This year was tough for everyone. From big organizations to small business setups, everyone struggled to keep their boat afloat during the coronavirus pandemic. However, the government especially introduced new tax breaks, acts, loan programs, and incentives for small businesses to weather the effects of COVID-19.
Therefore, being a small business owner, you must stay up-to-date on the new tax laws so that you can quickly pay all the due amount in the upcoming year.
While it is always better to hire a tax expert, don’t forget to connect with Prime Accounting to make tax filing a hassle-free experience. Click here to get a tax prep service estimate for your business in Denver, CO today!
In today’s blog, we’ll focus on the fundamental tax implications, along with other tax breaks for small businesses set by the US government to combat COVID-19’s toll on the economy.
Types of Small Business Taxes
If you have employees working in your organization, you are liable to pay employment tax. It includes their medicare and social security taxes, federal income taxes, unemployment taxes, and payroll taxes.
You are liable to pay tax for all the money earned from self-employment, including social security and medicare taxes.
All businesses have to file income task returns. Here, partnership businesses are given leverage; however, they are required to file information returns.
Businesses, such as partnerships, S corporation shareholders, and sole proprietors, must pay tax payments every quarter. This requirement is only obligatory if you don’t have taxes or a sufficient amount withheld from each paycheck.
You are required to pay excise tax if your business’s nature, products you make or sell, the equipment you use, facilities, or products you are paid for falls under a specific category. The classic example of excise tax payable businesses is fuel, alcohol, tobacco, and more.
Tax Breaks for the Year 2021
Here are a few tax programs and changes that the government has initiated to help small businesses navigate the challenges posed by the pandemic.
Coronavirus Aid, Relief and Economic Security (CARES) Act
The CARES Act comprised the Paycheck Protection Program (PPP) that allocated billions of loans to small businesses. These loans are unforgivable as long as the amount is used to provide funds for payroll, utility payments, rent/mortgage payments, etc.
Moreover, the extension and expansion of the PPP also comprises providing a second round of loans for small businesses with 25% reduction in quarterly revenue from 2019 to 2020, which is a great advantage!
Plus, any amount received by the business through PPP is not considered taxable.
Employee Retention Tax Credit (ERTC)
Since many businesses were furloughing their employees or downsizing the company during the pandemic, the government issued ERTC to help employers retain their employees. However, few conditions must be met to become eligible for the ERTC.
The business was fully or partially shut down during the government-imposed lockdown.
The company experienced a decline of 50% or more in the gross receipts for any given quarter when compared with the same quarter in the previous year.
Economic Injury Disaster Loan (EIDL)
The government offered EIDL to help businesses that were deeply affected by the mandatory lockdown and economic slowdowns due to the pandemic. Employers can apply for a loan amount of $10,000 in advance. Note that income taxes are still applied to the funds received by this loan program.
Family First Coronavirus Response Act (FFCRA)
FFCRA allows businesses to grant leaves to those employees infected by the coronavirus. Here, all the costs provided to those employee(s), including sick leave pay, family leave pay, healthcare expenses, are granted according to the FFCRA. Plus, a tax credit of the given amount is provided to the employers.
Are you looking for small business tax or accounting bookkeeping advice for the year 2021? Click here to book your strategy session with Prime Accounting today. We excel in providing tax-paying solutions for your business in Denver, CO!