In a recent interview, Thomas McAlister, founder of Thomas J. McAlister P.C. in Denver, CO, warned business owners about specific tax issues related to COVID-19 in light of the July 15 tax deadline. —
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When asked for a comment, McAlister said, “Due to the slowing of the economy amid efforts to curb the effect of the coronavirus, government programs have been introduced to help business owners get through this rough patch. However, these initiatives have complicated taxes for many small business owners. Here are four things to be aware of in the run-up to this year’s tax season.”
One issue to be taken into account, according to McAlister, is the stipulations outlined in the Paycheck Protection Loans Program, which was rolled out to help small business owners.
“Loans taken out by small business owners as part of this program are expected to be forgiven by the SBA at a later time, but they will still have an impact on declaring taxes. Business owners who receive a PPP loan are not allowed to report tax deductions for expenses such as payroll. This means that taxable income for 2020 returns will be higher for owners of an S-Corporation, limited liability company, or sole proprietorship.”
Earlier this year, the government introduced a $2 trillion stimulus package to offset the adverse economic effects of Covid-19, which meant that Americans who qualified received cash payments up to $1,200.
“Understandably, Americans who received these stimulus payments are unsure how their taxes will be affected. Based on what the IRS has said, the stimulus checks are not included in a taxpayer’s gross income, meaning that no tax would be owed. However, it’s still up to taxpayers to declare the payment as an advance tax credit on their 2020 tax returns. Reporting this payment will not affect the amount of taxes owed or refunded on a 2020 return,” he said.
Another tax issue on the minds of many Americans is related to unemployment status, with a record of 36 million citizens filing for unemployment this year.
When asked to elaborate, McAlister said, "Of course, many of those who filed recently have never been on unemployment benefits before. But something that everyone should be aware of is that unemployment benefits are taxable by the IRS. According to the IRS, taxpayers must pay estimated tax on this income."
McAlister was quick to add that the only way to sidestep paying for estimated tax on unemployment income is by filing form W-4V, which allows Americans to withhold federal income tax.
Further to this point, according to McAlister, for many Americans, it might seem easier to skip estimated-tax payments during the global pandemic.
When asked to explain further, McAlister said, “Many working in the service industry are currently experiencing financial hardship, particularly with an exponential number of people becoming unemployed in the past three months.”
“In other words, taxpayers are stuck between a rock and a hard place: they need to choose between putting food on the table and paying their taxes. The good news is that there are many options when it comes to figuring out how to pay estimated taxes. In order to make sure you know all options available to you, the best thing to do is to contact a seasoned accountant today,” he said.
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