With the end of the year within mere days, a lot of people's minds are on 2021—the economic stability and market forecast, the change in presidential administration, the future of their own business, and tax season.
As tax advisors and CPAs, our firm is well-versed in small business tax services and have prepared a quick list of tips to help you navigate your own tax preparation. Every type of business structure—whether LLC, sole proprietorship, or corporation—has its own functionality for tax purposes. Your individual structure has both legal and tax implications that are inclusive to how your business is built. Learning how your business operates includes learning about its tax structure.
The IRS will likely always get a bad rap for being a bad guy, or an entity to fear. Quite the opposite is true, as the IRS is designed to help individuals and businesses alike stay in compliance with taxes and everything that accompanies the topic. Its website can act as host to a wide range of content and resources to help empower business owners to feel confident in their tax status and associated liabilities.
Some notable sections include:
You can even subscribe to IRS tax tips.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the Paycheck Protection Program (PPP) to help small businesses cover payroll and other expenses during the pandemic. Assuming certain conditions were met, businesses can apply to have those loans forgiven, but its accompanying tax scenario might take more time to truly understand.
Aside from PPP, the Cares Act allowed some businesses to defer paying shares of Social Security payroll taxes from March 27, 2020 to the end of the year. Half of those deferred funds must be paid in full by December 31, 2021 with the balance due a year later on December 31, 2022. If your business applies to this scenario, starting to plan for this liability now is a good idea.
Also on the topic of the odd year of 2020, if the operating year was especially hard on your small business, you might be eligible for some relief. If certain conditions are met, small businesses can apply a net operating loss generating back to 2018, 2019, or 2020 to income from the previous five years for a potential refund to help right now.
As mentioned, the IRS is not the entity to fear in business, but tax scams are and unfortunately, a topic that comes up way more than it should in modern business!
Tax scams can be complex and widely varied, but they’re easy to avoid if you know how the IRS operates. The IRS will not initiate contact about a tax matter by phone, email, or in person, without first sending you a bill or notice by regular mail delivered by the U.S. Postal Service. There may be special circumstances — such as an overdue tax bill, delinquent return, audit or criminal investigation — that prompt a visit from an IRS representative. But these visits are almost always preceded by a series of notices in the mail.
In addition, the IRS won’t:
Finally, the IRS will never demand payment using a specific method, such as a prepaid debit card, gift card, or wire transfer.
If you receive suspicious communications, contact your tax advisor. In addition, if you receive a suspected phone scam, consider reporting it to the Federal Trade Commission using the FTC Complaint Assistant. You can forward suspected phishing emails to phishing@irs.gov, and report IRS impersonation scams to the Treasury Inspector General for Tax Administration.
If you're like many small businesses, you're seeking ways to minimize your tax liability while keeping everything else in your business straight and running smoothly. This year's tax topic might be the best time to have a conversation with a tax professional—as they're the most well-versed—especially on the tax implications of the CARES Act and the Tax Cuts and Jobs Act.