Last Updated, April 1 2021
The deadline to file 2020 tax returns is right around the corner and, even though it’s late in “tax season”, this year is one like no other. Because, with money hitting your bank accounts in the form of stimulus checks and the Paycheck Protection Program (PPP), as well as there being different tax credits and deferment options available to you, more information is better than less. So, we chatted with Lisa Haffer, tax partner at BDO (a global accounting firm) to help you navigate this tax season (which, if you haven’t started already, this is your gentle reminder to get on it ASAP). Read on to see what’s important for you to know about 2020 tax returns as a wedding pro.
The IRS extended the individual tax deadline
While this doesn’t apply to filing your business’ tax returns, it is still important to know that the IRS has automatically extended the individual tax deadline from April 15, 2021 to May 17, 2021. Because of this, many states are following suit, so you should check your state’s department of taxation website frequently for the correct due date to file your state tax return(s).
Important things to note:
- As of April 1, 2021, the IRS has not extended the due date for first quarter estimated tax payments. If you make federal estimated tax payments, these are still due April 15, 2021.
- Be on the lookout for a potential announcement from the IRS extending the date to make federal estimated tax payments.
- Check your state’s department of taxation website frequently for the correct due date to make state estimated tax payments.
If your business generated a tax loss
If you generated a tax loss on your 2020 federal income tax return, you can consider carrying the loss back up to 5 years. Losses that are carried back can offset income generated in prior more profitable years, which can generate federal tax refunds. For example, assume your business generated a tax loss of $10,000 in 2020 and you do not have any other income or deductions on your 2020 tax return. Assume further that your business generated a tax profit of $20,000 in 2015 and that you didn’t have any other income or deductions on your 2015 tax return. Under the 5-year carry-back rule, you can carry the 2020 loss back to 2015, reduce your original 2015 income from $20,000 to $10,000 and generate an unexpected tax refund.
Important things to note:
- Corporations that generate 2020 tax losses can carry the losses back up to 5 tax years.
- For businesses that operate as LLCs or “S” corporations, 2020 losses will flow to owners via your K-1. Individual owners whose 2020 tax returns reflect an overall loss can carry those losses back up to 5 years.
- Most states require losses to be carried forward, so be sure to check the rules in your state!
If you deferred the employer portion of the payroll tax
If you took advantage of deferring the Employer portion of payroll tax under the CARES Act (50% deferred until 12/31/21 and 50% until 12/31/22), it is important to know that:
- No tax deduction is allowed on your 2020 tax return for amounts that you choose to defer until 12/31/21 or 12/31/22; your tax deduction will generally be deferred until the year in which you remit the tax to the IRS (i.e., 2021 or 2022).
- An exception is made for the portion of the payroll tax remitted to the IRS before the earlier of the time you file your 2020 tax return or 8 ½ months after the end of your tax year (i.e., September 15, 2021 for most business taxpayers). Amounts remitted to the IRS during this time frame can be deducted on your 2020 tax return.
- For food and beverage establishments with tipped employees, the FICA credit (claimed on Form 8846) is deferred until the year that you deduct the payroll tax.
6 additional last minute tax tips
- If you received 2020 Employee Retention Tax Credits, decrease the amount of your 2020 salary and wage deduction by the amount of the credits received.
- Forgiven PPP loans are not included in federal taxable income and expenditures made with PPP funds are tax deductible on your federal tax return.
- Most states follow these rules, but a handful of states (including Virginia and North Carolina as of April 1, 2021) do not. Always check your state’s department of taxation website to verify the correct treatment.
- Certain LLCs and Partnerships that file IRS Form 1065 (U.S. Return of Partnership Income) are required to report partner capital on the tax basis. See the instructions to Form 1065 to learn more and to determine whether this requirement applies to you.
- Businesses that purchased fixed assets in 2020: Claim 100% bonus depreciation on your federal tax return for fixed assets such as furniture, equipment and certain qualified improvement property. (States will likely have different rules; check your state website for details).
- Businesses that donate food inventory to charities that benefit the needy, ill or infants (i.e., food banks or shelters) are eligible for an enhanced charitable contribution deduction. This additional deduction is not limited to 2020. Consult your tax advisor for more details.
- Consider extending your tax return in anticipation of additional IRS guidance that we hope will be released in the upcoming weeks and months. Calendar year “S” corporations, LLCs and partnerships can file as late as September 15, 2021 with a valid extension. “C” corporations and individuals can file as late as October 15, 2021 with a valid extension.
If you’re still working on preparing your 2020 tax returns and need additional help, be sure to read this piece that will help you prepare for taxes even in a crunch.
Information on COVID-19 relief measures is changing rapidly, and new details are still being released. Check the IRS, U.S. Treasury and SBA websites regularly for the most up-to-date information. This article is for informational purposes only, and is not intended to provide legal, financial or tax advice. We recommend that you consult with your legal, financial and tax advisors regarding your particular circumstances.
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