Pit Stop: Tax Time
Tax season is stressful, but filing taxes during a pandemic can lead to more stress. But there is no need to panic. There are ways to prepare and things for companies to keep in mind to handle their taxes this year and look forward to 2021.
Eric Joern manages automotive accounting for his CPA firm, James Hamlin and Company. He explains how this year’s tax season will be different due to coronavirus relief programs—as well as what remains the same.
The addition of new tax legislation and the economic relief plans for the country is new and requires an understanding of what happened this year.
This year has provided new loans and government aid to companies in need of financial assistance throughout the uncertain pandemic economy. Congress passed the CARES Act at the start of the coronavirus pandemic in the United States. The act included a plan of action to help companies stay open and continue to pay their employees.
Included in the act, the Paycheck Protection Program loan was the mode of providing financial stability for businesses to keep paying their employees despite the shutdown from the pandemic.
Congress intended for the PPP loan to be forgiven and non-taxable at the end of the year. It took some time, but the second relief package passed in December clarified that business owners can deduct expenses that were paid for with PPP money. That is, if the expenses are normally deductible and the loans are qualified to be forgiven.
This past year has added another element of caution for companies to be aware of: virtual safety and protection.
Joern says companies need to find secure networks to use when meeting with their accountants or dealing with the finances of the company.
Since in person meetings are not advised, it is even more crucial that companies use portals to exchange tax documents, not email, to ensure security and reduce another possible stressor.
Business as Usual
There are aspects of the tax season that remain the same. Planning, analyzing, and understanding the year end expenses is still important for companies to remember.
By the end of the year, companies should have a close approximation of what their year end profit will be. Joern says there a typical tax planning strategy can further help companies.
“Take inventory of where you’re at right now. Take a look around your business and find that there’s opportunities for improvement or is there new equipment you need to purchase,” he says.
With this he implies that companies should know what tax bracket they are in coming into the end of the year. This will allow them to decide if year end purchases or bonuses are a good option to lower their taxable income while also providing the company with a service.
Companies need to assess their current tax bracket and make a plan to decide if any year-end purchases are wise.
These aspects of filing taxes have remained the same but still require some thought amidst the new COVID-19 changes.