It’s that time of year again. With multiple extensions to deadlines, legislation modifying processes, and other related events that can impact taxes, this coming tax season will introduce tax code changes along with new charitable contribution opportunities specific to the Coronavirus relief bill.
2021 Business Tax Preparation
- Understand which tax return forms you are responsible for filing. The IRS requires different types of businesses to use specific forms. For example, sole proprietors may utilize Forms 1040, 1040-SR, 1040-ES, 940, 941, 943, 944, W-2, W-3, and/or Schedules C and SE; whereas corporations may utilize Forms 1120, 1120-W, 940, 941, 943, and/or excise taxes. Make sure you understand what your business is categorized as and determine which tax forms you are responsible for filing.
- Mark your calendar for your tax filing deadline(s). Depending on your business and the extensions the IRS provided for filing income and information returns, be sure to note the following tax deadlines:
- January 31: Wage statements and independent contractor forms
- February 28: 1099-MISC forms (paper) that missing Box 7 amounts
- March 31: Forms 1097, 1098, 1099, 3921, 3922, and W-2GS (electronic)
- March 15: Partnerships, multiple limited liability companies (LLCs), and S corporations
- April 15: Sole proprietorships and single-member LLCs
- Collect the appropriate records and information needed for filing. To prepare for filing your taxes, you will likely need the following documentation:
- Employer Identification Number (EIN)
- Income statement
- Balance sheet
- Bank and credit card statements
- Payroll records
- Previous year’s tax return
- Estimated tax payments.
Tip: Research potential tax deduction eligibility. For example, a frequently used tax deduction that will likely be applicable for most businesses for tax year 2020 is using your home for business (remote work).
- Calculate and deduct your estimated tax payments. Most businesses pay quarterly estimated taxes. These amounts should be deducted from the payment total to minimize overpayment during tax season.
Estimating taxes will depend on the type of business you have. For example, estimated taxes for specialized industries like farmers or fisherman will likely differ from that of a white-collar corporation. To explore estimated taxes for different types of businesses, visit the IRS website.
- Submit your tax return. After you have completed the above steps, you should be ready to file your tax return. Make sure you file by the deadline
Other Business Considerations
- Alternative Minimum Tax (AMT) refunds. The AMT expands income tax by disallowing deductions under regular taxes. To understand if you owe AMT in addition to regular tax, look at the previous year’s 6251 form. Review lines 2 and 3 for entries to determine if adjustments can be made to the taxable income for AMT.
- Leverage current losses. Net operating losses (NOLs) can be claimed only as a carryback refund if the previous year’s tax return has been completed. The CARES Act restores the five-year NOLs in any taxable year before 2021.
- Bonus depreciation. Taxpayers are able to amend 2018 and 2019 tax returns to receive a refund, as the retroactive nature of the CARES Act is favorable for completed qualified expenditures.
- Payroll tax deduction timeline. The CARES Act allows the deferral of tax deposit and payments for the employer-paid portion of Social Security tax through December 31, 2020.
From taxes 101, such as distributing W2s or classifying workers (i.e., W2 vs 1099), to finding tax breaks and ensuring timely, accurate filing taxes and tax compliance, contact VensureHR. Our tax management team can provide tips, support, and resources to guide you through a smooth 2021 tax season.
CPA Practice Advisor