Coronavirus Legislation’s Tax Impact on Small Businesses

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Everyone was hopeful about the new decade until the deadly COVID-19 surprised the entire world, turning everything upside and down. It originated from one corner of the world and became a global pandemic within three months. Almost every country had to impose a complete lockdown, closing schools, shopping malls, and even businesses. Although it was a tough time for everyone, the survival of small businesses was at stake.

The emerging entrepreneurs had to invest in personal savings, acquire loans, and make every possible effort to keep the business afloat. After all, continuing business operations without any income inflow require a solid financial standing. Understanding the economy’s critical condition, governments have started initiating policies to pull out companies from the crisis. In addition to subsidizing the industrial sector, they made adjustments in the tax legislation to reduce the tax burden.

The legislation includes new tax policies, employment programs, and tax credits to offer immediate relief to entrepreneurs. The authorities have also extended the taxation deadline, giving more flexibility to small business owners. If your business also had a hard time during the lockdown, learn about tax relief programs. Here we are unfolding the impact of coronavirus legislation tax on small businesses.

  1. Coronavirus Aid, Relief, & Economic Security (CARES)

The CARES Act was introduced with a fundamental goal to provide large-scale assistance to businesses. It covers multiple tax breaks and changes to ease the burden on businesses. These changes include the following,

  • On March 17, 2021, the IRS and treasury department updated the federal sales tax filing deadline from April 15 to May 17, 2021. Thus, businesses have enough time to sort out their finances.
  • The businesses with net losses on their financial statements can take advantage of net operating losses (NOL) limitations. It can improve the cash flow and liquidity position of companies.
  • Entrepreneurs who had to receive corporate minimum tax (AMT) can apply for a refund. It eases the additional tax burden while improving the company’s financial position.
  • Family First Coronavirus Response Act (FFCRA)

It is a federal relief package that provides multiple resources to combat the growing health and financial impact of COVID-19. Under this program, eligible businesses can receive tax credits for emergency paid sick leave. Therefore, offsetting the expense of providing emergency sick leave to employees. The companies will have a refundable tax credit for each employee’s leaves, reducing overall business expenses.

However, the authorities apply for tax credits against the employer’s already-owned security taxes, simplifying the tax calculations. Any idea how to apply for this program? Firstly, you have to submit a report of total qualified leave wages for each quarter. Secondly, you have to fill out Form 941 to report income and social security, and Medicare taxes. Submitting all this information will qualify you as an eligible employer who can receive tax credits.

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  • Employee Retention Tax Credit (ERTC)

Did you have to suspend operations during COVID-19? According to the new State’s law, any business that had to fully or partially discontinue its operations can apply for employee retention tax credit. Likewise, the companies whose gross receipts decreased by 50% can also apply for this tax credit and overcome financial constraints. It is a 50% refundable tax credit, helping employers cover the company’s wages and salaries.

Small business owners have to deposit all of their social security taxes to reduce the overall employment taxes. If you don’t want to apply for a 50% tax credit, you can acquire tax credit for every employee. The government is offering $10,000 to each employee who is eligible for this tax credit. However, the credit is eligible for any wage paid from March 13, 2020, through the end of each year.

  • Delayed Payroll Tax

Most businesses are struggling to manage things post-lockdown. Under the delayed payroll tax program, self-employed individuals and entrepreneurs can delay payment of their payroll taxes. Instead of paying the entire tax together, they can make deferred payments. You will have to make these payments over 24 months. The first installment will cover 50% of the total tax payment you have to pay that by the end of 2021. And the other half you can spend any time next year.

Moreover, the employers are responsible for withholding the employee’s share from wages and depositing such amounts. In case an employee doesn’t want to delay payments, the employer still has to file the payroll tax altogether. However, this deferred payroll tax program is only applicable for people who haven’t received assistance through the Paycheck Protection program.

Additional Tax Relief Programs

Besides amendments in taxation policies, there are many more tax relief provisions available to small companies. Have a look below.

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  • There is no longer a cap on business loss deductions; business owners can file amended returns for the last five years.
  • Entrepreneurs can write off any expenses making improvements to their facilities. It expands tax deduction to a complete 100% of the total cost, decreasing taxable income.
  • Additionally, the government is making a temporary exception from the excise tax, offering more flexibility to small businesses.
  • The companies can increase business interest deductions, which in turn can reduce taxable income. Hence, decreasing the amount of tax payable.

Final Words The government is leveraging taxes to help businesses stand in the face of challenges. If the pandemic has been challenging for your business, learn about COVID-19 tax legislation to remain operational. You can delay payroll taxes, acquire tax credits, and report taxes with flexibility. Implementing the new tax legislative can help your business progress forward in the competitive

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