down more than 50% in any calendar quarter of 2020 as compared with the corresponding 2019 quarter, you are eligible. However, if the quarter immediately following that same 2020 quarter shows an increase of more than 80%, you no longer qualify. If eligible, you can now retroactively amend your 941 form from the corresponding quarter in 2020. Most shops will likely not qualify for a 2020 credit because sales did not dip that low, unless you also operate a gasoline station.
Under the new law, however, beginning in 2021 you may qualify if there was a 20% decline in sales in either of the first 2 quarters as compared with the corresponding quarter of 2019, or the quarter immediately preceding. Eligible employers now have until June 30, 2021 to claim this credit. We are still awaiting further guidance on how this will be done. Read more about the Employee Retention Credit here.
Both the FFCRA and the ERC tax credits will be taken with your 941 Payroll Tax form filing. Credits are great because unlike a tax deduction, which lowers your taxable income, credits lower the amount you owe, dollar for dollar. So, if you owe $5,000 and receive a $3,000 tax credit, you now only owe $2,000! We know this can be confusing! Reach out to a trusted financial professional for further clarification if you still have questions!
PPP Tax Info
Is the forgiven PPP loan amount considered taxable income? No! With the passing of the second stimulus in late December, we received more clarification on how these funds will be viewed from a tax standpoint. All qualified expenses are tax deductible and the forgiven loan amount will not be considered taxable income. This also goes for the EIDL grant – it is tax-free.
If you still have questions regarding the PPP, check out our PPP FAQs page or check out our video series of PPP updates, which application is right for you, and how to apply. The rules surrounding the PPP seem to be fluid, so check these pages often for the most up-to-date information.
What’s New for 2021?
E-filing starts February 12th, so make sure you are gathering all your tax documents for your tax preparers. Here are some things that are new this year:
- The standard deduction has increased. The married filing jointly amount is $24,800, and for single taxpayers and married individuals filing separately, the amount is $12,400. If you’re over 65, you get an additional $1,300 added to your standard deduction.
- The CARES Act also added an additional charitable contribution deduction. This means if you are taking the Standard deduction and not itemizing, you can also deduct up to $300 of cash donations.
- If you did not receive the full amount of stimulus check, you could be eligible on this year’s tax return to receive a rebate credit for that. Stimulus checks are not taxable income. However, if you received unemployment benefits, that is considered taxable income.
- Energy efficient home credit has been extended. If you put in new doors or windows at your primary residence, you can still get a credit for it.
- The 7.5% AGI threshold for medical deductions has been extended, so make sure you’re gathering all your medical receipts if you think you may qualify.
It is never too early to start planning for NEXT tax season! A couple of really great tax savings deductions are charitable contributions, contributing to an HSA plan if you qualify, and putting money into a 529 plan. Most states have a higher education deduction. Lastly, make sure you max out your retirement plan. This is a great way save on taxes, and you’re paying yourself!
As always, please reach out if you have any questions!