Navigating Business Taxes and COVID Relief in 2021

Ever-changing guidance resulting from the COVID-19 pandemic has made 2020 a challenging year for businesses. Going into the new year, it can be difficult to keep track of deductions, incentives and credits. We’ve put together a cheat sheet to help you navigate tax filing considering the most recent COVID relief law.

Below are some of the major tax-related deadlines affecting businesses and other employers during the first quarter of 2021. Keep in mind that this list isn’t all-inclusive, so additional deadlines may apply to you.

Q1 Tax Deadlines

Below are some of the major tax-related deadlines affecting businesses and other employers during the first quarter of 2021. Keep in mind that this list isn’t all-inclusive, so additional deadlines may apply to you.

• January 15
  • Pay the final installment of 2020 estimated tax.
  • Farmers and fishermen: Pay estimated tax for 2020.
• February 1 (The usual deadline of January 31 is a Sunday)
  
  • File 2020 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2020 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
  • File 2020 Forms 1099-NEC reporting nonemployee compensation payments with the IRS and provide copies to recipients.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2020. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2020. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2020 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
• March 1 (The usual deadline of February 28 is a Sunday)
  
  • File 2020 Forms 1099-MISC with the IRS if: 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)
• March 15
  
  • If a calendar-year partnership or S corporation, file or extend your 2020 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2020 contributions to pension and profit-sharing plans.

COVID Relief Bill

Going into 2021, business taxpayers should also be aware of the latest COVID relief law’s tax implications. While the law is packed with nearly 5,600 pages of relief provisions, this article summarizes the issues that will impact businesses to the greatest extent.

Key Business Provisions:

• Deductibility of expenses paid with forgiven PPP funds – the new law overrules the IRS position, which would have made business expenses paid with forgiven PPP funds nondeductible. Taxpayers receiving Economic Injury Disaster Loan (EIDL) grants will not have to reduce PPP forgiveness by the grant amount.
• Streamlined forgiveness of PPP loans for borrowers with loans under $150,000. These borrowers will only have to submit a one-page form and only be subject to audit if fraud was committed or if borrowers misused funds.
• The new law reopens the PPP program, with $35 billion allocated to businesses that have not yet borrowed. Additionally, taxpayers who previously borrowed will be eligible to participate again, with certain additional restrictions, including the requirement that the business has fewer than 300 employees and can prove that revenues for a quarter in 2020 were more than 25% less than the same quarter the previous year. Full details and definitions are not yet available but should be released within 10 days of the bill being signed.
• Expanded uses of PPP dollars for first-time borrowers include the ability to spend funds on covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection costs. New covered periods are also included in the new law and range from 8-24 weeks or any period in between.
• Extension of FFCRA credits from December 31, 2020, until March 31, 2021. These credits helped employers who were required to pay for family leave when adults couldn’t work because a child was without school or care, and up to two weeks of sick pay for various COVID-related reasons.
• Full deduction for business meals in 2021 and 2022. The deduction for these expenses was previously limited to 50% of the meal cost.
• Extension of the employee retention credit through July 1, 2021, with the ability to now claim the credit and take a PPP loan. These two benefits were previously mutually exclusive of each other.

Read more about loan terms, the simplified application, loan forgiveness, and expense deductibility for the second draw PPP loan.

See the Small Business Administration’s Paycheck Protection Program page for loan applications and additional information:

• For first-time borrowers: Form 2483– you will not need to include gross receipts reduction information.
• For borrowers applying for a second draw:Form 2483-SD

We encourage you to apply early because we anticipate funds will run out. The last day to apply will be March 31, 2021. Please contact your SBA lender with questions. If you do not have an SBA lender, you may search for one on this list.

If you have questions, please contact your Yeo & Yeo professional or local Yeo & Yeo office.