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Tax Changes Small Business Owners Should Be Aware of This Year

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By Maddy Teka, Esq. on February 01, 2021 2:04 PM

Tax season is approaching. Here's what you need to know when you file taxes for your small business in 2021.

COVID-19 and Tax Incentives for Small Businesses

A lot of small businesses took a hit because of the pandemic. To help these businesses, the government has created some tax incentives. These incentives include:

  • Paycheck Protection Program: The CARES Act allowed small businesses to take a forgivable loan for payroll, rent, and utility payments. This small business loan that is forgiven through the PPP will not be considered as a taxable income.
  • Families First Coronavirus Response Act: Small businesses were required to provide sick leave to employees that are affected by the coronavirus. This act gives a 100% tax credit for the cost small businesses incur when they offer this required sick leave.
  • Employee Retention Tax Credit: A lot of businesses were forced to shut down to slow the spread of COVID-19. If your small business was partially or fully closed because of the decline in gross receipts or government-mandated shutdown, and you kept employees on board, you may be able to use this tax credit.
  • Economic Injury Disaster Loan (EIDL): The Small Business Administration (SBA) expanded its EIDL program to help businesses adversely affected by COVID-19. If you received a loan through this program, you will not have to pay income taxes because these loans need to be repaid. However, if you received an emergency cash advance, that may be taxable.
  • States Tax Relief Laws: Some states also enacted additional tax incentives to help small businesses that have been affected by the pandemic.

Other Tax Deductions

If you own a small business, you may be eligible for some tax credits or deductions. These may include:

  • Business use of your home
  • Business use of your car
  • Cost of utilities
  • Estimated previous tax payments

The IRS has detailed information on what you can deduct for the 2020 tax year.

Make Sure to Gather All Your Documents

When you file taxes for your small business, you will need to provide the following records to the IRS:

  • Previous tax return
  • Your payroll records
  • Receipts that show your costs
  • Your TIN (Taxpayer Identification number)
  • Financial statements like credit cards and income statements

File Before the Deadline

As a small business owner, you need to file your business return by these deadlines:

  • March 15, if you are filing for a partnership, S corporation, or multiple LLCs
  • April 15, If you are filing for single-member LLC or a sole proprietorship

You should also make sure to research any changes in the law in your state before you file your taxes. Additionally, it's always a good idea to work with a tax professional, but that is especially true this year with all of the COVID-19 impacts.

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