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Engage Advisors: Keeping Up With the Tax Code

Recent changes to the tax code were designed to help businesses weather the pandemic. Be sure you don’t miss an opportunity to reduce your tax burden.

The CARES Act and the COVID-19 Related Tax Relief Act of 2020 provided a number of opportunities to help businesses get through the pandemic economy. Now that it’s tax season,

it’s time to start deciphering how recent changes in the tax code could affect your business strategies. Here is a list of the most noteworthy changes:

Employee Retention Credit

Employers are encouraged to keep employees on their payroll by providing a refundable tax credit on qualified wages. The credit is available through July 1, 2021. For 2020, there is a refundable 50% tax credit on up to $10,000 in qualified wages per employee for the period of March 13 – December 31, 2020. For 2021, the refundable tax credit increases to 70% on up to $10,000 in qualified wages per quarter per employee for the period of January 1-July 1, 2021. Business owners must meet specific criteria related to the number of employees and the economic hardship incurred by the business.

Paid Sick Leave Credit

If your practice employs fewer than 500 people, tax credits for paid sick leave are available until March 13, 2021. If one of your employees contracted COVID-19, was instructed to self-quarantine, had to care for someone that had to self-quarantine, or had to care for a child due to school or childcare closures, a credit of up to 80 hours (limit of $5,110 per employee) is available for wages an employer pays while the employees are on sick leave.

Corporate Charitable Giving

Under the CARES Act, some businesses are now able to deduct qualified contributions of up to 25% of taxable income in 2020, an increase from the previous rate of 10%.

Net Operating Losses

The CARES ACT suspended the no carry-back rule and allows net operating losses to be carried back five years for losses incurred in tax years 2018-2020. It also eliminated the 80% limitation and now 100% of losses can be carried back. This change only applies to 2020, with the old net operating loss rules returning for 2021.

Economic Injury Disaster Loans

The Small Business Administration is providing low-interest loans to small businesses that have suffered a loss of revenue due to the pandemic. These are 30-year loans intended to be used for working capital or normal operating expenses. Payments are deferred for the first year, although the loan will still accrue interest. Given current low-interest rates, it can provide a cheap influx of cash for businesses in need.

Pay-Check Protection Program Loans (PPP)– Round Two

You probably heard that the second round of PPP loans became available in January 2021. Eligibility requirements are similar to the first round, under the CARES Act, but with more restrictions, although the changes shouldn’t affect most owners of dental practices.

  • Loans are capped at $2 million
  • Borrowers must have fewer than 300 employees
  • Business must show a 25% drop in gross receipts during one quarter in 2020 relative to the same quarter in 2019.

 

Pay-Check Protection Program Loan Forgiveness

As with round one, businesses that obtained PPP loans may qualify to have all or part of their loan forgiven if the loans were used for eligible payroll, business mortgage interest, rent or other eligible expenses. Borrowers can apply for forgiveness as soon as all the loan proceeds are used and as late as the maturity date of the loan. Businesses must apply for forgiveness within 10 months after the last day of the loan’s covered period or the borrower will have to start repaying the loan to the lender.

At Engage Advisors, we work hard to be sure our clients never miss an opportunity to lower their tax burden. If you’d like to hear more about how we can help you navigate the tax code, our financial planning professionals are ready to take your call. Schedule a call with us today.