Tax season is upon us and it’s a little different this year. The period for filing federal tax returns was delayed to February 12, 2021 to allow the IRS to test its systems following pandemic-related changes to tax law. Argh, pressure! But wait. In March, the IRS announced it was extending Tax Day for individuals (including those who pay self-employment tax) to May 17, 2021. Phew!
Nevertheless, questions still abound about stimulus checks, PPP loan forgiveness, when refunds will be issued, and more. As you prepare your small business tax return, we answer your pressing 2020 tax season questions.
What is the last date for filing your 2020 tax return?
As stated above, you must file your 2020 taxes by May 17, 2021.
However, even with this extended deadline, it’s wise to file your federal income tax return as soon as possible, especially if you’re owed a refund. Most refunds are issued within 21 days if you file electronically.
If you need additional time, you can request a filing extension until October 15, 2021 by filing Form 4868 (although this does not grant an extension of the time you have to pay any due taxes).
Note that the filing extension only applies to federal returns. You are still required to file your state tax return on time. This is a fluid situation, so check with your state to see if they plan to extend their filing deadlines too.
How can I calculate my tax refund?
If you haven’t prepared your taxes yet, most tax filing companies offer a tax return calculator. There’s TaxCaster from TurboTax, H&R Block’s Income Tax Calculator, NerdWallet’s Federal Income Tax Calculator, and more. You don’t need to subscribe to their tax service to use each of these tools, just enter a few details about your income, expenses, and so on for an estimate.
Where’s my refund?
If you qualify for a refund for taxes paid in 2020 you can track your IRS refund status via the IRS’ Where’s My Refund? tool. This information is typically available 24-48 hours after the IRS accepted your electronic filing. Enter your Social Security number or ITIN, filing status, and exact refund amount for an update. Refunds are usually approved in about two business days and refunds issued approximately 20 days later.
When will I get a stimulus check?
Stimulus checks are un-related to your tax refund, but if you are eligible for the third round of payments under the $1.9 trillion relief package you can track the status of your stimulus payment with the IRS. Payments will be based on your 2019 federal tax return. You should be able to check your eligibility, payment status, and whether you’ll receive it electronically or in the mail.
I received a PPP loan, how does that impact my tax return?
If you received a Paycheck Protection Program (PPP) loan under pandemic-response legislation in 2020 to keep workers on payroll during the pandemic, it’s important to understand whether you owe taxes on your loan. Here’s what you need to know.
PPP loan forgiveness: PPP loans may be forgiven, meaning they are essentially grants, but only if at least 60% of the loan was spent on paying employees a normal salary for 8-24 weeks after the loan was approved. The remaining 40% could be spent on expenses such as mortgage interest, rent, operating costs, and more (although they can’t be used to pay business taxes).
How to apply for PPP loan forgiveness: To get forgiveness, businesses must complete a PPP Loan Forgiveness Application and file it with their lender. Employers may also be eligible for partial forgiveness, for instance if salaries decreased slightly or the number of full-time employees on payroll declined somewhat.
PPP loans and your taxes: Importantly, if a PPP loan is forgiven it is not considered taxable income and is tax-exempt. Furthermore, any expenses paid for using the loan can also be written off as regular business expenses in your tax return.
To help you better understand the tax implications associated with PPP loans, read: How Does a PPP Loan Affect Your Taxes?
And, if you’re looking for extra funds for your business and are curious about PPP loans, know that sole proprietors and independent contractors now qualify. Yes, indeed. Don’t let the “paycheck” in the name fool you into thinking you wouldn’t qualify for this forgivable loan. In fact, since you don’t have staff headcount, payroll, and benefits to calculate, your application process (for the loan and later for forgiveness) should be much simpler. Learn more about how much you can borrow, what you can spend your PPP loan on, and what you’ll need to apply.
Is it too late to file 2019 taxes?
Yes, the deadline for filing 2019 taxes was July 15, 2020 (postponed from April 15 due to the pandemic). Automatic extensions were available through October 15, 2020 for those unable to file by the earlier deadline.
However, the IRS has yet to process than 2.4 million individual income tax returns for 2019. If you’re among this number, keep checking the status of your refund using the IRS’ Where’s My Refund? tool. If you are eligible for a refund on your 2019 taxes, you have until July 15, 2023 to claim it.
More tips for the 2020 tax season
For more 2020 tax season tips including how to write off your home office and any related purchases, the COVID-related payroll tax deferment, and more, check out 8 Tax Tips for Small Business Owners During COVID.
Plus, as you prepare your taxes, here are four things you should do for ultimate tax preparedness.
Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.