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Covid tax breaks are gone. What this means for business tax returns

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The rules for taxing small businesses have changed significantly over the past two years. This year is no exception, as many of the various deductions and deferrals during the pandemic are coming to an end.

The good news is that even though these benefits are ending, the impact on the overall tax rate for most small business owners will not be significant. Accountants and tax planners say the Build Back Better infrastructure bill, which includes proposals to increase the capital gains tax, limit the 20 percent deduction for qualified business income under Section 199A, and other factors that would may increase taxes, but they did not come true. Yet.

“In many ways, the tax bill was about a dog that didn’t bark. They didn’t do anything to capital gains, they didn’t do anything to state taxes. that’s not going to happen,” said Dean Zerbe, national managing director of tax consultancy Alliantgroup.

Meanwhile, business owners can still retroactively apply for certain pandemic-related benefits. Here are some of the biggest changes small business owners need to know about this tax season.

It’s not too late to claim an employee retention loan

Created in 2020 under then-President Donald Trump’s CARES Act, the employee retention loan ended in September, a quarter earlier than expected. The ERC is a fully refundable payroll tax credit for employers that can be up to $70,000 per quarter and was created to encourage businesses to keep employees on their payroll.

The program has gone through three major changes in the last two years, which is a big reason why many business owners didn’t know about the program or didn’t apply for it.

The program was not initially open to those who took a PPP loan. This changed when the second iteration appeared. Rules were also relaxed that limited the amount a business could receive based on how much the pandemic affected them.

For small businesses that missed the program, it’s not too late to apply retroactively. According to Kevin Kuhlman, vice president of federal government relations for the National Federation of Independent Business, many business owners are unfamiliar with the program but can still apply. Most taxes this year are expected to be backdated.

“We have seen a lot of frustration from business owners about the changes to this program, especially the cuts. Kuhlman.

Tax treatment of operating losses is less generous

How business owners can roll back or forward net operating losses has changed a lot over the past few years. Previously, NOL could be moved back two years and forward 20 years. The Tax Cuts and Jobs Act then changed the rules in 2017, limiting NOL deductions to 80% of taxable income and prohibiting carryover.

When the pandemic hit, the CARES Act removed the TCJA rules and allowed business owners to carry forward net operating losses incurred after December 31, 2017, through January 1, 2021, for up to five years. In addition, the limit for spending on business interests has been raised from 30% to 50% of business income. Net operating losses were visible in 2020 taxes, and business owners have also amended previous tax returns to show the net operating losses they recovered.

Now the rules on how business spending and net operating losses can be used are back to pre-pandemic levels. Limiting net operating losses may mean additional income tax payments. For example, if a business owner had a net operating loss in 2018 and then had a taxable profit in 2019, they can use the net operating loss to reduce taxable profit in 2019. Under the CARES Act, this can also be carried forward if they had taxable income in 2017. Now this is coming to an end.

Covid-19 Paid Vacation Tax Credit Expired

Over the past two years, many people have had to take time off due to caregiving responsibilities – looking after a quarantined family member or children who need to be looked after all day because school is closed due to Covid-19. The Families First Coronavirus Response Act, passed in March 2020, requires some employers to provide paid sick leave or sick leave for pandemic-related reasons. Although it expired at the end of 2020, employers who continued to offer such benefits could use payroll tax credits to cover the cost of the benefits. The Covid-19 paid leave tax credit now expired in September, making it difficult for small employers to provide additional paid leave.

Deferred social security payments are payable

Under the CARES Act, employers can defer employer contributions to Social Security. Now these payments should be. Half were to be handed over at the end of 2021 and the other half at the end of this year. Because the payments were already deferred, the IRS warned that any taxpayers who don’t meet the December 31 deadline will be fined.

Tax planners say the change is unlikely to hurt business owners as few have taken advantage of it. Edward Wrenn, a partner in Withers’ private banking and tax services, said he doesn’t see too many problems as many clients prudently put money into a bank account so it’s ready when they need it.

With all the changes in tax rules over the past two years, small business owners may need to rely more than ever on an accountant or tax planner. Adding to the stress that tax returns often bring is a lack of response from an overburdened IRS that is dealing with a record backlog of tax returns.

“It just feels like everything has gone crazy. There are still 6 million returns to be filed and perhaps one in ten phone calls are answered,” said Meredith Tucker, director of Kaufman Rossin, accountant and accountant. consulting services firm. Tax returns from last year are still being processed. Taxpayers who have an overpayment may want to apply that overpayment to the next period, but earlier tax returns have not yet been processed.


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