february2021 - 19

FEATURE

By Nellie Akalp

Ready for the 2021 Tax Season?

Here's How the Coronavirus Pandemic Affected Your Business Clients
AS SOME OF your business clients prepare to reopen their doors while
ensuring the safety of their employees and customers, it's your job to
nudge them to start gathering their tax documents and financials for the
April deadline. To help guide your clients through some of the changes due
to the CARES Act and other stimulus legislation, we've put together a brief
rundown of the latest information.
PAYCHECK PROTECTION PROGRAM (PPP)
Business clients who received PPP funding in 2020 should
have already received PPP Forgiveness Applications from
the lenders that issued their PPP loans. On the form, your
clients need to supply the following information:
* Payroll and Nonpayroll Costs
* Business Mortgage Interest Payments
* Business Rent or Lease Payments
* Business Utility Payments
* Total Salary/Hourly Wage Reduction
A PPP Schedule A Worksheet is included in the application. It requires your client to list every employee on
payroll during the " Covered Period, " their wages, hours,
and any wage reductions. Employees outside of the
U.S., independent contractors, the business owner, and
partners should not be included. Also not included are any
employees who made more than $100,000 in 2019 (there
is another page for those employees in the application.)
The Flexibility Act, signed into law in June 2020,
amended the PPP loan forgiveness requirements and
now allows payroll costs to account for 60% of the loan
and rent, mortgage interest, and utility costs to account
for the remaining 40%. Plus, the Coronavirus Response
and Relief Supplemental Appropriations Act of 2021
added to the list of forgivable expenses. It now includes
software and cloud computing services used for business operations, property damage expenses due to civil
unrest not covered by insurance, essential supplier costs
paid for before receiving the PPP, and worker protection
equipment (PPE).
Forgiveness is based on employers continuing to pay
employees at pre-pandemic levels for a period between
eight and 24 weeks following the loan's origination. The
forgiveness application requires borrowers to acknowledge the following:
* If a 24-week Covered Period applies, the dollar amount
for which forgiveness is requested does not exceed 2.5
months' worth of 2019 compensation for any owner,
employee, or self-employed individual/general partner,
capped at $20,833 per individual
* If the Borrower has elected an 8-week Covered Period,

the dollar amount for which forgiveness is requested
does not exceed 8 weeks' worth of 2019 compensation
for any owner-employee or self-employed individual/
general partner, capped at $15,385 per individual.
PPP funds are not considered taxable income for 2020
as long as the disbursed funds fall under the guidelines
as forgivable. Any funds not considered forgivable must
be claimed as taxable business income.
(As of January 11, 2021, the Small Business Administration (SBA) has begun accepting applications for
Second Draw PPP Loans. Eligible borrowers must have
no more than 300 employees and must show at least a
25% reduction in gross receipts between comparable
quarters in 2019 and 2020. Recipients of a PPP loan in
the first round are also eligible. (See the SBA website for
more information).

FAMILIES FIRST CORONAVIRUS
RESPONSE ACT (FFCRA)
Clients who provided sick/family leave to employees
affected by the pandemic are eligible for tax credits
for 100% of sick-leave pay, family-leave pay, qualified
healthcare plan expenses, and the employer's share of
FICA taxes for sick-leave costs.

EXPANSION OF CHARITABLE GIFT
DEDUCTIONS
C Corp clients can temporarily raise the limit for cash
donations from 10% to 25% for the 2020 tax year.

EXPANDED INTEREST DEDUCTION
For the 2019 and 2020 tax years, the deductible business
interest expense increased to 50% of EBITDA (Earnings
Before Interest, Taxes, Depreciation, and Amortization).

INDIVIDUAL BUSINESS LOSS DEDUCTION
For clients wishing to claim business losses on their
individual returns, the previous limitations were suspended for 2018-2020 tax years ($500,000 for couples
and $250,000 for other filers).

TAX CUTS AND JOBS ACT OF 2017 (TCJA)

Business clients who received the EIDL Advance funding
(the EIDL) grant in 2020 do not need to count the funds
as taxable income and don't need to fill out a forgiveness
application.
If your business clients received the EIDL loan, the
funds are treated similarly to any other business loan.

The TCJA provided the following changes for businesses-
- these changes are currently in effect:
* C Corps are now taxed at 21%.
* Pass-through entities (sole proprietorships, partnerships, S Corps, and LLCs) can deduct up to 20% of net
business income from their income taxes through 2025.
* Businesses can claim a 100% depreciation deduction
in the first year of use for depreciable business assets
such as machinery, equipment, computers, and
appliances.

EMPLOYEE RETENTION TAX CREDIT (ERTC)

SALES TAXES

If your clients were forced to fully or partially suspend
business operations during any quarter of 2020 due to
COVID-19, the business is eligible to claim an Employee
Retention Tax Credit. The credit also applies if the
business's gross receipts substantially declined. Sole
proprietors are not allowed to use the tax credit, nor are
companies that received PPP funding. The ERTC credit is
equal to 50% of employee wages from March 12, 2020,
to January 1, 2021.

For clients selling taxable products and services, it's
essential to keep an eye on how states handle the collection of sales taxes from remote sellers and marketplace
sellers. According to Avalara's 2021 Sales Tax Changes
Report, states hit hard by the pandemic will be under
more pressure to crack down on tax compliance for any
business selling goods and services beyond their state's
borders. Likewise, if your clients have hired any employees
out of state, they'll need to register for foreign qualification
in that state and remit payroll taxes to the state. ■

ECONOMIC INJURY DISASTER LOAN (EIDL)

PAYROLL TAX DEFERMENT
Employers that deferred the company's portion of Social
Security tax on employee wages from March 27, 2020,
through December 31, 2020, are required to pay half of the
deferred amount by December 31, 2021. The remaining
taxes must be paid by December 31, 2022.

Nellie Akalp is a passionate entrepreneur,
business expert, and mother of four. She is
the CEO of CorpNet.com, a trusted resource
and service provider for business incorporation, LLC filings, foreign qualification, and
corporate compliance services in all 50 states.

FEBRUARY 2021 ■

www.CPAPracticeAdvisor.com

http://www.CorpNet.com http://www.CPAPracticeAdvisor.com

february2021

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