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Make The Most Of Tax Time This Year

Local CPA Offers Advice On Taking Advantage Of Covid-Related Tax Changes

Covid-19 has brought about many changes in our daily lives. Our homes have become schools and workplaces, many of our favorite events have been cancelled and we have learned to interact with each other while wearing masks and keeping our social distance.

However, despite all of the changes, one thing has remained constant – we still have to file our federal income taxes. Pandemic or not, the tax man still cometh.

This year, there have been several personal and business tax code updates that are directly related to the coronavirus. To gain a better understanding of how the new changes affect us, we reached out to local CPAs Sean Roach and Steve Helmuth to get their professional perspectives.

1. What are the most significant pandemic-related tax issues for individuals this year?

“First, stimulus payments received by individuals aren’t taxable, so that’s good news,” says Steve. “However, your tax preparer still needs to know how much you received in stimulus funding so that your 2020 tax return can be properly reconciled.”

“In addition, there is a new $300 per tax return deduction ($600 for joint filers) available for charitable contributions in 2020,” adds Sean. “This deduction is available for all filers, even if they don’t itemize on their returns.”

“Another tax issue affects individuals who took out Covid-related early distributions from their retirement plans,” says Steve. “Depending upon their circumstances, taxpayers can receive additional time to repay the distribution without penalty.  If they choose not to pay it back, they can opt to spread their tax liability over three years rather than having to absorb it all this year.”

“For taxpayers who are self-employed, and who lost income due to having Covid-19 or having to care for someone who did, they may be eligible for an additional tax credit,” adds Steve.

2. What are the most significant pandemic-related tax issues for small businesses this year? 

“The most immediate tax issue facing businesses at the moment deals with the Employee Retention Credit that became law with the passage of the CARES Act in 2020,” says Steve. “Designed to encourage employers to keep their workers on the payroll, the tax credit can be claimed against a percentage of annual wages paid to employees, resulting in a significant reduction in tax liability. It is very important that employers maintain accurate records to determine their eligibility for the credit.”

“Another concern affects businesses seeking to take advantage of the next phase of the Paycheck Protection Program (PPP) provision of the CARES Act,” says Steve. “A key factor in determining eligibility for the second round of PPP loans is a decrease in revenue. Determining this decrease can be time-consuming, particularly for businesses with small staffs.”

“The additional recordkeeping caused by the tax changes illustrates the importance of partnering with a local CPA firm,” adds Sean. “Your CPA can help you establish and maintain an accurate accounting system that can make determining tax credit and loan eligibility much easier.”

3. What advice would you give to taxpayers as they prepare to file their 2020 income tax returns?

“Hold off on filing as long as possible. Due to last minute Covid-related relief measures in Congress, the tax situation for businesses and individuals is very fluid,” says Steve. “It is very likely that several additional tax changes will occur prior to the end of the filing season. For example, the most recent $1.9 trillion Covid relief bill includes a provision to make the first $10,200 of unemployment benefits received during 2020 non-taxable.”

Sean Roach & Associates

128 Harlan Avenue,

Hendersonville, TN 37075

615.265.8180

Srcpas.com

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