It’s normally time for Texans to wrap up their tax returns, but not this year. Delayed tax deadlines and additional relief are welcome, but they also mean a longer and more complicated tax season. If you’re a Texas business owner, timing is still critical.
Your Timing Matters on 2020 Taxes
First things first, let’s talk deadlines. The federal deadline for taxes traditionally due on April 15 has been pushed back this year to May 17, 2021. But if you live, work, or have your records in Texas, you have even more time to file and pay. The federal deadline for Texans has been extended to June 15, 2021, due to a federal disaster declaration after the statewide February winter storms. Details are included in our post here.
But don’t wait until summer to submit information to your CPA. The extended deadline to file 2020 taxes gives you extra time to identify and calculate losses and weigh tax opportunities associated with both the storms and the pandemic. That’s precious time your tax advisor needs to work through dozens of associated provisions to help you do just that.
Changes that might need to be worked out before June include:
- Calculating deductions associated with losses from the winter storms. While the losses happened in 2021, you have the option to deduct them on your 2020 taxes.
- New IRS rules for charitable donations, transportation fringe benefits, qualified opportunity funds, like-kind exchanges and more.
- Paycheck Protection Program (PPP) evolutions over the past few months.
- Other business loss deductions, bonus depreciation, accounting method changes, and more.
The American Rescue Plan Act
The third round of stimulus money has been released as part of the American Rescue Plan Act of 2021 (ARPA). The Act includes some major business provisions as well:
- A Restaurant Revitalization Fund administered by the Small Business Administration (SBA) to help certain food and drink businesses with pandemic-related revenue losses not already covered by a PPP loan.
- An enhancement to the Employee Retention Credit (ERC) that extends it through December 31, 2021. New categories of businesses eligible for ERC include severely financially distressed employers (those who experienced more than 90% gross receipt reduction) with more than the previous 500 full-time employee threshold and certain startup businesses that began after February 15, 2020.
- An extension of the Families First Coronavirus Response Act of 2020 (FFCRA) qualified paid sick and family leave tax credits, as well as a modification of the rules for wages paid April 1, 2021, through September 30, 2021.
We cover these areas more in-depth in our latest Bankler Report available here. The ARPA provides several tax break opportunities for businesses and individuals alike (more on those here), but most won’t be realized until the 2021 tax season. That being said, it’s essential to be on the same page as your CPA in real-time as you take advantage of the tax credit, loan, grant, and relief opportunities throughout the year. They can offer you tips and advice on how to receive and record the funds and tax breaks so that they remain valid when the time comes to deduct them. Thanks to specific lookback and distribution rules, the moves you make now can also affect your taxes from 2020 in surprising ways.
Forbes offers a great piece of advice here that includes COVID-19 related questions your tax pro should ask you this year. Business owners have an extra layer of considerations (included in the areas above), but these individual income tax questions are also important because they deal with areas including:
- Stimulus payments: It’s essential to note if you did not receive any of the three stimulus “checks” you were due (or you didn’t receive the full amount due). This is the time to reconcile that discrepancy on your return.
- The Earned Income Credit (EIC) and Child Tax Credit (CTC): A special lookback provision exists this year that allows you to use your 2020 earned income or your 2019 earned income for these credits, whichever is more advantageous.
- Changes in working conditions: Did you work from home or another state? Where you worked during the pandemic can affect your deductions. Were you unable to work because you were sick or caring for another family member? You may be able to receive sick and family leave credit, even if you’re self-employed.
- Dipping into retirement accounts: Distributions made for COVID-19-related reasons may escape the 10% withdrawal penalty while spreading the distribution income over three years.
The extra breathing room this tax season is excellent, but don’t squander it away. Use it to give your CPA spare time to find even more tax breaks and opportunities for you. Feel free to contact us with questions.