The COVID-19 pandemic caused significant economic strain throughout the country, causing massive business restrictions, slowdowns, and many closures. In response, the federal government has taken complex actions to provide economic assistance, involving various new programs and multiple rounds of stimulus relief money.
Navigating business taxes is normally challenging, but this year it makes even more sense to secure professional tax and accounting assistance so that your business doesn’t miss out on the funds owed to you.
Federal Government Stimulus Measures
Aggressive “waves” of government assistance have been enacted into law including:
- The Families First Coronavirus Response Act, signed into law on March 18, 2020, included mandated sick leave for employees suffering from COVID-19 and it provided tax credits to help employers pay for those costs. It also provided additional unemployment insurance money.
- The Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law on March 27, 2020. Among many other things, it extended and expanded the unemployment benefits, provided household stimulus relief money in the form of one-time direct cash payments of $1,200 per adult plus $500 per child, provided $500 billion in government loans to companies, and created a Paycheck Protection Program (PPP) providing $367 billion in loans and grants to small businesses.
- Supplemental measures followed in April, June, and July which added funding to replenish the PPP, extended the PPP spending period, lowered the loan requirements for loan forgiveness, and deferred the loan repayment period. It also allowed businesses that received PPP loans to delay paying payroll taxes.
- On Dec. 21, 2020, $900 billion stimulus relief money was approved as part of an omnibus budget bill. That included direct payments of $600 to each adult and dependent, 11 more weeks of unemployment benefits, credits for employee retention, and additional small business loans.
All-in-all, this is a complex number of programs, details, dates, and requirements to navigate.
Tax Implications for 2020
Significant stimulus relief money actions have tax implications for 2020 including not paying federal taxes on forgiven PPP loans. If the PPP loan is not forgiven, it is treated as a normal loan and is not taxable. Further, if qualifying expenses were paid with proceeds of a PPP loan, those expenses can be deducted. Loans granted as Economic Injury Disaster Loans (EIDL) are not included in income and a business can deduct business expenses paid with an EIDL advance.
In addition, a business can receive a non-taxable employee retention tax credit. Businesses can delay the employer amount of federal payroll tax payments and repay the deferred amount over a two-year period.
Businesses are allowed to increase business interest expense deductions to 50%.
Small businesses can continue to deduct all expenses that promote the business, business interest payments and bank fees, most of the business travel expenses, charitable contributions, asset depreciation (deducted over time,) office supplies, professional services, real estate taxes, utilities, and energy efficiency expenses. Rules have been relaxed for net operating loss limitations.
The keys to success in filing are to use professionals who make sure that all requirements have been met so that your business receives all the stimulus relief money and benefits for which it is entitled.
Get Expert Tax, Accounting, and Financial Assistance
Contact Doerhoff & Associates, CPA, based in Jefferson City, MO for professional accounting, financial assistance, and tax preparation that you can count on. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services designed specifically for your success.