By Jimi Coplen, DCOH Executive Director
For this article, I interviewed Tammy Cunningham, Tax Manager CPA, ABV, with Eide Bally about some of the best ways to get prepared for the upcoming tax season. 2020 was a crazy year so we are going to dive into some of the relevant things businesses need to know.
If you have not already done so, you need to supply all your employees with a W2 or 1099. W2s are for employees and 1099s are for contracted labor. The deadline was February 1, 2021. If you are not sure how to do this, you can run a quick google search or ask an accountant.
What is the first thing businesses need to do to get their documents prepared? If they have not done a good job keeping records, what do you recommend?
Gathering your records – most likely bank statements – is the first place to start. You can summarize these statements in QuickBooks, Excel, or by hand. You will need to separate your business income from expenses. Do not forget to account for your business vehicle mileage. Your accountant can summarize these statements for you, but understand that is an added expense.
Is there anything to watch out for if you are doing your own taxes?
You are going to have to report your stimulus payments received, but it is not taxable. There is also a new $300 above the line deduction for charitable donations if you are not itemizing. If you did not get either stimulus payment, you can report it on your return, and it will be reflected in your tax refund.
How will PPP be handled?
The PPP loan is not a taxable transaction. Effectively, it has no bearing on what you deduct and is not taxable. For partnerships, they show it as non-taxable income.
How will EIDL show up on your taxes?
Eidl is looked at as a traditional loan. It will not show up as taxable. There will be no reporting for this. If you got turned down for the EIDL loan, but if you got the $1000 grant, it will be treated as non-taxable income just like the PPP loan.
Farmers got a 1099-G and it contains some Covid 19 relief. Is this taxable income?
The 1099 – G is an FSA document. Some of the farm programs were titled as covid relief. It will be shown on Schedule F with other government payments received. It will be taxable income.
What if someone drew unemployment during the shutdown?
Unemployment is and has always been taxable. You had the option to withhold when you signed up. Some will have done this, while some did not. If you did not hold out taxes, then you will have to pay those. You will be responsible for income taxes on the full amount. Unfortunately, the extra $600 is taxable income.
Last year because of COVID19 the deadline was extended. Do you see that happening this year? What is the deadline to file an extension?
They are not expecting any delays in filing 2021. Extensions are also due on April 15th. That extends you until Oct. 15th. You cannot begin filing any taxes until Feb. 12th. The IRS is updating software for the stimulus payments.
Is there ever an advantage to people filing separate vs. married?
This might put you into another tax bracket. You might lose the lower tax bracket option. This will be something to investigate. Usually, married filing separately only makes sense if you both have about the same amount of income or you want to maintain separate records. Currently, if one spouse makes significantly more than the other, you give up some earnings taxed at the lower rate of the other spouse. For example, one spouse makes $90,000 and the other makes $30,000. The spouse at $90,000 is getting into the 22% tax bracket while the lower-earning spouse is still in the 12% bracket. The higher-earning spouse pays extra tax.
How is health insurance being handled this year?
There is no penalty for not having health insurance for 2020.
What are some other new things to be on the lookout for in 2021?
- Employer Retention Credits (ERC): If you had a 25% decrease in gross receipts for any quarter in 2021, you will qualify for an ERC next year. (In 2020 it was a 50% decrease.)
- There is a second round of PPP for businesses that saw a 25% decrease in any one quarter of 2021.
- 2021 is a good time to do tax planning because of the anticipated change in tax laws that are up in the air.
For more questions about taxes, you can call Eide Bally at 940-864-3931, or visit their website at https://www.eidebailly.com/locations/haskell. The DCOH can be reached at 940-864-3424.