Now that the New Year is here, small business owners need to gear up for the tax season. Things are likely to be different this time because of the COVID-19 situation. The pandemic has disrupted businesses but also opened them up to financial aid by the government. However, the tax provisions that were around in the last year are also going to end. So business owners need to understand how things will pan out and they also have to act fast to navigate the complex IRS guidelines. Here are some tips that can help you get ahead with planning to keep your business safe and compliant in 2021.
Seek guidance on COVID-related payroll tax deferment
Employers may defer the payment of their share of payroll taxes for 2020 as a part of the COVID relief initiative. You will have to pay your payroll tax by December 31, 2021, and only 50% will be due, and the remaining will be due only by December 31, 2022. Discuss the matter with your advisor as they may recommend paying back your share of payroll tax early to claim the deduction for 2020.
Deduct interest on borrowings
You may have borrowed funds during the pandemic just to keep your small business afloat. This year, you can claim a deduction for interest payments on the borrowed funds. The IRS will consider amounts borrowed for buying equipment, stocking inventory, or funding payroll as “ordinary and necessary” business expenses, which means that they m
ake valid deductions from the COVID tax perspective.
Revisit the estimated tax payments
Since 2020 was a tough year, many small businesses had to counter cash flow issues by underpaying their estimated taxes. It makes sense to revisit them now because you may expect IRS penalties if there is a shortfall. Check if you owe a penalty and seek advice from a tax expert to understand your options. You can check https://creativetax.io/ to learn all about penalties and how they need to be handled. Tax specialists can help you get an IRS waiver depending on your circumstances.
Claim home office deduction
Operating your small business from home gives you the advantage of home office deduction. However, small business owners often fail to claim this deduction. As most small enterprises were home-based during the pandemic, it makes sense to get familiar with this deduction and use it to cut down your bill. The deduction includes business expenses related to your office space, even if it is a part of your living space, such as mortgage interest, utilities, and property taxes.
Write off home office purchases
Apart from the regular expenses of operating your business from home this year, you may also have spent some cash to purchase equipment. Fortunately, you can write off the ones that you use exclusively for business purposes. It includes office furniture, supplies, computers, and printers. You can even deduct the amount spent on software licenses. Conduct an audit of purchases during last year before you file the taxes.
Despite the challenges of the pandemic, your small business can secure several tax-saving opportunities in 2021. Just being ahead with some planning and preparation sets you up for success.