From new deductions to tax credits, learn how to get the most out of your business tax return this year. By FINSYNC Given the unique situation we find ourselves in, tax season is going to be a bit different this year. Chances are you didn’t file your taxes by April 15th, and the extended deadline of July 15th is approaching quickly. If you’re like most small businesses weathering this downturn, you’ve probably got a million other pressing things on your plate. To help take the sting out of tax season, and make sure you take advantage of all qualified deductions and credits, we’ve created a list of tips that can make this complex process a bit easier for you. We’ve also highlighted all available deductions and tax relief that can help give your cash flow a much-needed boost.
Prepare All Necessary Documents and Forms
- End-of-year balance sheet
- Income statement
- Payroll report
- Bank statements
- Credit statements
- Gross receipts
- Sales records
- Previous year’s return
- Depreciation schedule
- Sole proprietorships: Form 1040, 1040-A, or 1040-EZ (Schedule C to report business income and expenses)
- C corporations: Form 1120
- S corporations: Form 1120-S
- Partnerships: Form 1065. You must also provide individual partner information on Schedule K-1.
- Companies with employees: W-2s for employees and 1099-MISC for independent contractors.
Take Advantage of Deduction Changes
Business IncomeSole proprietorships, partnerships, and S corporations can deduct up to 20% of their qualified business income, qualified real estate investment trust (REIT) dividends, and qualified publicly traded partnership (PTP) income.
Net Operating LossesThe CARES act changed the amount and timeframe for carry back of net operating losses. These deductions come with a lot of fine print, so read it carefully. In general, you can carry back any net operating loss for five years, as long as the loss was incurred in 2018, 2019, or 2020 (or taxable years beginning in those years). The 80% deduction limit is also removed, meaning you can carry back the full amount and offset your taxable income with net operating losses from previous years.
Previously, you could only deduct 30% of your net business interest expenses, but starting in the 2019 tax year, you can deduct 50%. This rule doesn’t apply to partnerships.
Write-Offs for Property ImprovementsThe Tax Cuts Jobs Act of 2017 left retailers, restaurant owners, and owners of non-resident property out of the 100% first-year write-off rule for property improvements. Fortunately, this has been amended by the CARES act, and if you fall into one of those three categories, you can deduct any improvement costs on your taxes. This also applies to improvements placed in service in 2019.
DepreciationAll small businesses can expense more in depreciation for 2019. The maximum deduction is $1 million, and the first-year bonus was increased to 100%.
Explore Tax Credits
Employee Retention CreditYour small business can get a 50% tax credit on any qualified wages you’ve paid your employees after March 12th, 2020. You can claim up to $10,000 per employee in wages and health plan costs. The tax credit is available immediately, which means you can reduce the amount of employment tax you need to pay. This tax credit is available for all small businesses that had to fully or partially close their doors due to official lockdown regulations, or those who had a significant decrease in gross receipts. To be eligible for this credit, your gross receipts must have declined by at least 50% in the first quarter of 2020 compared to the same period of last year.
Sick and Family Leave CreditIf you paid your employees while they were sick, or caring for children or family members after April 1st, you can get a tax credit for that amount, which will be applied to your employment taxes. To be eligible for this tax credit, you have to have followed the regulations for sick and family leave pay.
Get the Most Out of the 2019 Tax SeasonThis tax season is more important than ever. The decisions you make now could have a significant impact for your cash flow in the following months. If you’re unsure whether your small business qualifies for various tax deductions and relief, seek advice from a tax consultant or a certified public accountant.
Prepare to steer your new hires through the updated IRS form for calculating how much federal tax is withheld from employees' paychecks. By FINSYNC What has changed in the new IRS 2020 W-4 Form?
- Line for listing withholding allowances removed
- The addition of questions on number of children, or other dependents
- Option to adjust withholding amount based on other income, or expected deductions
- No line for claiming exemption from withholding
- The addition of the 'head of household' status
What's ChangedPrior to the tax law changes, employees would enter a number of personal exemptions on their W-4. Then, that would determine how much income tax their employer would withhold from their pay. But the changes in the tax law no longer allow employees to claim personal exemptions. The updated form allows workers to reduce the tax withheld from their paycheck if they have itemized deductions and other income adjustments such as contributions to retirement accounts. It also adds a new marital status: “Head of household.” Employees hired after Jan. 1, 2020, are required to use the updated form. Any employees hired before this year who get married or are going to have a child should also use the new form to ensure their withholding tax is estimated properly. For employees who are single and working only one job, completing the updated Form W-4 should be pretty straightforward. All the IRS requires is the employee's name, address and filing status. In this example, the filing status would either be single or married, but filing their taxes separately from their spouse. Form W-4 also includes a section for workers who plan to claim children as dependents when they file their tax return. Those who earn $200,000 or less and are filing as single, and those who make $400,000 or less and are filing jointly with their spouse, are eligible for a child tax credit. Employees also have the option to fine-tune the amount of tax withheld from their paycheck by accounting for extra non-work income, such as dividends or interest. And if they plan to claim more than the standard deduction, the form has an option for reducing the amount of tax withheld.
Online CalculatorFor employees who have more than one job or are married and filing jointly with a spouse who works, completing the otherwise simple form will require a couple of extra steps. Fortunately, the IRS has set up an online tax withholding calculator. You may want to direct employees to the online tax withholding calculator. Which has formulas to determine an employee's tax withholding under different scenarios. Such as if they or their spouse earns income as an independent contractor. Navigating the estimator requires answering a series of questions about household income and taxes. The responses are used to create an estimate of how much income tax an employee will owe and how much of that they've already paid in, whether through direct estimated tax payments or from tax withheld from their paychecks. The online worksheet lets users apply the standard deduction. It's $12,400 for a single filer and $24,800 for a married couple filing jointly. Or itemize deductions by factoring qualified expenses, such as mortgage interest, charitable donations, and medical expenses. The calculator also lets you calculate the impact of tax credits, such as for purchasing an electric car. Once completed, the estimator shows whether the user's current withholding has them on track to owe, get a refund at tax time or have a zero balance. And it generates instructions on how to apply the information to fill in the W-4. Users may have to reference information in the previous year's federal income tax return. Married couples or those filing jointly will need the same documents from their spouse or partner.
Good To KnowIf you have a new employee whom you're paying for the first time this year and who hasn't filed a W-4, their withholding tax will be set as if they were a single filer with no adjustments. Employees that you paid before this year don't have to file a new W-4. You should continue withholding taxes from their pay based on their existing W-4. The IRS has rolled out a spreadsheet to help small business owners determine how much federal income tax to withhold from their employees' pay as they transition to the updated W-4 this year. Of course, if you use an automated payroll system like FINSYNC's all-in-one cash flow management platform, which has updated withholding tax tables built-in, you don't have to use the spreadsheet.
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