Author: Tax Resource Group

How Will Your 2020 Business Taxes be Impacted by PPP Loans

Small Business Taxes

Small business owners across the country had high levels of uncertainty about their business’s future when the coronavirus pandemic began. Luckily, the CARES Act provided some small business financing options, which included the Paycheck Protection Program (PPP). With potentially 100% of the loan qualifying for PPP loan forgiveness, unlike EIDL loans, many business owners took advantage of it to save their company. The PPP also offers the benefit of deferring 50% of its 2020 payroll taxes to 2021. If you took advantage of the COVID relief offered by the Paycheck Protection Program, here’s what you need to know about how your 2020 business taxes will be impacted.

Funds From PPP Loans Won’t Be Taxed

The good news for small business owners is they won’t have to pay any PPP taxes since the money will not be considered taxable income. However, to avoid any potential issues or complications, it’s important to be conscious about only using the PPP funds on qualifying business expenses like rent, payroll, mortgage interest, and other approved expenses. So you won’t have to worry about paying significant small business taxes on PPP funds if you use them how they are intended.

Tax Deductions Can’t Be Applied If PPP Funds Are Used For Expenses

Some of the best small business tax help comes in the form of tax deductions claimed. Small business owners get tax breaks when paying rent, mortgage interest, utility bills, payroll taxes, and many other business expenses. However, as a trade-off for not having to pay income tax on your PPP loan, you can’t deduct those items as you normally would if you used PPP funds to pay for them. Even if you decide to defer 50% of your payroll taxes to 2021 as is allowed in the PPP, you still won’t be able to deduct that portion.

Always Stay Informed On PPP Policy Changes

One of the biggest reasons why the Paycheck Protection Program was so successful is because of the PPP loan forgiveness. On the other side, a significant downfall is not being able to take advantage of tax deductions you’re used to taking annually. There’s no doubt the PPP saved thousands of small businesses, so depending on how the next several months go, changes to the PPP are possible. Always stay informed on any policy changes, including whether tax deductions become possible in the future, so that you can take advantage of any benefits for your small business.

Tax Resource Group is here to help small business owners make sense of the Paycheck Protection Program, so there are no immediate or future surprises. This has been an unprecedented year with many changes no one expected, and we can help you walk through them all, so you come out with the best tax situation possible. If you have any questions or concerns about your small business taxes, don’t hesitate to contact us at any time to schedule an appointment with one of our professionals.

What’s the Difference Between a Tax Deduction and Tax Credit?

What’s the Difference Between a Tax Deduction and Tax Credit?

You don’t have to be a business owner or be self-employed to qualify for tax deductions and tax credits. When you take a look at the tax deductions list, there are numerous things you can deduct from your taxes depending on your situation. While both tax credits and deductions can help positively boost your tax refund, you may wonder what the difference is between them. We’ve got you covered to help you understand this aspect and which one is better for you.

Tax Deduction vs. Tax Credit

The standard deduction for 2019 is $12,200 for individual taxpayers. So if you earned a salary of $60,000 in 2019, then your taxable income would be $47,800. Most people qualify for this standard deduction, but other tax-deductible expenses can lower your taxable income as well. These could be in the form of medical expenses, home mortgage interest, charitable contributions and more.

A tax credit is a dollar-for-dollar reduction of the amount of taxes you owe. Take the Child Tax Credit as an example. For the 2019 tax year, you qualify for a tax credit of $2,000 per child. So if your federal income tax liability is $5,000 that you would need to pay, but you have two children, the $4,000 tax credit means you only have to pay $1,000.

Which One Is Better?

You should never turn down a tax deduction or a credit if you qualify for one since it’s putting money back in your pocket directly. The main difference to understand is a tax deduction reduces your taxable income by a percentage of the expense, while a tax credit reduces the overall tax liability and usually provides the most tax relief. The amount saved with a tax deduction depends on which tax bracket you are in. So if you fall in the 24% tax bracket, then every tax-deductible expense will reduce the taxes by 24% of the amount you paid on that item.

Know The Difference Between Standard And Itemized Deductions

A common question taxpayers have is whether they should take the standard deduction or itemize their deductions. Most of the time the standard deduction provides the best tax relief, but it all depends on the amount of your itemized deductions. The standard deduction for individuals is $12,200 in 2019, so unless your itemized deductions exceed this amount, then it makes the most sense to just use the standard deduction. It’s still worth the time to look at the tax deductions list to ensure you’re maximizing your tax-deductible expenses though.

Rocket Tax offers credit counseling and other services needed by taxpayers. Understanding the difference between a tax credit and a tax deduction can help you have a better picture of your overall tax situation. Once you know what you qualify for, or even if you’re unsure, feel free to let us know and we can provide some clarity. Never hesitate to contact us for any of your tax preparation needs.

3 Tips for a Quick and Easy Tax File

3 Tips for a Quick and Easy Tax File

It always seems like tax day sneaks up on us quickly. With the busy lives we all have, it’s tough to find the time to dedicate to prepare and file our tax returns. Filing taxes is a necessary part of life, though, and there are some tips and strategies to help get your tax refund in your bank account quicker. Follow these tips and your tax preparation and filing will be seamless, quick and easy.

Gather And Organize All Documents

Before you make an appointment with a tax professional or tax preparer, gather and organize your documents the best you can. These documents include any 1099 forms, W-2s, mortgage interest statements, expense records, property tax documents, real estate documents, tuition statements and more. Also, include any medical expenses and charitable contributions that could help your tax refund. If you’re unsure whether a particular document can be filed with your tax return, bring it into your tax appointment and mark it as questionable so the preparer knows what to look for. It can be difficult to go off of memory when it comes to the required documents, so you can always look at your tax return from the previous year as a starting point.

Identify Any Credits And Deductions

Another reason why it’s valuable to look at your previous year’s tax return is so you can compare last year to this year. If you got married, had a child, started taking care of a loved one, bought a house or experienced other life-changing events, you may be eligible for a tax credit or deduction. Child care costs may also give your tax refund a boost, so don’t forget those. Tax credits and deductions vary among households and individual situations, especially if someone is self-employed. Gather the documents you know for sure are deductible and ask your tax professional or preparer about any questionable ones.

File Your Tax Return Electronically

Nowadays most people file their tax return electronically because it’s quicker, easier, more accurate and provides an electronic receipt instantly so you know your return has been filed. This is particularly a good strategy if you tend to wait until the deadline to file your taxes. It’s still valuable to bring your documents into a tax preparer, where you can have peace of mind knowing you have everything in order. Plus, you can look at a tax estimator so there are no surprises as to what you owe or what amount your tax refund will be.

Rocket Tax Relief wants to help make filing your tax returns as easy and seamless as possible. We are a full-service tax company offering tax relief, tax preparation and even audit representation. We understand everyone has busy lives and may not know exactly how to prepare taxes in the best manner possible. When you contact us to schedule an appointment, we will help you identify the documents you need to make the entire process quick so you can get your tax refund and move forward with your life.