2020 has been a year of challenge and change. The year-end tax planning season will be no different. You will see quite a few things coming out from Crosslin in the next few weeks, including our year-end tax planning letters. However, a few important highlights for businesses and individuals to focus on are:
If you own a business in any format and obtained a PPP loan, the impact of forgiveness of the loan (or lack of full forgiveness) must be considered.
Expenses paid with any amount forgiven (including payroll and other allowable expenditures) are NOT deductible in 2020, regardless of when the decision on forgiveness is released from the SBA. This will most likely increase taxable income for the business on the return where the business’ taxes are paid, which could be your individual income tax return.
If “safe harbor” estimated payments have been used, a large tax amount may be due on March 15 or April 15, 2021.
The amount not forgiven can be paid back immediately or over time at 1% interest.
Even if you do not need assistance with tax projections related to your loan, please let the Crosslin Tax Team know of your loan and the amount. At your request, we will work to provide relevant information to you as guidance changes.
If your taxable income or your business’ taxable income has decreased dramatically in 2020, consideration should be made regarding whether the January 15 (or December 15 for some businesses) estimated payment needs to be paid.
It is unpredictable at this point whether tax rates will increase in 2021. If you feel that the chance is high that the rates will go up or you personally will be moving up in tax brackets next year, the opposite of normal tax planning strategies may need to be deployed, moving expenses to next year and income to this year in order to have higher income in 2020 with lower tax rates applied.
IRS Tax Notices
The IRS will be sending a high volume of tax notices before the end of the year. Many of these will contain penalties and interest that are not legitimate, due to processing issues during the pandemic period. Consideration should be given to which ones to pay and which to challenge.
As you are thinking through these issues, please reach out to the Crosslin tax team with questions. We are here to help!