It’s that important time of year—tax time. The year 2020 has seen massive health problems due to the broad impacts of the COVID-19 pandemic. To counteract the spread of COVID-19, businesses were closed and patronage restricted, events canceled, people socially distanced, and schools transitioned to online classwork.
The effects on businesses included drastic reductions in revenue, layoffs, and furloughs, and remote working. Government assistance has included support programs, new regulations, and support payments of various types. Without professional assistance, tax time could be a nightmare.
How will COVID-19 Impact My Taxes This Year?
The initial package of economic aid enacted into United States law on March 27, 2020, was the Coronavirus Aid, Relief, and Economic Security Act (CARES). It provided one-time payments to individual Americans, gave aid to large corporations, aid to state and local governments, increased unemployment benefits, and created the Paycheck Protection Program, which provided forgivable loans to small businesses.
The Consolidated Appropriations Act of 2021 was signed into law on December 27, 2020, and it extended some aspects of the CARES Act and included some new initiatives.
The legal provisions enacted to ease the extensive impacts of COVID-19, aid Americans, help businesses survive and recover, and stimulate the economy include many aspects which have important tax implications for businesses.
Paycheck Protection Plan Loans (PPP) were extended. Those loans are not considered to be taxable income for Federal Tax purposes and any forgivable expenses under the PPP are considered tax-deductible. The tricky part is that some states follow the Federal process and others do not, so it is important to know the state code in this respect.
The Small Business Administration (SBA) has offered an optional relief program to assist struggling businesses called the Economic Injury Disaster Loan (EIDL). Advance grants under this program are also provided. $10,000 grants under the EIDL are not considered taxable income and do not need to be paid back. Loans under the EIDL are taxable.
Terms for any SBA loans that have been taken out have been extended and modified but the loans will still be taxable.
During this challenging COVID-19 time, many employees have had to work remotely. If their remote work continues to be in the same state where they have been residing, there won’t be any impact on your business taxes. If, however, employees have moved out of state, there may be tax implications including income taxes and payroll taxes.
Unemployment benefits have changed under the provisions of COVID-19 relief. These include the extension of state unemployment benefits, which are taxable.
If your business had to layoff employees, some states have implemented provisions to not raise tax rates on terminations that were implemented during the pandemic.
By Presidential Executive Order, employers were given the option to offer employees the opportunity to defer employee payroll taxes. Yet, those taxes must be paid back, and the repayment period has been extended until December 31, 2021.
Why Every Business Needs a CPA
All the relief provisions of the COVID-19 government enactments mean that taxes are more complicated than ever. A CPA will be familiar with and capable of handling all these complications. In addition, as always, a CPA provides assurance of reliable financial reporting.
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.
