2020 brought a lot of unique challenges to entrepreneurs, and 2021 is shaping up for a wild ride as well. It is easy to miss tax planning when you're trying to keep your proverbial head above water. I've created a quick check list of the most impactful small business tax strategies for 2021.
Paycheck Protection Plan Loans
Starting with the biggest potential impact are PPP loans. If you haven't already done so, make sure you've submitted your application for loan forgiveness with your lender. This loan forgiveness is TAX FREE, so make sure you get it done!
If you haven't applied for the second round of PPP loans, Congress has extended the program deadline to May 31st. You do have to qualify for the second round by showing a 25% drop in revenue, but again the forgiveness is tax free! Do the calculation to make sure you qualify.
Employee Retention Credit
If you don't qualify for the second round of PPP loans, you may qualify for the Employee Retention Credit which has a lower revenue decrease test (20%). Remember, you CAN use both the Credit and PPP loans, but please use a professional to help navigate. You don't want to screw this up.
Net Operating Losses
Legislation last year and this, have liberalized the use of Net Operating Losses (NOLs). Prior to these changes, you were only allowed to carry any unused losses forward and were limited to 80% of your taxable income. For losses created in 2019 and 2020, you can not only deduct 100% of the losses, but you can carry losses back to prior tax years. This allows you to receive a refund on prior year taxes!
These loss calculations are complicated, so make sure you involve a professional. Consider your options of carrying back losses and how that might affect future taxes. If you need cash, this is a great option.
The recently passed American Rescue Plan Act includes $29B in funding for grants to restaurants and performance venues. These grants are non-taxable, but unused money must be returned. You can read more here.
Qualified Business Income Deduction
The Qualified Business Income Deduction (QBID) is not new for 2021, but it remains a powerful tax strategy for small business. The deduction computations are complicated, but essentially amount to 20% of your qualified business income. It is available to pass through entities (S-Corporations and Partnerships) and sole proprietors (Schedule C). Certain service businesses have more restrictive limitations, so use a professional to obtain this deduction.
Nothing new from the legislation here, but bonus depreciation continues to have no cap in 2021 and includes both used and new equipment. Make sure you consider your depreciation strategy in terms of your future years. You don't want any surprises by using all of your deprecation up in one year! You can read more about depreciation strategies here.
As you can see, lots to consider why you're fighting off the dragons. Let us do the heavy lifting for you. Schedule a call today to see how we can help you.
2020 Small Business Tax Deductions | Core Group US
Deductions for small businesses can be categorized into three buckets: items you assume are...