As the COVID-19 pandemic continues to challenge entrepreneurs and small businesses across the world, the 2021 tax season is going to look a little different this year. Hear more about what small businesses should keep in mind this tax season in this Q&A with Barbara Lamar. For more than 25 years, Barbara Lamar of Reiss & Lamar PLLC has been helping small-to medium-sized businesses maximize their after-tax profits. As both a CPA and attorney, Barbara can take a multifaceted view of business transactions. She enjoys working with business at all stages, from startup to exit or succession. Her special interests include real estate (both virtual and “real”), Extended Reality (VR / AR / MR) and blockchain technology, including transactions and investments involving cryptocurrency. Barbara holds a B.A. degree in mathematics and architecture and MPA and JD degrees from the University of Texas at Austin.
Q: How is the 2021 tax season different from previous years?
A: Even though most of us want to forget 2020, we still have to file 2020 tax returns. The IRS has been late getting the tax forms ready to go, but tax returns are still due on the normal filing dates – partnership and S corporation returns on March 15, C corporations and individual returns on April 15.
The CARES Act (March 2020) and the Consolidated Appropriations Act (December 2020) may affect your business and personal
For individual filers, Economic Impact Payments (stimulus payments) and unemployment benefits are likely to be the most unusual aspect of the 2021 filing season.
First, if you never received an Economic Impact Payment (stimulus check) you can claim it as a refundable credit on your tax return. A refundable credit can be claimed even if you owe zero taxes.
If you did receive an Economic Impact Payment, the amount you are entitled to may be different from the amount you received. The actual payment is based on your 2020 adjusted gross income (AGI), but at the time the payments were made, the amounts were estimated based on 2019 income.
The place to enter information on your Economic Impact Payment is on page 2, line 30 of Form 1040, Recovery Rebate Credit.
Many people had to rely on unemployment benefits to get them through a period when they were not able to work. Since unemployment benefits are taxable, people who received them but didn’t have income taxes withheld, may have unexpectedly high taxes for 2020.
For business filers, Payroll Protection Program (PPP ) loan and EIDL (Economic Injury Disaster Loan) contributed to cash available, but they are not considered taxable income. Congress clarified in December that PPP loan cancellation will not be included in taxable income.
Home offices are another aspect of the 2020 tax year that will be different for many people. If you are self-employed or own a business, you can take a deduction for expenses associated with a space used solely for business. The law does not allow employees to take the deduction.
And here’s something that’s small, but every dollar helps, right? You can write off up to $300 of contributions to qualified charitable organizations even if you don’t itemize.
Q: What are the most important things small-business owners should keep in mind when filing their taxes for this year?
A: C corporations (corporations that pay their own taxes rather than passing through taxable income to the shareholders) can file Form 1139 for net operating losses incurred in 2018, 2019, and 2020 to carry back losses for five years and get a refund on any resulting overpayments
The NOL carryback will no longer be available starting with the 2021 year except for farming and certain insurance companies.
Corporations filing Form 1139 can elect to exclude Section 965 years (years in which they were required to report profits from non-U.S. companies as though the funds had been repatriated).
Q: Do individuals/business owners have to pay taxes on their stimulus checks?
A: No, stimulus checks are considered a refundable tax credit, not taxable income.
Q: If a business received an EIDL grant how will it affect their taxes?
A: The grant is not included in taxable income.
Q: What resources should small- business owners utilize if they are unsure about how to file their taxes this year?
A: Do-it-yourself tax filing software is great for people who receive a salary or wages. We’ve found that DIY software often does not work well for businesses. There are several complex areas of the tax law that make it difficult for a small business owner to minimize their taxes. If you are not already working with a tax professional, this could be a good year to find a person or firm you feel comfortable with. A good tax accountant can also help you with loan and grant applications. The IRS website at www.irs.gov is a good source for basic information. I highly recommend it as a resource, but it can’t take the place of a good tax pro.