In a recent interview, Pauline Ho, head accountant at Laus Consulting in Orlando, FL, warned business owners about the particulars of Covid-19 tax issues with July 15 around the corner. —
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When asked to comment, Ho said, “In light of state shutdowns to stem the spread of Covid-19 as well as recent government programs to help keep the economy afloat, taxes have become complicated for many business owners. There are four issues that you should take into account while preparing for this upcoming tax season.”
With the onset of the Covid-19 pandemic and the subsequent shutting down of the economy, a record 36 million Americans filed for unemployment in 2020. This, according to Ho, has left many taxpayers unsure about how to go about their taxes.
"Many of those who have applied for unemployment for the first time are understandably unaware that unemployment benefits are taxable by the IRS. Based on the information provided by the IRS, taxpayers must make estimated tax payments on this income. The only exception to this is if you have filed form W-4V, which allows you to withhold your federal income tax," she said.
With the government's Covid-19 stimulus payment handout, many Americans are also wondering how this will affect their tax return.
“According to the IRS, the stimulus payments are not counted as part of a taxpayer’s gross income, meaning that you wouldn’t need to pay tax. While this is the case, it’s important to keep in mind that taxpayers still need to declare the payment as an advance tax credit while filing their 2020 tax return,” she said.
Ho was quick to add that reporting the stimulus payment still does not affect the amount of taxes owed or refunded for a taxpayer's 2020 return.
Another issue to be taken into account, according to Ho, is the conditions set out under the Paycheck Protection Program Loans, which are set to be forgiven by the SBA at a later date.
When asked to elaborate, Ho said, "If a small business owner gets a PPP loan, then they're not allowed to have tax deductions for expenses such as payroll. For owners of an S-Corporation, limited liability company, or sole proprietorship, this will impact their calculations in estimated tax, meaning that their taxable income for 2020 will be higher."
Many Americans might be tempted to skip their estimated-tax payments in light of the financial hardship brought on by COVID-19.
“Taxpayers working in the service industry experienced temporary tax relief after the IRS delayed April and June estimated taxes to July. However, with so many people being out of work for the larger part of three months, making these payments is likely to be tough,” she said.
"Many people are in a situation in which they must choose between paying their bills and paying their taxes. This is not the end of the world, and there are multiple ways of going about making estimated tax payments that you might not have thought of. Make sure to get in touch with an experienced accountant to explore all your options," Ho added.
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