Guide to 2020 small business taxes and stimulus relief
Finding ways to help your small business succeed can be tough during the best of times. Add in the challenges of the pandemic and myriad options for small business stimulus and tax relief, and it’s easy to see how small business owners may be overwhelmed.
Thankfully, you don’t have to go it alone. Our small business tax pros can help you navigate the tax changes for small businesses affecting 2020 returns and understand what financial aid options might be available to you.
Here’s what you’ll find in our Guide to small business taxes and stimulus relief:
Small business tax relief and your 2020 taxes
If you received funds from PPP, EIDL or other programs, you’ll want to know the latest on how they affect your 2020 small business tax deductions and the rest of your return.
Want help understanding what this means for you? Get help from a Block Advisors small business certified tax pro.
PPP and EIDL Loans: Tax treatment updates
Deduction eligibility: The good news from the Dec. 2020 relief bill is that you can deduct qualifying expenses paid with the money received from a forgiven PPP loan or emergency EIDL grants. This change overrides previous IRS guidance.
Federal/state taxability: Forgivable PPP loans won’t be included in your gross income at the federal level. Check with your state revenue department to see if your forgiven loan will be taxable on your state return.
Expanded expenses: On top of payroll, rent or lease payments, mortgage interest and utilities, there are more expenses your forgiven PPP loan can include:
- Personal Protective Equipment (PPE) and costs for adapting your business for health and safety compliance.
- Essential supplier costs to keep your business open
- Property damage due to public disturbances, provided it wasn’t covered by insurance
- Operational expenses for payments on software and other accounting or HR services
Other small business tax relief
Expanded employee retention credit (ERC) – With the most recent bill, the ERC was extended until June 30, 2021, giving employers an additional two quarters to claim this tax benefit. Find out more about the expanded employee retention credit and how to claim it.
Expanded paid sick leave benefits – You can now extend employer tax credits until March 31, 2021, if your business provided paid sick leave, and paid family and medical leave in 2020 or the first quarter of 2021.
Self-employed sick leave calculation – You can now use your average daily self-employment income from 2019, instead of 2020, for the purpose of calculating your paid sick leave and paid family and medical leave credits.
Small business stimulus relief available now
The latest COVID-19 stimulus relief bill supports small business by pumping an additional $325 billion into popular programs. What’s more, the new funding prioritizes relief for underserved communities.
Below, we’ve outlined how small business coronavirus relief programs have been extended and expanded.
Need help understanding how your business could benefit? Connect with a Block Advisors small business certified tax pro today.
More Paycheck Protection Program (PPP) funds. Whether you’re applying for the first time or requesting a second round, new PPP funds are available for millions of small businesses.
- First draw – Those who haven’t received PPP funds previously can apply for loans of up to $10 million. These loans are available for businesses with no more than 500 employees, sole proprietors, independent contractors, and qualifying self-employed individuals.
- Second draw – Businesses who received the first round of PPP have a second chance at funding with the renewed program. You can apply if you’ve used all previous PPP funds, have no more than 300 employees, and can show losses of at least 25% over the prior year’s quarter.
- Underserved communities – The new relief prioritizes help for minority-owned and women-owned small businesses. Additionally, $40 billion ($15 billion for first draws, $25 billion for second draws) has been set aside for businesses in low to moderate-income areas, and businesses with a maximum of 10 employees.
Targeted Economic Injury Disaster Loan (EIDL) Grants. Created as a way to help small businesses with cash flow issues, the second round of funding of $20 billion seeks to help those hardest-hit by the pandemic.
- EIDL Advance targeted to low-income communities. First-time and second-time grants of up to $10,000 are available to business owners in communities designated as low-income by the Internal Revenue Code.
- Extended coverage and application timeframes. The EIDL grant period is now through Dec. 31, 2021. Additionally, the SBA has 21 days to approve and disperse EIDL grants (previously this was three days).
Securing new loan funding. If you’re interested in applying for PPP you can submit your application with approved financial lenders. If you’re interested in applying for an EIDL loan, you can submit your application with the SBA. For additional qualification details, visit sba.gov.
Small business stimulus and loan guidance from our tax experts
Complicated times can make for complicated taxes. But keeping your business on track shouldn’t be complicated. We understand you have questions—and we’re here to answer them.
Don’t see your situation covered below? Let us put our expertise to work for you. Connect with a Block Advisors small business certified tax pro today.
Question: I took a PPP loan in 2020. Does that impact my taxes?
Answer: Money received from your forgivable PPP loan will not be included in your gross income at the federal level, but you’ll want to check with your state to determine if the forgiven loan is taxable on your state return.
In addition, the latest legislation provides for the ability to deduct business expenses paid with forgiven PPP loans and other COVID-related loans and grants. To fully understand your eligibility for tax credits and deductions, we recommend speaking with one of our Block Advisors small business certified tax pros to help you.
Question: What is the Employee Retention Credit, and how do I take it?
Answer: The Employee Retention Credit (ERC) is a refundable tax credit aimed at helping small business owners keep employees on their payroll, even if they’ve stopped doing business or their finances took a significant hit from the pandemic.
Unlike business loans, the ERC isn’t applied for— it’s a credit on a business’ payroll tax returns.
From January 1, 2021 and through June 30, 2021, small businesses with fewer than 500 employees that experienced a quarterly revenue decline of 20% (previously 50%) year-over-year can claim a payroll tax credit for 70% of qualified wages up to $10,000 per employee per quarter. If the credit is larger than your payroll tax debt, you get the difference back in cash. You can qualify for this credit even if you took a PPP loan. However, you can’t use the same wages for both the ERC and PPP loan forgiveness.
You need to follow specific instructions to claim this credit. Don’t worry, when you work with one of our Block Advisors small business certified tax pros, we’ll take care of every last filing detail.
Question: What is the FFCRA—or Family First Coronavirus Response Act—and how can it benefit me?
Answer: The Family First Coronavirus Response Act (FFCRA) was designed to help American families and small businesses. Originally, it required employers to keep paying employees who had to miss work due to COVID-19, and those who did received a tax credit to help cover the costs.
Now, the tax credit also applies to employers who voluntarily kept paying employees who missed work due to COVID-19. It includes several elements, like guaranteed free coronavirus testing, a boost to unemployment insurance, and improvement to food safety programs.
The focus of FFCRA, though, is paid leave.
This act offers employees paid sick leave through two new laws:
- The Emergency Family and Medical Leave Expansion Act (EFMLEA)
- The Emergency Paid Sick Leave Act (EPSLA)
To qualify for FFCRA tax credits, your employees need to take paid sick leave or expanded family and medical leave for reasons related to COVID-19 between April 1, 2020, and March 31, 2021. Also, you must be a business or tax-exempt organization with 500 employees or less. Your employees on leave, temporary leave, or those who are temporary with a continuing relationship count toward your eligibility. Independent contractors don’t count toward that 500-employee rule.
Also, you need to offer your employees up to 80 hours (or two weeks) of paid sick leave at 100% of their pay. Your employees must use the paid sick leave because they:
- Experienced COVID-19 symptoms and sought a medical diagnosis
- Quarantined or isolated subject to an order related to COVID-19 or
- Advised to self-quarantine by a health care provider
Additionally, you need to offer your employees 80 hours, or two weeks, of paid sick leave due to care for others. You must pay 2/3 of the employee’s regular rate of pay for employees who are caring for someone in quarantine, or providing childcare because of school or daycare closures, with a limit of $200 per day ($2,000 total).
A credit may also be available for qualified family leave wages for employees who are unable to work or telework due to a need to leave to care for a child due to provider closures related to COVID-19.
Get small business stimulus and tax relief help
There’s a lot to dive into where small business stimulus relief is concerned. You can rest a little easier knowing that you can rely on one of our Block Advisors small business certified tax pros to help make sense of it all.
Connect with a Block Advisors small business certified tax pro today!