Did you receive EIDL or PPP proceeds in 2021 and you do not know how that is handled with regards to your taxes? What are the new requirements for the submission of taxes for small businesses in 2021? Indeed, for Small Business Owners Tax season brings on a layer of anxiety and additional work. While some small business owners use accountants, many small business owners file their taxes on their own. In this article, we provide an overview of some of the changes which small business owners should be aware of when preparing to submit their taxes either through an accountant or on their own.
Tax season is in full swing. In most cases, corporate taxes are due to the Internal Revenue Service on April 15th. If you have an S-Corporation, your corporate taxes were due on March
15th (unless your fiscal year is not operating on a calendar year). There have been some changes that have been made by government changes or additions to legislation (much in COVID Relief legislation), so here is a short recap of some of the changes.
Small Business Tax Changes for FY 2021
American Rescue Plan
Credits for Paid Leave Because of COVID Vaccines
The American Rescue Plan of 2021 provides guidance on allowing small business owners to claim refundable tax credits for their employees. This is to reimburse them for the cost of providing paid sick and family leave to employees due to COVID-19. This includes leave taken by employees to receive or recover from COVID-19 vaccinations. ARP tax credits are available to eligible employers who paid sick and family leave from April 1, 2021, through September 30, 2021.
Employee Retention Credit: The American Rescue Plan extended the ERC until December 31, 2021.
PPP and EIDL
If you received Economic Injury Disaster Loan proceeds in 2021 the funds do not count as taxable business income for 2021. However, it is important to retain detailed records for an audit that can be ordered by the Small Business Administration (SBA) or Department of Justice.
You can use EIDL funds to pay taxes to lower your accrued liabilities.
Did your small business receive a PPP loan in 2021? Like EIDL, the Paycheck Protection Program (PPP) loan (forgiven or unforgiven) does not count as business income and you are eligible to write off allowable business expenses, even if the PPP loan was used to pay those expenses. Learn more about allowable uses of EIDL and PPP here.
Digital Payment Services (PayPal, Venmo)
If customers pay for services or goods through a digital pay service such as PayPal or Venmo and the amount is above $600 it should be counted as income. Beginning in 2022 those digital services are required to report those metrics to the IRS, and this can be an easy place for an audit.
Sick and Family Leave Credits
Sick and family leave credits: Eligible employers can claim refundable tax credits that reimburse them for the cost of providing qualified sick and family leave wages for employees on leave between April 1, 2021, and September 30, 2021, either for the employee’s own health needs or to care for family members.
401(k) Contributions to One Participant or Solo 401(k)
Business owners with no employees can contribute up to $58,000 in tax year 2021. In 2022, they can contribute up to $61,000 to a one-participant or solo 401(k), with an additional $6,500 catchup if the owner is over 50.
Do you claim business meals? Business meals at restaurants are 100% deductible for tax years 2021 and 2022 (up from 50%).
Other Tax Stuff
The standard mileage rate for business use of a vehicle is 56 cents per mile for the 2021 tax year. In the 2022 tax year, the rate increases to 58.5 cents per mile.
Charitable Gift Deductions increased: C Corporations are still allowed to raise the limit for cash donations from 10% to 25% for the 2021 tax year.
Get Help if Needed
If you are unsure about your tax needs, need to file taxes from previous years, or just have
questions, please contact our team of advisors today.
Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.
BRP Onesta is not an accountancy and does not give advice on tax decisions which would be better answered by a CPA or tax professional. In other words, if you have a question, as your accountant.