The year 2020 brought unprecedented changes, from economic challenges, major shifts in the job market and the passing of legislation to assist citizens and businesses. It is likely that 2021 will continue to serve up historic changes, as the economy gets back on track, many of our citizens return to the work force and regulations continue to shift. We have compiled a list of items to be aware of as you prepare for 2021 tax season.
Communication and Organization | Expect new forms, credits, and requirements in 2021; so it is critical that businesses stay organized and communicate with their tax preparer. Last year’s tax return, accurate information regarding all expenses, revenue and deductions along with all employee information including annual payroll records, will need to be readily available.
Paycheck Protection Program (PPP) | As of December 27, 2020, expenses paid under the provisions of the PPP program are also tax deductible, and proceeds from forgiven PPP loans are tax-exempt.
Tax Day | Tax Day for Partnerships and S Corporations is Monday, March 15, while calendar year C Corporations and individuals have until Thursday, April 15 to file a return or extension. Tax preparation this year is more involved due to PPP funds, and other provisions in the 2021 COVID relief bills, the CARES act and the FFCRA as well as Tax Cuts and Jobs Act from 2017.
New Tax Credits and Loan Programs | Major changes to the business tax code for 2020 include new tax credits and loan programs to help businesses weather the effects of COVID-19. For businesses that received any governmental assistance during 2020 or that opted to defer tax payments, it is vital to ensure the use of the loans, grants or extensions received are accurately tracked and reported when filing taxes. New programs and changes include:
• CARES act
• Economic Injury Disaster Loan (EIDL)
• Employee Retention Tax Credit (ERTC)
• Families First Coronavirus Response Act (FFCRA)
Individuals | COVID legislation most notably included economic impact payments for individuals of $1,200 and $600 respectively, more generous rules on distributions from IRAs and other retirement plans, a suspension of the RMD requirement for older Americans, as well as a $300 above-the-line deduction for charitable contributions for taxpayers who don’t itemize. Other provisions provided renter protections and student loan deferments to those struggling financially.
Tax Cuts and Jobs Act | The Tax Cuts and Jobs Act significantly changed Sec. 274 of the Internal Revenue Code by eliminating the deduction for any expenses considered entertainment, amusement, or recreation. Of course, December 2020 legislation then provided a 100% deduction for meals (but still 0% for entertainment) for 2021 and 2022 when purchased from a restaurant. While intended as a benefit for a restaurant industry decimated by COVID, this is still a welcome break for small businesses.