Here is the latest update on the preparation processes for business and individual income tax returns and the upcoming deadlines.
2020 Individual Income Tax Return
As many of you know, your 2020 Federal Individual Tax Return is due on Monday, May 17, 2021. The date was extended from the original due date of April 15, 2021. We are working hard to satisfy this date with this exception, if you or your business qualifies for the ERTC (Employee Retention Tax Credit), we will be extending all Individual Income Tax Returns impacted by this recent change within the Tax Law. The ERTC applies when your business was mandated to shutdown or operate at partial capacity, or the business suffered a 50% or more loss of top line Revenue between 2019 and 2020, which is calculated using calendar quarters.
Unemployment Insurance Income
Additionally, for Taxpayers that have received Unemployment Insurance Income (2020) that is wholly or partially nontaxable, based on your 2020 income levels, our tax preparation software has been updated to properly calculate the taxability of this income. If your returns were already filed, the IRS is performing their own calculations to properly adjust your return if the unemployment insurance should not have been taxed and issue you an additional refund. When you receive this additional tax refund and IRS notice of this change, please forward to BWTP for us to verify the accuracy and to prepare an amended State income tax return, if applicable.
2020 Business Income Tax Returns
Business income tax returns for S Corporations and Partnerships were due March 15, 2021 and may have been extended to September 15, 2021.
Corporation and Trust income tax returns were due on April 15, 2021. If extended, Trust returns are now due September 30, 2021 and Corporations are due October 15, 2021.
If your business qualifies for the ERTC, we may have extended the business returns to allow for additional time to make the calculations. Alternatively, we may have already filed your returns and we may need to amend these returns.
ERTC – Employee Retention Tax Credit
After May 17th, we will be launching our ERTC & PPP Maximization Services to help you maximize your potential benefits from the ERTC and/or PPP1 Loan Forgiveness. As a reminder, the way the Credit works from an accounting perspective, you must reduce your 2020 Operating Expenses by the amount of the credit, thereby creating a larger taxable income for the business. That taxable income will generate additional taxes, that the ERTC will offset by amending Payroll Tax Returns for 2020 which will generate cash refund of payroll taxes.
Here is an example for you, that will help you comprehend the ERTC Credit: Let us assume your ERTC Credit is $30,000 in payroll taxes. This credit will reduce expenses on the business income tax return. The additional Tax on the business return at 30% Tax Rates will equal $9,000. The ERTC Credit will help fund the additional $9,000 in taxes, thereby netting you $21,000 after tax ($30,000 – $9,000).
PPP1 Loan Forgiveness
Many of our clients have already applied and been approved for PPP1 Loan Forgiveness at this time. If you qualify for the ERTC for 2020, we will need to perform calculations for the Employee Wages in order to maximize both the ERTC Credit and your PPP1 Loan Forgiveness as the same wages cannot be used for both. As a reminder, the PPP1 Loan Forgiveness is due by the 10th month following your original 24-week period, which should take you into July or August 2021.
For our dental or medical practice clients, the HHS portals were supposed to be open on or about January 15, 2021. Unfortunately, that did not happen. Our understanding is, you will be contacted by HHS in the coming months, prior to June 30, 2021, whereby you will be given e-mail instructions on how to seek forgiveness for the HHS funds you have received during Phase 2 and Phase 3 of the HHS Program last year. We are monitoring this situation and will update you as we become aware of communication pertaining to the reporting requirements by HHS.