What you’ll discover:
The COVID-19 epidemic is still affecting each of us in various ways. Earlier this year, several small firms were forced to shut temporarily or cut capacity, while others were compelled to make substantial modifications to operations in order to safeguard workers and the public.
In addition to state-specific laws, many major pieces of legislation affecting small enterprises were approved in 2020. The Families First Coronavirus Response Act (FFCRA), the Coronavirus Assistance, Relief, and Economic Security Act (CARES Act), and the Paycheck Protection Program are among them (PPP). A comprehensive examination of these laws is beyond the scope of this article; nonetheless, company owners should obtain advice to determine if and to what extent they may be affected.
Many companies, especially small firms, need financial aid to navigate these turbulent times. Although small company loans might help with certain financial requirements, there are also some tax incentives available to qualifying enterprises that provide immediate assistance in some situations.
If your small company employs one or more people, you may be eligible for one or more of the IRS tax credits listed below, such as the employee retention credit, paid sick time credit, and family leave credit.
Employee retention bonuses. Companies contemplating layoffs or furloughs should first look into any tax benefits related to employee retention. These credits are available to businesses of any size that were negatively impacted by COVID-19, due to government shutdown or suspension orders, or that can demonstrate that their gross receipts in a comparable quarter in 2019 were less than half of their gross receipts in a comparable quarter in 2019. These credits are available to almost all enterprises, including non-profit organizations. There are a few exceptions, including small enterprises who used PPP loans and state and local governments and their agencies. The credit is equal to 50% of up to $10,000 in wages given to an employee, including the cost of employer-sponsored health insurance (up to $5,000 per employee).
If you feel your company is qualified, you do not have to wait until your next tax return to take advantage of it. Just lower the amount of federal employment tax deposits by the credit amount, and account for the difference on IRS Form 941, Employer’s Quarterly Federal Tax Return. Employers may seek advance payments utilizing Form 7200 Advance Payment of Employer Credits if the amount of federal employment taxes is insufficient to satisfy the amount of the credit to which they are entitled. Because of COVID-19.
Businesses that paid workers for sick leave or family leave may be eligible for credits, which include:
Businesses may obtain immediate reimbursement and benefit from paid sick time and/or family leave tax credits by decreasing their payroll tax contributions by the credit amount. Employers may file IRS Form 7200 if their payroll tax payments are inadequate to fulfill the credit.
The CARES Act has a provision that allows companies to postpone the 6.2% employer component of Social Security FICA taxes for salaries given to employees between April 27, 2020 and December 31, 2020. This payroll tax deferral is open to all companies, and no financial damage from the epidemic is required. Additionally, owing to the PPP Flexibility Act, which went into effect on June 5, 2020, firms may continue defer payroll taxes even after PPP debt forgiveness – a change from the original standards. If your company decides to use this deferral, half of the deferred taxes must be paid by December 31, 2021, with the remaining amount payable by December 31, 2022.
There are numerous possible tax benefits connected to corporate losses:
In addition to payroll tax credits and company losses, there may be additional tax solutions that might bring financial relief. For example, if your company utilizes accrual accounting, you may be able to transition to cash accounting and avoid paying taxes until your customers pay for products or services.
You may also be eligible to seek an immediate refund of corporate AMT credits or take advantage of the increased business interest expenditure deduction level for 2019 and 2020, which is now 50% (up from 30%).
As with any aspect of business taxes, consult with a lawyer or an accounting specialist to see what sorts of tax relief your company may be qualified for. In certain circumstances, retroactive treatment may make it desirable to submit revised returns for earlier tax years.