by Mikkel Jensen, US Director of Ageras
What a year it has been. The COVID-19 pandemic has thrown a curve ball for so many business owners. The shutdown forced so many owners to figure out how to deliver their products and services – virtually. Funding from the CARES Act provided through the Payroll Protection Program (PPP) provided assistance to many business owners.
As the tax season approaches, the big question now is how entrepreneurs figure out how to find an accountant and how the PPP funds will affect your taxes.
Here are several helpful tips:
Finding a professional.
Finding a professional to handle taxes this year is more important than ever due to all of the changes surrounding COVID. E.g., how your PPP loans will affect your tax filing, working from home and what that means to tax deductions and other issues.
If you own a business, hiring an accountant is crucial. A professional can not only help you take advantage of all tax breaks available for business owners but can also prepare other IRS forms that are required for running your business. Tax deductions such as business travel, vehicle expenses, and home office can flag your business for audits, so it is important to be diligent and detailed when reporting these expenses on your return.
An accountant will ensure that no mistakes are made so you know that you have maximum deductions with maximum peace of mind. Running a business come tax-time comes along with filing required forms such as 1099s and W2s, which a professional can handle for you, saving you time and energy. Being self-employed also comes with self-employment taxes. You may also need to make quarterly estimated tax payments, which a professional can assist with.
Accounting for PPP funds.
According to the U.S. Treasury, Congress last year, authorized up to $659 billion as part of the Paycheck Protection Program with the goal of assisting the millions of Americans employed by small businesses. Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, were eligible, if they also meet program size standards. You’re probably wondering: If I received PPP funds, will I have to declare them on my taxes. Here are some answers:
- Businesses will not pay tax on PPP loan funding. Only income will be liable for tax charges. In view of this, small businesses do not pay tax on the money received.
- The above also means that expenses covered by PPP loan are eligible for tax deductions (previously this was unclear).
- The IRS and Congress have been in an intense battle surrounding PPP loan taxation/qualifying for expense deductions. The IRS is against the CARES policy of providing tax deduction benefits on forgiven loans. claiming it’s a “double-dip”. But Congress remains firm in supporting the policy that there will be no taxes on forgiven loans.
If you’ve closed a business this year.
In the unfortunate circumstance that your business closed last year, you still have to file taxes.
Filing your final tax forms as a business is a crucial part of your closing process, and will vary depending on your business structure (different IRS forms).
Once all of your taxes are paid, you must request a “consent to dissolution” and a “tax clearance” document from the IRS. It is best to notify federal and state tax agencies of your closure and cancel your Employer Identification Number (EIN) in order to finish your tax tasks.
Mikkel Jensen, US Director of Ageras, manages and directs the United States Ageras team in providing top-quality accountants to businesses looking to maximize their tax strategy. Mikkel carefully oversees each case, assisting with success and providing the best accountants to each business. Mikkel is a strategic and skilled businessman himself, with a background that includes 10+ years of owning, growing, and managing several successful businesses of all sizes.