The challenges associated with COVID-19 just keep coming. Deep in the heart of tax season, many business owners and tax preparers find themselves checking and double-checking that all their ducks are in a row. Some of the policy changes that affect a small business’s taxes are relatively new and may trip up a small business owner. Gena Jones, a tax attorney, business coach, and founder of Business Boss, helps business owners avoid tiny mistakes that could cost them big bucks.
Employee Retention Credit
According to Jones, small businesses that didn’t receive forgiveness on PPP loans in 2020 can claim the Employee Retention Credit (ERC) instead. This credit is available for the final quarter of 2020 and the first two quarters of 2021. These changes are part of last month’s COVID-19 stimulus package—the Families First Coronavirus Response Act (FFCRA).
Jones adds that money from the ERC could total up to $7000 per employee per quarter. “That’s more than $200,000 for a business with ten employees. Across all businesses that fail to claim the ERC, it could add up to hundreds of millions.”
Local COVID Grants
However, Jones warns that 2020 and even 2021 will be incredibly complicated tax years. Although there are many reasons for this fact, one such reason is several cities implemented grants to assist small businesses. Jones says this money must be accounted for as income on taxes. “Business owners need to make sure that their accountant has booked any local COVID relief grants or loans as income like PPP,” says Jones.
COVID Paid Sick Leave
COVID paid sick leave is another area businesses must give attention to when preparing their taxes. Jones encourages small businesses to take advantage of the payroll tax credits created by COVID paid sick leave. Jones says the paid sick and family leave credits were initially only available until the end of 2020. However, according to the IRS website, these credits have been extended for periods of leave taken through March 31, 2021. Under this new extension, business owners can count up to 10 weeks of qualifying leave towards the family leave credit.
This paid sick leave credit allows businesses with fewer than 500 employees and who pay “qualified sick leave wages” to get credit for wages or compensation paid. Salaries and compensation must be to employees who cannot work because of coronavirus quarantine, self-quarantine, or who have coronavirus symptoms and are seeking a medical diagnosis. Eligible employers may claim credit for up to 2-weeks (80 hours) of paid sick leave at employees’ regular pay rate– no more than $511 per day and $5,110 total.
PPP Funded Expenses
Finally, Jones reminds business owners that expenses funded by PPP are now deductible. Initially, the IRS said that deductible expenses, such as payroll costs, would not be tax-deductible if they were PPP funded. However, the Consolidated Appropriations Act of 2021 was passed and included the COVID-Related Tax Relief Act of 2020. This act provides full deductibility of ordinary and necessary business expenses paid with a forgiven or forgivable PPP loan.
Jones’s best advice to all small business owners is to be aware that policy changes keep coming. Even though we are well into tax season, there might be more policy changes that can alter your business taxes. Although these changes have a pattern of being advantageous, the constant alterations have many scratching their heads and wondering when the uncertainty will end. More importantly, business owners are looking for assurance that they are making every change in tax law work to their advantage.