Even during the best of times, managing a small business is a daunting undertaking, let alone doing so during a pandemic. If your business has survived COVID-19, it’s likely you’re still struggling just to make ends meet and don’t need the added stress of figuring out complicated taxes. You started your business to pursue a passion, not to think through the tax implications of PPP, EIDL and myriad other confusing programs (and acronyms) surrounding stimulus-related relief. However, in three easy steps, you can set yourself up for tax-time success.
Step 1: Get organized
To avoid unwelcome surprises, it’s important to get organized ahead of the April 15 tax-filing deadline. But during a pandemic — when so much is uncertain — it’s even more critical.
If you took a PPP loan in 2020 and you have not already done so, now’s the time to gather the necessary paperwork to apply for PPP loan forgiveness. This may include bank account statements, payroll documents, proof of paying employment taxes, mortgage statements (or rent/lease agreements), utility bills and any other documentation that shows you meet the requirements for loan forgiveness. See the next section for additional expenses that qualify for forgiveness.
Next, you’ll need to contact your lender and complete the correct loan forgiveness application. Your lender can help you identify and provide you the correct form to use.
Step 2: Get smart about your taxes
If taxes intimidate you, there are still a few key things to know heading into this tax season. First, money received from your forgivable PPP loan will not be included in your gross income at the federal level (but check with your state to see if the loan is taxable on your state return).
Also, expenses covered by your PPP loan are still tax deductible, so it’s a “double-dip” tax benefit. Qualifying expenses include payroll, rent or lease payments, mortgage interest and utilities, and have recently been expanded to include:
- Personal Protective Equipment (PPE) and costs for adapting your business for health and safety compliance
- Essential supplier costs to keep your business open
- Property damage due to public disturbances, provided it wasn’t covered by insurance
- Operational expenses for payments on software and other accounting or HR services
You may also be eligible for other small business tax breaks, including the Employee Retention Tax Credit (ERTC), which is a refundable tax credit aimed at helping small business owners keep employees on their payroll, even if business has slowed down considerably or your finances took a significant hit from the pandemic. Recent legislation extended the ERTC through June 30, 2021. Unlike loans, you don’t have to apply for the ERTC — it’s a credit on a business’ employment tax returns (Form 941 or 944 for most employers).
Without becoming a tax expert overnight, how can you be sure you’re getting all the tax credits, deductions and deferrals you’re entitled to?
Step 3: Get help
Complicated times can make for complicated taxes. When your finances are involved, it’s generally a good idea to get expert help. Connect with a Block Advisors small business certified tax pro to help you make sense of the tax impacts of COVID-19.
“H&R Block has helped millions of small business owners do more of what they love by doing what we do best,” said Ian Hardman, General Manager and Vice President of small business at H&R Block. “We know small business owners are confused about how stimulus-related aid will impact their taxes this year, but they don’t have to go it alone. Our tax pros have an average 12 years of experience and can help small business owners get every credit, deduction and deferral they deserve.”
Block Advisors, a team within H&R Block, is dedicated to meeting the tax, bookkeeping and payroll needs of small business owners year-round. To start working with the tax experts at Block Advisors, visit blockadvisors.com.