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Still on the heels of dealing with the major tax reforms incited by the Tax Cuts and Jobs Act that went into effect in 2018, many business owners are wondering what tax code updates they can expect when filing their 2020 business tax return.
And because of COVID-19 there were many notable changes for 2020 as well.
Small business owners should keep in mind a number of changes when working with their tax accountants:
- Forgiven PPP loans will not be included in taxable income and are completely tax-exempt. Deductible expenses like payroll, rent, and utilities that have been paid for using funds from a PPP loan can be written off like business expenses under normal circumstances.
- Form 1099-MISC has been redesigned and form 1099-NEC for reporting nonemployee compensation has been reintroduced for the tax year 2020.
- Employee retention credits are available in 2020, even if you received a PPP loan and your business had a 50% reduction in quarterly revenue compared to the same quarter in 2019.
- Employers who deferred payroll taxes on behalf of their employees can now withhold and pay the deferred taxes throughout 2021 instead of just within the first four months of the year.
- Net operating losses (NOLs) can now be carried forward at 100% instead of 80%.There is now a $300 above-the-line charitable contribution deduction for individuals who use the standard deduction and do not itemize deductions. For corporations, the taxable income limit has been increased from 10% to 25% when it comes to charitable contributions.
- Qualified improvement property is now eligible for bonus depreciation and a 15-year life instead of 39 years.
- Retirement plan rules have been loosened as per the SECURE Act including provisions for:
- The required minimum distribution moved from 70.5 to 72 years old.
- There is no required minimum distribution in 2020.
- If the IRA owner dies, beneficiaries can extend distributions over 10 years.
- Now any age can make IRA contributions (formerly this was capped at age 70.5).
- The small employer credit for setting up a qualified retirement plan increased.
- A new credit is available for employers who set up automatic employee enrollment.
- The non-resident (1040-NR) form was redesigned to match up with the 1040 return.
- The Families First Coronavirus Response Act provides small and midsize employers refundable tax credits that reimburse them, dollar-for-dollar, for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19.
This outline of tax law updates is by no means exhaustive, and we encourage you to speak further with your preferred tax expert to make sure you have taken into account all tax updates that apply to your specific industry, business and tax return.
Lorne Noble is the Co-Founder and CEO of Simple Startup.