COVID-19 business tax considerations

COVID-19 business tax considerations

COVID-19 business tax considerations

2020 is a year full of challenges. You may be a little confused about this year’s business tax – when will your business tax expire, how to declare business tax, etc. As the country is still in recovery mode, the Internal Revenue Service (IRS) has changed several Business tax deadline It will also extend the tax period for certain taxpayers to May 17, 2021, including payment and tax filing.

But wait! Haven’t breathed a sigh of relief yet! The tax extension on May 17 does not apply to everyone. The extension only applies to individuals who submit forms 1040 and 1040-SR. It will not affect the tax returns or estimated tax payment deadlines of companies, partnerships, or non-profit organizations. For all other entities, the tax period is the same as the normal tax year.

Do these dates still seem confusing?Let’s get back to the topic Grow your companyThe following are four COVID-19 considerations regarding your business tax.

1. Entity Business Tax

When filing a business tax, the legal structure is everything. Your legal entity determines the forms you use, how your business collects taxes, and the withholding tax you must submit.

    • Sole proprietor There is no legal separation from their business, so submit their personal income in Schedule C (IRS Form 1040) “Business Profit or Loss”.Usually expires As of April 15, 2021, the deadline has been postponed to May 17, and the deadline has been extended to October 15, 2021. If the business owner expects to pay $1,000 or more in business tax within a calendar year, the IRS expects the sole proprietor to pay the estimated tax on a quarterly basis. These deadlines have not changed. The quarterly tax deadline remains:
      • Payment deadline: January 1, 2021 to March 31, 2021, tax deadline = April 15, 2021
      • Payment deadline: April 1, 2021 to May 31, 2021, tax deadline = June 15, 2021
      • Payment deadline: June 1, 2021 to August 31, 2021, tax deadline = September 15, 2021
      • Payment deadline: September 1, 2021 to December 31, 2021, tax deadline = January 18, 2022
    • Partnerships Nor is it legally separated from the enterprise, and the business tax obligations are equally passed on to the partners (unless the partnership agreement provides otherwise). Partnerships use IRS Form 1065 (called U.S. Partnership Returns) to record the profits and losses of the partnership. In addition, partnerships must submit Schedule K of Form 1065 (used to classify the income of the partnership), and each partner will receive Schedule K-1 to pay their personal taxes. The deadline for partnership applications is March 15, 2021, and the deadline is extended to September 15, 2021.
  • Limited Liability Company (LLC) Taxes are the same as for partnerships, with the same tax forms and deadlines (Form 1065 and Schedules K and K-1). A limited liability company can choose to be taxed as a C company or an S company; however, all member owners must agree.
  • Company C Separate from business owners in law, so submit tax returns separately. The owner of C Corp is an employee of the company and must receive W-2 from the company. The tax deadline for C Corps is April 15, 2021, and they submit IRS Form 1120 (US Corporate Income Tax Return). Companies can apply for an extension, and the deadline is October 15, 2021. If the company expects its estimated tax to be $500 or more, it is required to pay the estimated tax. C Corps uses Form 1120-W to estimate taxes.
  • S company It is an optional legal choice that applies to LLCs and C Corps, so the company can be taxed as a partnership, thereby preventing double taxation of the company. In S Corp, business income is passed on to the owners and then reported on their personal tax returns. S Corps uses IRS Form 1120-S and the tax deadline is March 15, 2021, the extension deadline is September 15, 2021.
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2. More deadlines

To quickly recap, the regular business tax deadline for 1040 and 1040-SR filers this year is May 17, 2021. For companies and limited liability companies, the filing deadline is still April 15, 2021 (or October 15, 2021 if you apply for an extension). For partnerships and S Corps, the tax deadline is March 15, 2021, and if you apply for an extension, it is September 15, 2021. Importantly, if you owe taxes but do not apply for an extension, you may be penalized.

The IRS allows companies to submit returns and request refunds within three years of the tax deadline. If you have not filed a tax return at all, the IRS can file an alternative form for you, but you will not receive the allowed tax credits and deductions. In addition, failure to submit documents may affect your business’s ability to apply for commercial loans.

For 2019 and earlier tax years, electronic filing is too late. You must download the required paper form and submit it by mail.

3. Employer tax

Whether you have one employee, 50 or more employees, your small business tax responsibilities include withholding and paying employment taxes to federal and state tax agencies. Although the federal payroll tax rate is the same regardless of where your business is located, the state employment tax depends on the state income tax rate at which the employee lives or does most of the work.

Employer must obtain Employer identification number or EINThe EIN (or federal tax number) identifies your business to the IRS and helps the agency track business transactions and tax records. You also need to verify the eligibility of all employees to work legally in the United States by filling out the U.S. Citizenship and Immigration Services (USCIS) Form I-9 “Employment Eligibility Verification”. Then, the employee fills out IRS Form W-4 for withholding tax.

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As an employer, you need to withhold, deposit, report and pay FICA employment tax-FICA tax includes income tax, social security tax, and medical insurance tax. The Federal Unemployment Tax (FUTA) is paid separately. 2020 employer tax rate:

  • Social Security: 6.2% for employers and employees
  • Medicare tax: 1.45% for both employer and employee (when the employee’s salary exceeds $200,000, the employer withholds an additional 0.9% of Medicare tax (married couples jointly declare $250,000).
  • Federal unemployment tax or FUTA: 6% is paid by the employer only.

Employers pay and report FICA payroll tax when employees are paid; FUTA tax is paid quarterly. State payroll taxes vary from state to state, but most include income tax and unemployment tax.

4. COVID-19 tax changes

The CARES Act and subsequent relief programs provide business owners with the following changes that may or may not affect their business tax returns:

  • Economic Injury Disaster Loan (EIDL). EIDL advance payments received in 2020 are not considered taxable income.
  • Payroll Protection Plan (PPP). Payroll Protection Plan (PPP). If your PPP loan is partially or completely forgiven, the exempted amount will not be counted as part of your business’s total income, which means you do not have to pay taxes on it. Even if your PPP loan is not forgiven, you do not have to pay federal taxes on the funds you receive. Some states choose to treat PPP funds differently to pay state taxes, regardless of whether the loan is exempt or not, so please consult your accountant to understand the situation in your state. become Forgivable, 60% of the funds must be used to pay wages, and 40% for other exempt expenses, such as rent, mortgage interest, utility bills, some technology, property damage costs caused by civil disturbances, and personal protective equipment (PPE).
  • Employee retention credit (ERC, or employee retention tax credit/ERTC). Companies that completely or partially close their business operations or have a significant drop in total revenue due to the pandemic in any quarter of 2020 are allowed to apply Employee retention creditIn addition, ERC has been extended to include the operating period from December 31, 2020 to June 30, 2021.Extend for six months.
  • The payroll tax is deferred. Employers who defer social security taxes from March 27, 2020 to December 31, 2020 must pay half of the deferred amount by December 31, 2021. The remaining taxes must be paid by December 31, 2022.
  • The Family First Coronavirus Response Act (FFCRA). Companies that provide home leave for workers affected by the coronavirus are eligible for 100% of sick pay, home leave pay and tax credits for qualified health care plan expenses.
  • Expansion of deductions for charitable donations. In 2020, the upper limit of cash donations for the C Corps is allowed to be higher-25% in 2020.
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Most of them are quite complicated, and there are more tax issues to be dealt with this year than usual. In addition, all regulations are still subject to change, so it is best to consult your accountant to ensure that there are no loopholes.

Fundbox and its affiliates do not provide tax, legal or accounting advice. This material is for reference only and is not intended to be provided and should not be used as a basis for tax, legal or accounting advice. Before conducting any transaction, you should consult your tax, legal and accounting advisors.

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