Understanding New Tax Laws for Businesses in 2021 [Plus 7 Steps to Plan Ahead for Tax Season Right Now]
Who’s ready for 2021?
It’s been tough to navigate daily life in such ways as strategizing where to find a bag of flour and when to schedule non-emergent doctor appointments. Let alone running a thriving CPA firm and completing your daily workload!
That’s why we’ve done the dirty work of compiling a list of changes to tax law that impact small businesses and a step-by-step list to keep yourself on-track when it comes to your own business’ taxes.
Consider These New Tax Laws for Small Businesses When Filing Your Firm’s 2020 Taxes
We can’t not talk about the COVID-19 global pandemic. (Sorry, but the effects will last for quite some time. Even in accounting.) In May 2020, Congress issued relief to US consumers and businesses alike by issuing stimulus payments to individual taxpayers and loans to aid small businesses negatively impacted by lockdown measures.
With these funds, there were additional and complementary adjustments to the tax code (including extensions for filing taxes during the 2020 year for 2019 filings).
This list is a quick snapshot of history for small businesses in 2020. So whether you’re still working on explaining these programs and laws to your clients, or didn’t have clients that fit the bill, we wanted to capture them all in one place.
Here are just a few of the COVID-19 tax changes for you to consider for yourself and your clients as you approach April 2021:
Paycheck Protection Program (PPP)
You’ve likely already reviewed this program exhaustively with your clients this year. But in case your clients didn’t ask, apply, or qualify, here’s a quick recap. The PPP emergency loan program was one of the largest parts of The CARES Act that included tax relief and funds to both individuals and eligible small businesses. This loan can be forgiven if at least 60% of the loan was used to pay employees wages and payroll costs. Forgiven loans are tax-exempt with a few exclusions.
PPP Flexibility Act
This law was passed shortly after the PPP loan program was released within The CARES Act. Key adjustments were made to allow more flexibility in PPP loan approvals, such as allowing a business recipient of a PPP forgiven loan to take advantage of the payroll tax deferrals within the CARES law.
Economic Injury Disaster Loan Program (EIDL)
This program existed prior to the coronavirus pandemic to allow for assistance to businesses during a disaster through the Small Business Administration (SBA). In light of the pandemic and prolonged lockdown in much of the country, EIDL was adjusted to make disaster funds more readily available.
Employee Retention Tax Credit (ERTC)
Businesses that did not receive or apply for the PPP Loan Program may be eligible for the Employee Retention Tax Credit. In an effort to protect jobs of small businesses and incentivize small business owners to keep employees on their payroll, this tax credit can account for up to 50% of qualifying employee wages with payment up to $10,000 per employee.
How to Prepare for Tax Season All Year Round in 7 Simple Steps
Tax season comes with dreary April showers, but it doesn’t have to be that way. As an accounting firm owner, you tell your clients day-in and day-out not to procrastinate on their taxes. So, here’s a taste of your own medicine.
Your firm’s taxes need to be a priority. Here are seven (7) easy steps to do just that:
Step 1: Mark your calendar to spend time on your taxes each month and quarter at minimum.
If it’s not on my calendar, it’s not happening. Whether you choose to use a trendy Erin Condren paper day planner or entrust Google with your minute-by-minute happenings in and outside of your business, there’s a way to keep yourself on task for important items like financial planning with little to no effort.
Choose a day each month and quarter to spend on your finances and tax planning, and stick to it. Mark your calendar with details to complete the following tasks and prioritize your small business finances regularly:
- Research new tax laws in the news from media outlets and accounting websites.
- Review your profit and loss statements, as well as other financial reports.
- Record your receipts and save them digitally with your bookkeeper and backup on your own computer.
- Review employee records or check with your HR rep(s) to ensure documentation is up-to-date.
Step 2: Hire a bookkeeper to handle daily transactions.
There’s a notable difference between a bookkeeper, accountant, and tax strategist in both responsibilities and work output, as well as purpose. To have all of your bases covered truly, make sure each area of responsibility is covered by the resources you do hire and whether or not you hire a separate employee or consultant for each role.
In some cases, you may find a tax strategist that enjoys balancing your ledger or an organizational marvel in your accountant that also keeps meticulous records of your receipts and daily expenses. However you split the work, be sure to cover the daily, minute tasks of bookkeeping outside of your own workset. If you stay in the weeds of your business, you’ll never level-up to the CEO of your dream CPA firm. In fact, we wrote about hiring these critical roles for your firm in another recent blog post.
Step 3: Sign-up for webinars or listen to podcasts.
It’s so much more fun to listen to a podcast about how to make a roller coaster or the latest conspiracy theories. We get it. But podcasts can be really helpful tools for finding very specific information about a topic, like the current small business tax rate or how COVID-19 relief impacts your personal pay.
Webinars and podcasts tailored to accounting firms or small business owners are invaluable resources to tap into regularly. Sandwich a few tax-related episodes between your regularly scheduled podcasting entertainment, and you’ll accrue a solid investment into your tax knowledge.
Step 4: Assign tasks to your team.
Yep, that’s right! This is a great opportunity to delegate work to your team members so you can focus on your business strategy and the big picture of your business’ tax position. Gathering forms, inputting data, and holding valuable information (receipts, expenses, and forms) in a secure, cloud-based environment are perfect reasons to employ a workflow software. Add a team member to these tasks, and you’ll be able to rest easy as completed work and file folders are done for you.
Pro tip: Add a new workflow template in your Jetpack Workflow account to manage your own processes related to your firm’s finances and tax forms.
Step 5: Establish business processes for tax form completion.
Tax forms are important and incredibly tedious when done en masse. Building tax form completion into standard operating procedures only benefits you and your firm.
A few common tax forms for business owners to process include:
- Form 940: Complete this form to report your Federal Unemployment Tax Act for your employees.
- Form 941/Schedule B: Only one form is required to complete this form for all federal income and other payroll taxes, but you need to file this quarterly with the IRS.
- Form 1040/Schedule C: This form is used for sole proprietors to report on their business’ profit or losses for the tax year. If not a sole proprietor, keep reading.
- Form 1099: This form is completed for independent contractors and freelancers you may hire for your business.
- W-2: Complete this form and distribute to your employees each year. They use this form to complete their personal income tax returns each year.
- W-4: This form is completed by your employees. You typically gather this form upon hiring along with other employment paperwork.
- Schedule SE: This form is used by business owners to report on their income as a self-employed business owner and calculate their Social Security and Medicare taxes on their self-employed income.
Pro Tip: If you don’t have a Jetpack Workflow account yet, download our 32 free workflow templates to save you time from creating your own workflows for each of these forms!
Step 6: Hire an expert you trust.
Although we’ve talked to hundreds of accountants and firm owners, we are far from tax experts. When it comes to your firm’s tax strategy, invest in another expert’s time and attention on your finances to not only complete your tax returns but also set your firm up for success in the short and long term.
Step 7: Save and organize your receipts in batches.
As part of Step 1 above, you need to ensure that you manage and store your receipts for business expenses in a consistent manner. Work with your tax adviser to establish a process and schedule so you’re not scanning hundreds of receipts on April 14th.
New Tax Laws for Businesses Made Easier with Practice Management Software
There’s a lot to juggle as a small business owner, from employee management to client work and keeping the lights on, to name a few. It’s important to take ownership of your business’ tax position as if it were your own client. Of course, that doesn’t mean you should be crunching the numbers yourself. Delegate the tasks to an expert you trust, but stay on top of the topics throughout the year.
Try Jetpack Workflow free for 14 days, and assign tasks to key team members throughout the year to review tax laws and deductions for you. Once you’ve automated the tasks in your workflow software, you’ll rest easy knowing you’ve handled your own small business taxes ahead of time.