The 2021 tax season is unlike any before. With filing deadlines just weeks away, businesses are grappling with the challenges of the ongoing COVID-19 pandemic while also waiting on lawmakers and regulators to decide key issues impacting 2020 business taxes.
Tax professionals are working hard to keep up with the latest provisions so they can better assist businesses that don’t have the time or talent to keep up with these complex changes. Businesses that don’t have the necessary knowledge and expertise will pay more in taxes than they should. Read on for our keys to keeping up with 2021 tax season changes.
Companies dealing with COVID-19 business relief must know the tax implications.
The COVID-19 pandemic is responsible for many changes to business taxes for 2020. Though your business may qualify for tax credits or government assistance, such as increased deductions for business interest expenses, you also could owe taxes for federal disaster support.
Federal COVID assistance for businesses comes in many forms.
Government aid may include:
- Paycheck Protection Program (PPP) loans
- Economic Injury Disaster Loans
- Employee Retention Tax Credit (ERTC)
- Tax credits for paid time off for employees affected by COVID-19
- Increases in business interest expense
- Deferment of payroll taxes
Knowing the rules for any pandemic relief you received will reduce your liabilities and help you avoid penalties for noncompliance.
The tax impact of the pandemic on businesses is still evolving.
Though the 2021 tax season is here, the final rules for the 2020 tax year are not yet clear. Regulators are still sorting out the implications of the year-end coronavirus relief bill that lawmakers approved in late December.
The fluidity around tax filing is unprecedented. Dustin, an expert in the Paro network, says that in his 15-year career he has never seen a situation where he is waiting on guidelines to be set only a few months before deadlines. For example, businesses still don’t know if certain deductions will be allowed, or if filing deadlines might be extended as they were in the 2020 tax season for 2019 business taxes.
Documentation is vital to limiting business taxes.
Whatever provisions ultimately prevail, businesses will need ample documentation to file correctly. If, for example, you received a PPP loan, you must document that you used the funds within the time allotted and for the purpose intended in order to have it forgiven. That is, you will have to prove that you maintained the minimum payroll required for your business per PPP guidelines.
You also will need documentation for sales and expenses to successfully implement tax minimization strategies for your business. You should have an easy-to-follow audit trail that would give regulators or other accountants the detail they would need to sign off on money earned or spent.
Good record-keeping is always a priority for surviving tax time, but perhaps never more so than this year. Tools like a tax preparation checklist ensure you have what you need to file your business’s taxes.
Expert tax preparation positions your business for future success.
Getting your business through tax season unscathed is typically a year-round process, and 2020 was far from a typical year. But, fear not—the right expert can bring you up to speed on the latest tax provisions and will position your business for success in the year (and years) ahead.
Dustin reduced one technology company’s tax liability by properly reclassifying a piece of equipment as a long-term depreciable asset. In another instance, he assisted a manufacturing company in several not-so-obvious improvements, like efficiencies in inventory management and better capture for international trade costs.
The value of an experienced tax professional is obvious, but for this tax season, it will be vital — even small oversights can cost companies big.
If you want to ensure your taxes this season incorporate the latest developments that affect your business, then it’s important to find a tax professional who will be up to speed on the provisions. Paro provides tax experts to provide financial services based on your business’s unique needs.