There’s nothing typical about tax planning in 2020. COVID-19 and the economic fallout are only the beginning. Even without a pandemic, recent developments such as the Setting Every Community Up for Retirement Enhancement (SECURE) Act promise to deliver significant changes in taxation. More recently, the federal government has implemented several measures intended to provide financial relief.
If you took advantage of the deadline extensions from the early days of the pandemic, you probably have no interest in worrying about the latest tax developments just yet. Unfortunately, even minor delays could prove costly. The sooner you get started, the better capable you’ll be of taking advantage of today’s unique challenges and opportunities. Keep the following considerations in mind as you look forward to the year ahead.
Consider the Tax Implications of the PPP Loan
The Paycheck Protection Program (PPP) distributed billions in loan funding across millions of loans. These were primarily targeted at small businesses. Unfortunately, many entrepreneurs still struggle to understand the tax implications of this program.
The first issue: loan forgiveness. PPP loans can be forgiven if employers dedicated at least 60 percent of received funds to employee payroll and the remainder on approved sources of spending.
PPP funds cannot be used to pay business taxes. While forgiven loans are tax-exempt, they can limit eligibility for write-offs. The Treasury Department clearly frowns on double-dipping. The IRS can be expected to crack down on those who attempt to obtain double tax benefits.
Don’t Forget the Employee Retention Tax Credit
Approved as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Employee Retention Tax Credit (ERTC) provides a viable alternative to the PPP. This fully refundable credit represents 50 percent of qualified wages paid between March 12th, 2020 and January 1st, 2021. Eligible businesses may qualify for advance payments on their credits.
In addition to examining the implications of PPP loans and the ERTC, it’s important to consider how typical routines such as making estimated payments might change. Underpayment and overpayment are especially likely given the current economic uncertainty. To manage obligations more effectively, make periodic tax projections. It’s also important to re-examine tax withholdings. Otherwise, a large tax bill or a smaller-than-anticipated refund could be on the way.
While it’s long been inadvisable to go it alone with tax planning, this is especially true in an age of COVID. Every decision holds the potential to dramatically impact future tax obligations, so it’s important to get ahead of the curve with help from a trusted tax resource.
As you navigate the strange new world of tax planning during a pandemic, don’t hesitate to seek guidance. The Law Offices of Lawrence Israeloff, PLLC can help. Reach out today to learn more about your options.