Whitney Craig, CPA & Director of Tax & Accounting
2020 resulted in surprising changes to tax season and 2021 seems to be following a similar trend. If you are a business owner in Oklahoma looking for additional time to file your 2020 tax returns or to make payments due before June 15th, you are in luck!
On February 25, 2021 the IRS announced that individuals and businesses affected by the severe winter storms that occurred in Oklahoma that began February 8, 2021 have until June 15, 2021 to file various individual and business tax returns as well as additional time to make payments due before June 15, 2021.
This extension to June 15th includes deadlines occurring on or after February 8th, 2021 and before June 15th, 2021 for individuals and businesses in all 77 counties in Oklahoma and includes the following common filings and payments:
- Individual and business tax returns
- IRS Payments due on or before June 15th
- 1st Quarter estimated tax payments that are typically due on April 15th
- Quarterly payroll and excise tax returns normally due on April 30th
- Tax-exempt organizations, operating on a calendar-year basis that have a due date of May 17, 2021
Other benefits of this relief:
- Taxpayers have until June 15th to make 2020 IRA contributions.
- Penalties on deposits due on or after February 8, 2021 and before February 23, 2021 will be abated as long the tax deposits were made by February 23, 2021.
How does it work?
The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief if they feel they were affected by these storms and may qualify.
Recovery Rebate Credit
Are you a business owner who didn’t receive your stimulus payments and feel you should have? If you are, be sure to talk to your tax professional about whether you qualify for the Recovery Rebate Credit.
One common question everyone should receive from their tax professionals this year is related to whether or not they received their Economic Impact Payments. The Economic Impact Payments that were issued were based on the 2018 and 2019 tax year information on file and were issued by the IRS in two separate disbursements.
The Recovery Rebate Credit is similar except that the eligibility and the amount are based on 2020 information you include on your 2020 tax return. For those who received the full amount of these payments, no Recovery Rebate Credit will need to be claimed on the 2020 tax return. However, for those individuals who didn’t receive Economic Impact Payments or were issued less than the full amounts, a 2020 tax return will need to be filed to claim the Recovery Rebate Credit even if you are not required to file a tax return for 2020. On your 2020 tax return, you will claim any amount of Economic Impact Payments already issued to you since they will reduce the amount of your Recovery Rebate Credit.
How does this credit affect you?
If your income in 2018 and 2019 was higher than the eligible amounts to receive the Economic Impact Payments but your income dropped and met eligible income levels in 2020, this is your opportunity to get your money from the IRS! COVID-19 greatly affected businesses all over Oklahoma in 2020 and it is common that several business owners wouldn’t see these funds until they claim the Recovery Rebate Credit on their 2020 tax return.
Paycheck Protection Program (PPP) updates
If you are a business owner and have not heard the term “PPP”, I recommend you get familiar with it quickly as it can be an opportunity for immediate cash flow for your business. If you feel you may qualify, be sure to apply before March 31, 2021!
For those familiar with the PPP, the most important recent update occurred when Congress passed a new bill on December 27, 2020, issuing more funds toward this program. The new funding includes $284.5 billion for business owners, including $35 billion for first-time loans.
The Economic Aid Act includes similar parameters as the original program but has some important differences, including the fact that it allows those business owners who have already received a PPP loan to take a second draw if they meet certain qualifications.
Key qualifications for this second-draw loan include:
- Having 300 or fewer employees
- A business that has used or will use the full amount of the first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower. The borrower must have spent the full amount of the first PPP loan on eligible expenses.
- Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019. Another option for a borrower that was in operation for all four quarters of 2019 is they can submit copies of their annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.
Other important takeaways from the Consolidated Appropriations Act and Economic Aid Act regarding PPP
- EIDL Advancement no longer reduces PPP forgiveness amounts: The CARES Act provided that any Economic Injury Disaster Loan (EIDL) emergency grant (up to $10,000) issued to a borrower would reduce PPP loan forgiveness. The Economic Aid Act eliminated that requirement. If a business previously applied for PPP loan forgiveness and its EIDL emergency grant was deducted, that sum (plus interest) will be remitted to the PPP lender for credit against any PPP loan or disbursement to the borrower.
- The amount of the PPP loan received is not taxable and businesses can still deduct the expenses paid with the funding on their Federal returns: The CARES Act resulted in confusion surrounding whether or not the PPP funds businesses received would result in tax consequences after the IRS issued a rather unpopular position in the interpretation of the bill. The Economic Aid Act assisted in confirming that no tax consequences would be incurred by business owners as a result of receiving these funds on a Federal level. Be sure to check with each relevant state government entity for how this is to be handled on the state level.
When should you apply?
Small businesses and non-profits with fewer than 20 employees and sole proprietors can apply for Second Draw PPP loans from February 24 through March 9, 2021. The program will be open to all eligible entities March 10 through March 31, 2021.
Ways to save money on your taxes and further increase cash flow
The CARES Act resulted in several considerations for tax professionals as we file 2020 tax returns for our clients. Be sure your tax professional is familiar with the CARES Act, especially if any of the following has occurred for you:
- Early distributions from retirement plans occurred in 2020
- You incurred a business loss in 2018, 2019 or 2020
- You have incurred costs towards any Qualified Improvement Property (QIP) in 2018 or 2019
- QIP is any improvement made by the taxpayer to the interior of a non-residential building that is placed in service after the building’s initial placed in service date other than improvements attributable to elevators, escalators, building enlargements or the building’s internal structural framework.
Additionally, the Consolidated Appropriations Act that was signed into law on December 27, 2020 made an exciting change to the Employee Retention Credit for business owners. Previously business owners who received PPP funding would not be eligible, but this law allows businesses to still qualify for the credit as long as they are not claiming the credit for wages covered by the PPP funding. This means your business may qualify for more funding even if you have received a PPP loan! Be sure to review to determine if you should file amended 2020 payroll tax returns to claim this credit!