Has your tax situation changed over the last year? Perhaps you experienced a dramatic increase or decrease in business income, you were not able to make your quarterly estimated tax payments as planned, you received unemployment benefits for the first time, or you accepted a Paycheck Protection Program (PPP) loan. If so, it’s more important than ever to consider tax planning.
First, what is a tax plan?
Simply put, a tax plan gives you a rough estimate of what you can expect to pay in taxes. Using some basic year-to-date information, we can estimate your tax liability to map out the timing of your tax payments over the next few months. We can also run various scenarios to show you where tax reduction opportunities may exist. Our goal is to help you minimize your tax liability wherever possible and avoid unpleasant tax surprises.
Counting on PPP forgiveness? Here’s what you should know.
On November 18, the IRS finally released guidance (Rev. Rule. 2020-27) to address the deductibility of PPP expenditures. This is a major development, as it helps clear up some of the ambiguity surrounding tax planning.
Unfortunately, it is not great news for business owners. Contrary to Congress’ intent, the IRS determined that eligible PPP expenditures paid or incurred during 2020 are NOT deductible if the borrower expects to receive PPP forgiveness this year or next. In other words, most businesses who took PPP loans and utilized the funds for their intended purpose will be taxed this year.
If a borrower decides against requesting forgiveness or the request is subsequently denied (in whole or in part) in 2021, the borrower is entitled to the deduction by one of the following means:
1. Timely filed (including extensions) 2020 tax return.
2. Amended return for the 2020 tax year.
3. Timely filed (including extensions) 2021 tax return.
Unless Congress acts soon, taxpayers will be forced to plan for the worst and hope for the best. But this doesn’t mean you have to be stuck in limbo. PWB can help you map out your best- and worst-case scenarios, so you’re prepared for whatever tax developments come your way.
Let’s plan ahead for better days—and avoid unpleasant surprises in 2021.
We’re standing by, ready to answer your questions and help you plan for a brighter year ahead.
