4 Tax Tips Every Small Business Needs to Know

There are four tax tips every small business needs to know. With such a unique year in the past, taxes may seem a little different this year. Continue reading below to learn more about what you should focus on this year before filing your taxes. Consult with your tax advisor for more details and contact Mitchell Firm to help grow your business in 2021. 

Countless small businesses had to close their doors, many for good. Many others just managed to stay afloat, while some were able to pivot quickly and thrive during this very uncertain time.

Whichever boat you’re in (and I certainly hope it’s in the latter), it’s a fair bet that your 2020 taxes may look different this year than they have previously.

Here are a few things every small-business owner should pay attention to this year.

The Cares Act and Paycheck Protection Program loans
If your small business received one of the forgivable Paycheck Protection Program (PPP) loans, then you’ll need to keep track of how much money you received and how much was forgiven.

The good news here is that any money that you received that was forgiven is not counted as taxable income. If, however, a percentage of your loan amount was not forgiven, you will need to count that toward your annual taxable income.

More good news is that any business expenses that you paid for with PPP funds will be deductible. This is true for the second-draw PPP loans that were made available in January 2021, as well.

Families First Coronavirus Response Act (FFCRA)
This law was passed to help employers provide employees with paid sick leave (PSL) or emergency family and medical leave (EFML) for specified reasons related to Covid-19, and is applicable to employers with fewer than 500 employees.

According to AG FinTax’s founder Anil Grandhi, who’s become an expert on the financial and tax implications of coronavirus tax relief, when it comes to taxes, businesses that provided these benefits to employees can receive a fully refundable tax credit of up to 100 percent of the amount they paid in sick-leave pay, family-leave pay, qualified health care plan expenses, and the employer’s share of FICA taxes for sick-leave expenses they incurred under the FFCRA.

Employee Retention Tax Credit
This is a provision of the Cares Act that was intended to help businesses keep employees on their payroll during the downturn caused by Covid-19. If your operations were fully or partially suspended, or if your gross receipts declined by 50 percent, you are eligible to claim this credit. However, if you’ve also received a PPP loan, you are not eligible for the credit.

Make sure you’re claiming the Home Office Deduction if you’ve been working from home
While most freelancers, independent contractors, and sole proprietors are familiar with the Home Office Deduction, if 2020 was the first time you ever worked from home, you might not be aware of it.

This deduction can be applied to a space in your home that is dedicated to conducting your business–your home office, garage, part of your bedroom, wherever that may be. It applies whether you rent or own, and can be calculated based on the estimated square footage of your office area (the simple version of this calculation, according to Fundbox’s tax professionals, is $5 per square foot).

To claim this, your home must be your principal place of business, and you must use that space exclusively for your business.

It’s always a good idea for business owners to consult an accountant or tax professional, but that’s even truer in 2021–especially since many of us experience so much financial upheaval this past year.

Here’s hoping that 2021 is much kinder to our small business community.

Original article published on Inc.com.

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