Filing your annual tax return is a delicate task in the best of years, but the 2020-2021 tax year looks to be especially complex. In the week after the tax filing period opened on February 12, the IRS had already received nearly 35 million individual tax returns according to data released by the agency. It is clear that millions of Americans not only want to be on top of finances in an exceptionally challenging fiscal year, but also ensure that they are eligible for future stimulus checks.
Employee Retention Credit
Last month the IRS posted information on its website detailing how businesses that didn’t receive forgiveness on PPP loans in 2020 may instead claim the Employee Retention Credit (ERC) for the final quarter of 2020 and the first two quarters of 2021. The changes come as part of a provision in last month’s coronavirus stimulus package, the Families First Coronavirus Response Act (FFCRA).
However, despite the benefits of filing early, tax attorney and business coach Gena Jones says returns need to be completed with meticulous care this year, highlighting that the recent IRS announcement regarding ERC could add up to a maximum of $7,000 per employee per quarter.
“That’s more than $200,000 for a business with 10 employees. Across all businesses that fail to claim the ERC, it could add up to hundreds of millions,” she says.
Local COVID Relief Grants
Emphasizing that the current tax year could be especially tricky, she says that business owners should be careful about how they book revenue from local COVID relief grants or loans.
“Business owners need to make sure that their accountant has booked any local COVID relief grants or loans as income like PPP,” she adds. “Many business owners don’t know how to treat such funds which ends up creating a higher tax bill for them.”
The amount of businesses that could be impacted by this is far-reaching. For example, in 2020 the city of Phoenix, Arizona, distributed 200 $10,000 grants to help with financial relief for small businesses. In Chicago, Illinois, the city implemented the Chicago Microbusiness Recovery Grant program and distributed 1,000 grants of $5,000 each, to businesses with less than $250,000 annual revenue.
COVID Paid Sick Leave
Jones is also encouraging small businesses to take advantage of COVID paid sick leave, which means payroll tax credits. According to the IRS website, the paid sick and family leave credits, which were previously only available until the end of 2020, have been extended for periods of leave taken through March 31, 2021. Up to 10 weeks of qualifying leave can be counted towards the family leave credit. This is another significant technicality that Jones believes people may be at risk of glossing over. “They may be overlooking this because they are filing themselves or don’t have a professional with a national perspective,” she explains.
PPP Funded Expenses
She also reminds business owners that expenses from PPP are now deductible. Essentially, the various government aid that has been made available to businesses means that taxes need to be done with an extra sharp eye this year. Now more than ever, businesses need to hold on to as much income as possible during such a financially challenging time. With 30.7 million small businesses in the US as of 2019, accounting for 99.9 percent of all US businesses, the number of people at risk of botching their taxes in some way is extensive. Getting your tax returns in fast may seem appealing so you can wash your hands of the last year, but taking extra time and securing the help of a professional could save you thousands.
Find out about Gena Jones’s business consulting services here.