Mid-Year Tax and Accounting Considerations for Small Business Owners
By: Jessica A. Distel, CPA, MBA - Director of Tax and Business Services, Buckingham Advisors
Summer is ending, kids are going back to school, football season is around the corner, and we can almost smell the pumpkin spice. For small business owners, this is a great time to ponder some mid-year tax and accounting considerations.
Financial Statements
Is your accounting up-to-date? If so, that is great. If not, this is a great time to get caught up. Financial statements are not just something you need after the year has ended and for your tax return to be prepared. During the year, financial statements provide crucial information about your business operations. The third and fourth quarters are a great time to speak with a CPA about your business expectations for the rest of the year. If you have fixed assets to purchase, is it better to buy before year-end or after year-end? What purchases are eligible for accelerated depreciation? Are you familiar with retirement plan options that your business can fund and deduct for 2021? By having up-to-date books and clear communication with a competent CPA, you will see some valuable options and make informed, tax-saving decisions about your business before year-end.
Paycheck Protection Program (PPP)
Have you applied for Paycheck Protection Program (PPP) forgiveness? If you received a PPP loan in 2020, you likely have applied for forgiveness or are planning to do so in the near future. By meeting the spending requirements established by the SBA, your PPP funds could be fully or partially forgiven, meaning the business does not have to pay back the loan. In addition, your business can still deduct the expenses that were paid with the PPP funds and the forgiveness is not taxable income. If you received a PPP loan in 2021, the forgiveness application will not have to be submitted until 2022, but many banks are currently accepting forgiveness applications. If you have not applied for forgiveness by the time your 2021 business tax return is prepared, you will at least want to have a reasonable estimate of how much you are anticipating your forgiveness to be so it will be properly reflected on your tax return.
Employee Retention Credit
If your 2021 gross receipts are less than your 2019 gross receipts, you may be eligible for the Employee Retention Credit. To qualify, your business would have to report a reduction of at least 20% in gross receipts during a quarter in 2021 as compared to the same quarter in 2019. Alternatively, if your fourth quarter 2020 gross receipts were at least 20% less than the gross receipts from your fourth quarter 2019 gross receipts, you may qualify for the Employee Retention Credit for the first quarter of 2021. For each eligible quarter, the Employee Retention Credit is 70% of up to $10,000 of gross wages per employee per quarter. Yes, you are calculating that correctly….up to $7,000 per employee per quarter in 2021!
COVID-19 Tax Credit and Paid Sick Leave for Employees
As we start to see the number of COVID-19 cases rise in Ohio, small businesses should consider that they may still be eligible for a tax credit for paid sick leave for employees through September 30, 2021. If an eligible employee must miss work for an eligible COVID-19 related reason, small businesses with less than 500 employees may claim a tax credit for paid sick leave for up to two weeks (80 hours) up to $511 per day and $5,110 in total per employee. This credit must be reported through payroll, so you would want to reach out to your payroll provider to report the eligible wages to ensure it is reported timely and correctly.
As always, the Tax & Business Services team at Buckingham Advisors is here to help! If you have any questions or would like to discuss your personal and/or business financial situations, please do not hesitate to reach out. We’d be happy to schedule a conversation at www.mybuckingham.com/contact.