Complex tax law changes and economic stimulus programs in response to COVID-19 have muddied the water even further when it comes to filing taxes this year. According to cpapracticeadvisor.com, “The IRS announced that it will increase audits of small businesses by 50 percent, after years of low examination rates.”
For businesses, this means that more attention and preparation are needed to navigate the continued uncertainty. There are some essential things to be thinking about and important steps to balancing the business books in the year of 2021.
New caveats to be aware of for taxes in 2021, applied to your taxes both as an individual and a business.
Unemployment: The US unemployment rate doubled from December to May 2020, going from 6.7% to 13.3% according to the US Bureau of Labor Statistics. Many people, in desperation to get help with their waning finances caused by the pandemic, applied for help with unemployment without first checking the box to have the taxes removed with each weekly deposit. This will be a big hit in regards to money owed when filing taxes this year, depending on how much and for how long the individual was unemployed.
PPP: Many small and medium sized business owners are still in survival mode and need round 2 of the Paycheck Protection Program loans provided by the government. The IRS has confirmed that the PPP loans are eligible for tax-free forgiveness. Additionally, the expenses covered by PPP loans can also be deducted on 2020 tax returns.
Here are the things to be especially aware when filing your taxes this year, in order to avoid an audit.
Keep clean records and make your estimated tax payments: This means keeping adequate documentation to accurately and honestly report all income, deductions, credits, expenses, and other figures can help keep an audit at bay. If you anticipate owing more than $500 in taxes for your business, then you should be making quarterly payments throughout the year. Not keeping up with this can raise red flags and increase your chance of an audit.
Mind your deductions: Unusual deductions can raise red flags with auditors, especially considering that most taxpayers only seek the standard deduction. However, owning a small business can cause unique deductions. This means unforseen deductions can appear – making it even more vital to have an expert on your side.
Read up on the rules and go digital: There are many new rules and caveats with filing taxes this year. In addition, it is also vital to determine if provisions of the PPP or unemployment will interact with your individual and business taxes this year. Bookkeeping software applies tools to your archived records, making them more accurate and secure. Going digital can help your CPA to mitigate mistakes amidst this year’s complex tax landscape.
Recent tax law changes make enlisting the help of an expert even more vital in 2021. A CPA is strategically positioned to help small-medium business owners prepare for what’s ahead. Discuss how to streamline your finances, grow your business, boost your profits, and avoid further complications in 2021 by contacting VaroTeam today.
If you have more questions about the PPP as applied to your taxes, look out for our blog post next week where we will go into more detail.