Get ahead on your 2020 taxes and make the best decisions for your business today by taking advantage of tax relief programs and deferrals. By FINSYNC A number of tax changes were introduced to help small businesses get through the economic downturn caused by the COVID-19 pandemic. Many covered the 2019 tax year, but several are applicable for next year’s tax season as well. In some cases, the decisions you make now will affect the tax benefits you can claim for 2020. Some of these programs are mutually exclusive, so it’s wise to consider which ones will be more beneficial for your business next year. Here are the most important small business tax credits, deferrals and changes. Prepare now so you can maximize your small business tax benefits.

Credit for COVID-related Paid Leave Expenses 

Employees of small businesses can receive up to 80 hours of paid sick leave when they are unable to work due to the coronavirus. As an employer, you can get a 100% credit for such expenses, including health insurance costs. Here is some key information you need to know about the credit:
  • The eligible expenses must be paid between April 1, 2020, and December 31, 2020.
  • If one of your employees is recovering from the coronavirus, seeking diagnosis, or self-quarantining, you can claim credits of $551 per day up to $5,551.
  • For employees who are caring for family members or children due to the coronavirus, the claim amount is $200 per day, up to a maximum of $2,000 total.
The process for claiming this credit is a bit confusing. Officially, the credit is offset against your payroll taxes when you submit Form 941. However, using this form can get complicated. The easiest way to claim this credit is to file Form 7200 and get a reimbursement. If your small business is in no condition to pay sick leave related to the coronavirus, you can apply for an exclusion. Businesses with fewer than 50 employees that can document that paying sick leave wages will significantly hurt the business may be exempt from paying it.

Employee Retention Tax Credit

The employee retention tax credit is another credit available thanks to 2020 tax changes. As a small business, you can claim 50% of qualified wages paid after March 12th, 2020. For each employee, you can get up to $5,000 in credit. To qualify for this credit, your gross receipts must have declined by at least 50% in the first quarter of 2020 compared to the same period last year, or you must have fully or partially closed down your business due to the coronavirus. Typically, these kinds of things can be documented with invoices and receipts from your accounting software. You can claim this credit in two ways:
  1. Report the qualified wages each calendar quarter on your Form 941 and deduct that credit from federal employment taxes before paying them.
  2. Or, you can get a reimbursement for the credit by submitting Form 7200.

Net Operating Losses

The changes that the CARES act made to the amount and time frame for carry back of net operating losses will remain relevant for the 2020 tax year. However, not all businesses are eligible, so read the fine print carefully. The 2020 tax year is the last year you can carry back net operating losses from 2018, 2019, and 2020. This is a great opportunity to get a bigger refund this year, given that you can carry back net operating losses for years that had a 35% tax rate, versus the current 21% rate. To carry back a net operating loss, you must document it well, which means you need proof that the loss occurred. This proof can include bank statements, receipts, and invoices.

Employee Tax Deferral 

The CARES act also enables small businesses to defer payment of employer Social Security taxes. This deferral applies to taxes paid between March 27, 2020, and December 31, 2020. Social Security taxes have been deferred by quite a bit, which may affect your taxes in years to come. The new payment schedule is as follows:
  •     December 31, 2021: 50% of the deferred amount is due
  •     December 31, 2022:  the remaining amount is due
As of this writing, Form 941 for your quarterly Federal Tax Return is under revision to accommodate the deferral, and more instructions will be offered soon. Check back with the IRS.  You can get this deferral if you’ve applied for the two tax credits we discussed earlier, but things get trickier if you have received a PPP loan.  If you have already received your Paycheck Protection Program loan and applied to get it forgiven, you are not eligible for the employee tax deferral. However, if you haven’t applied for a PPP loan yet, or haven’t filed the paperwork for loan forgiveness, consider what is best for your business: to get the loan forgiven, or to get the employee tax deferral.

Start Planning for 2020 Taxes Now

Taking advantage of these credits and deductions requires you to have a clear sense of your financials. An all-in-one accounting solution such as FINSYNC can help you keep all of your payroll, accounts receivable, and cash flow projections in one place for easy reporting and analysis by you and your tax professionals.  While it may feel far in the future, planning for your 2020 taxes now will help you make the best choices for your business, and ensure that you don’t leave any potential savings on the table. With all of the coronavirus-related changes, next year will be a complicated tax year. Preparing now will put your business in the best possible position. Need help preparing your 2019 tax return before the July deadline? Get insight on the small business tax changes you need to know about, and consider getting help from a tax professional.
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.
  1. Prepare All Necessary Documents and Forms

Whether you’re doing your tax return yourself or getting help from an accountant, you will need the following financial documents:
  • End-of-year balance sheet
  • Income statement
  • Payroll report
  • Bank statements
  • Credit statements
  • Gross receipts
  • Sales records
  • Previous year’s return
  • Depreciation schedule
In addition, you may need to file some general and specialized forms. The most common ones are:
  • 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.
You can download most of the tax forms on the IRS website, along with instructions on how to fill them out. 
  1. Take Advantage of Deduction Changes

Deductions provide an opportunity to get a bigger tax return, or at least diminish the amount you have to pay. The Tax Cuts Jobs Act of 2017 introduced better conditions for deductions, but additional small business tax changes were made by the CARES act as well. Each change has exceptions, so check whether your business is eligible before filing your taxes. Here are some of the most important deductions you can take advantage of this tax year:

Business Income

Sole 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 Losses

The 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.

Business Interest

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 Improvements

The 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.

Depreciation

All small businesses can expense more in depreciation for 2019. The maximum deduction is $1 million, and the first-year bonus was increased to 100%. 
  1. Explore Tax Credits

In addition to tax deductions, there are two new tax credits you can take advantage of before filing your tax return on July 15th.

Employee Retention Credit

Your 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 Credit

If 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 Season

This 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
A major federal tax law overhaul passed by Congress just over two years ago has led to many big changes. Including the way American workers determine how much Uncle Sam takes from every paycheck. The latest change involves an update to the IRS Form W-4.  Which workers typically submit to their employer when they're hired, or when they have a major life change. For example, getting married or becoming a parent. The IRS has made a couple of changes to the form since the passage of the tax law with the aim of making it simpler. And for people who are single and earn income from one employer, it's fairly easy to complete. However, employees who have more than one job or who are married and file their taxes jointly with a spouse who works have to go through several steps to figure out their withholding tax.   If you're a business owner who plans to hire employees this year, you will have to ask them to fill in the newly updated IRS Form W-4. It's a good idea to familiarize yourself with the changes. As you or your human resources department staff will have to help your new hires complete the form before they can receive their first paycheck.

What's Changed    

Prior 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 Calculator

For 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 Know 

If 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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