Entering into 2021 feels like some of the toughest times we faced last year is now behind us. Yes there is still residual hardship many of us are facing but this new year has helped us to exhale. At least a little bit. And with that exhalation, we can calmly shift our attention to the main thing on every American’s mind these days. Okay maybe the second main thing. Tax filing season!
This tax season may bring a bit of anxiety and confusion because of the Coronavirus Aid, Relief, and Economic Security Act (CARES ACT) and many other financial programs that were birthed from the pandemic. Remember the Stimulus Checks, PPP funds and EIDL loans? Yep all those things could impact your tax reporting requirements. Rest assured that (mostly all) tax software used to prepare tax returns will be updated accordingly. However, it’s also pivotal for you to be aware of these updates.
It’s essential to stay on top of all the changes, so I summarized the most relevant to individuals and small business owners:
-The standard deduction for 2020 increased to $12,400 for single filers, $18,650 for head of household and $24,800 for married couples filing jointly.
-Income tax brackets increased in 2020 to account for inflation (this is normal)
-Coronavirus stimulus checks aka Economic Income Payments do NOT count as taxable income. Instead it will be treated as a refundable tax credit
For small business owners who used the paycheck protection program loans (PPP)
-As long as these loans were used on certain business expenses—payroll, rent or interest on mortgage payments, and utilities, to name a few—then they can be “forgiven”
-With the new Act that passed in December 2020, any qualified expenses paid for by PPP loans can be deducted from taxable income. (it’s like getting free money!)
-You will have to get your loan forgiveness application approved by the Small Business Administration before you’re off the hook for the amount you borrowed. A lil forewarning: The SBA is not known for speedy service, so this may take a while…
Tax Season. What’s Next For You.
Never in the history of taxes has this subject matter been an easy topic. Make sure to consult with your Tax or Financial Advisor. The information in this email is by no means an exhaustive list of tax updates. Tax law changes frequently (especially these days). If you do one thing this year, invest in a tax professional you can trust. Start the process early.
Procrastinating with your tax filing obligations is the surest way to leave out pertinent details and overpay in taxes. Put it on your calendar to start within the next week. That could mean calling your tax lady or organizing and finalizing your Profit & Loss Statement. By taking action, you are headed in the right direction.
How are you feeling about tax season? Excited and ready? Confused and bothered? Hit ‘Reply’ and let me know!