Tax Changes for 2021
It’s been a confusing time for most business owners. The pandemic changed our business processes so significantly that many small businesses are depending on assistance from the government to move forward. As we move into the second calendar year of COVID, pandemic relief is on every small business owner’s mind. And as we approach tax season, it seems there are more questions than ever:
How will COVID affect my business taxes?
If I took PPP loans, can I claim the Employee Retention Credit?
Am I eligible for the recovery rebate?
There have been many tax changes in response to the COVID pandemic. If you’re unsure how they affect your business, you’re not alone. Three of the tax changes we often get questions about are:
Recovery Rebate Credit (via CARES act)
The Economic Impact Payment (so-called COVID check) received in 2020 was an advance credit that does not need to be paid back.
The Recovery Rebate Credit is for eligible taxpayers who did not receive the full Economic Impact Payment. They can claim the credit on their Form 1040 or 1040-SR. This generally will lower the amount of tax owed or increase the amount to be refunded. Anyone who received the full Economic Impact Payment ($1200 for an individual, $2400 if married filing jointly, with an additional $500 for each qualifying child) will not be eligible for this credit.
Employee Retention Credit
The previous version of the Employee Retention Credit was limited – employers with PPP loans were not eligible for this credit. Changes extend the ERC to include employers with PPP loans, retroactive to March 12, 2020. There are restrictions, however. It also extends the ERC ending date to June 30, 2021.
The Consolidated Appropriations Act signed in December extended tax credits under the Families First Coronavirus Response Act (FFCRA) into 2021, with some limitations.
Taxpayers eligible for the stimulus payment may receive up to $600 for individuals or $1,200 for married couples, and up to $600 for each qualifying child. Eligible individuals will automatically receive a payment, either through direct deposit, paper check, or debit card. Those eligible are:
- U.S. citizens and resident aliens not claimed as a dependent by someone else, and
- With a 2019 income up to $75,000 for individuals and $150,000 for married couples filing jointly, and surviving spouses.
The payment amount is reduced for incomes over certain income thresholds.
Did COVID affect your business?
The COVID pandemic seems to have reached every area of our lives, from work, to school, to socializing, and yes – small business taxes. In the best of times, taxes can be confusing. The unexpected changes for 2020 filing and the 2021 tax year can make them even more confusing. You don’t have to navigate those changes alone.
Payroll, bookkeeping, and small business taxes are our specialty!
Amador Accounting specializes in tax preparation. If you have questions about the tax law changes that affect your 2020 filing or are concerned about the changes moving forward into 2021, contact Lisa Amador.
Contact us on the website or call Lisa at 734-330-0907 for more information about our payroll, bookkeeping, business consulting, accounting, and tax prep services. If you’ve got questions, we probably have solutions!