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Business Tax Tips: What to Know Before You File

New tax laws, temporary provisions and changing deadlines might impact your 2020 taxes.

As of March 17, 2021, the deadline to file individual 2020 federal taxes has been extended to May 17, 2021. State, local and payroll tax deadlines vary, but some could also be extended. There were several COVID-19 relief legislations that were passed throughout 2020 and into 2021, including the Coronavirus Aid, Relief and Economy Security (CARES) Act. These bills included important business tax credits and payment deferrals that you should be aware of before you file your tax returns.

Please note that this article has been prepared for informational purposes only. It is not intended to provide (and should not be relied upon for) tax, legal or accounting advice. Consult with your own advisors before engaging in any transaction.

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Paycheck Protection Loan Forgiveness

Businesses that received a Paycheck Protection Program (PPP) loan to cover certain approved expenses, such as payroll, rent, interest on mortgage payments and utilities, do not have to include those funds in their gross income for federal tax purposes. In addition, eligible expenses paid with PPP loan proceeds are now allowed as a tax deduction under the Consolidated Appropriations Act, 2021, that was signed into law on December 27, 2020.

Employee Retention Tax Credit

Businesses that have had their operations partially suspended or had a significant decline in revenues due to COVID-19 could be eligible for payroll tax credits if they kept their employees on payroll through the crisis. This tax credit is equal to 50 percent (in 2020) and 70 percent (in 2021) of qualified employee wages.

Deferral of Employer Portion of Social Security Tax

A provision of the CARES Act allows businesses to defer the employer-only portion of Federal Insurance Contributions Act (FICA) taxes that include Social Security and Medicare. If you are self-employed, you could defer payment of 50 percent of the 12.4 percent Social Security self-employment tax (equating to 6.2 percent) on your net earnings for the period from March 27, 2020, to December 31, 2020. The provision defers this payment until 2021 for the first half and 2022 for the second half. Note that you will not be able to defer payment of the Medicare taxes (2.9 percent).

Families First Coronavirus Response Act (FFCRA), Emergency Paid Sick Leave (EPSL) and Family and Medical Leave (EFML) Credits

The FFCRA allows companies with fewer than 500 employees to receive a tax credit for certain sick and family leave paid between April 1, 2020, and September 30, 2021.

Every small business’s tax situation is unique. Contact an accountant or business tax professional to discuss your needs.

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