As was the case for small business owners in 2020, COVID-19 will have a significant effect on the sort of deductions you could be eligible for when you file your taxes in 2021. In this blog, we’ll examine several critical 2021 small business tax deductions and provide a checklist for potential opportunities to improve your filing status and minimize any tax liabilities.
The Paycheck Protection Program (PPP)
The Paycheck Protection Program was first introduced as part of the CARES Act in response to the outbreak of the COVID-19 pandemic in the United States. Clearing hundreds of billions of dollars in emergency loans for small business, money received or forgiven through the PPP is tax-free. That means any money your business received and that was allocated toward payroll, rent/mortgage, or utility payments is not considered taxable income.
With so many small businesses struggling right now, this money might not last long. So, if you’re interested in learning more about the Paycheck Protection Program, please contact an experienced Maryland tax attorney today.
Economic Injury Disaster Loan (EIDL)
Unfortunately, many small businesses have been forced to either shut down temporarily or close their doors for good since the beginning of the pandemic. Even those companies that have managed to stay afloat are likely experiencing financial difficulties caused by the lagging economy. Thankfully, the Economic Injury Disaster Loan was enacted as part of the CARES Act to help businesses that have been adversely impacted by COVID-19.
The U.S. Small Business Administration recently expanded the EIDL program, which provides low-interest loans and grants to help small businesses (500 employees or less) and nonprofits endure revenue losses related to the coronavirus. Interest rates are 3.75% for small businesses and 2.75% for nonprofits, with a cap of $2 million per business.
Please note that, unlike loans received as part of the Paycheck Protection Program, EIDL loans are subject to income taxes.
Employee Retention Tax Credit (ERTC)
Businesses that have been forced to partially or fully close due to a COVID-related government shutdown or a 50% decline in income quarter over quarter could be eligible for the Employee Retention Tax Credit. The ERTC is designed to help struggling business retain existing staff through a tax credit that is equal to 50% of qualifying wages (up to $10,000/employee) between March 13, 2020 and January 1, 2021.
The ERTC is a bit complex, but our skilled bookkeepers can help you make sense of everything and increase your chances of ERTC approval. Reach out today to learn more!
Families First Coronavirus Response Act (FFCRA)
Almost everyone has been affected by the COVID-19 pandemic in some way, shape, or form. And since many employees have been forced to miss work due to personal illness or family illness, businesses that paid sick-leave are eligible for tax credits for 100% of the cost of this sick-leave pay. In addition, the Families First Coronavirus Response Act provides 100% tax credits for FICA taxes for sick-leave expenses, family-leave pay, and qualified healthcare plan expenses.
A Checklist for 2021 Small Business Deductions
In addition to exploring the small business tax deductions above, small business owners should be mindful of several crucial considerations throughout the year.
- Keep accurate, up-to-date books. Come tax time, nothing is more important than clean books. Keeping track of your business finances, documents, and receipts will be a major help when you file and also help you prevent a potential audit. Learn more about our bookkeeping services here.
- Never assume anything. Just because your business could be eligible for a tax break or tax credit, doesn’t guarantee that you will receive one (or several). Always keep a conservative mindset and err on the side of caution to avoid substantial deficits.
- Stay on top of changes in tax law. The items listed above are just a few of the many changes to the United States tax code over the past several years. To ensure the most effective and efficient tax filing, please contact S.H. Block Tax Services
- Remember, you don’t want a refund. In most cases, small businesses that receive a tax refund overestimated their tax liability, which would’ve been better spent by investing in their organization. Avoid this with good bookkeeping and by planning for your taxes all year long.
Reach Out Today for Help With Your 2021 Small Business Tax Deductions
If you are a small business owner looking to take full advantage of this year’s small business tax deductions, you should reach out to the tax experts at S.H. Block Tax Services. Our staff of bookkeepers, enrolled agents, and attorneys have decades of experience handling Maryland taxpayers’ finances and are here to help you with your small business tax needs throughout the year.