Small businesses face tax issues on top of pandemic woes | Health

Tax season can be complicated for everyone, but with the April 18 filing deadline approaching, small business owners, contractors, entrepreneurs and others are faced with an ever-changing set of rules and regulations.

Also, many deal with late returns and refunds from previous tax periods. The Internal Revenue Service has warned of a backlog and says more delays are to be expected.

“This year is worse than last year,” said Gene Marks, owner of The Marks Group, a small business consulting firm in Bala Cynwyd, Pennsylvania. “It seems to be getting worse every year, and this year is definitely worse than previous years.”

The IRS announced earlier this month that it is hiring 10,000 workers to help deal with a backlog of 23 million items sparked by curtailment of operations during the coronavirus pandemic. However, due to understaffing at both the federal and state levels, it is difficult for CPAs to reach someone when problems or questions arise.

“I’ve never seen that in my career, they’re all understaffed and they’re all behind,” said Scott Orn, chief operating officer of human resources and accounting startup Kruze Consulting.

However, he urged companies to be patient with the IRS and state-level tax officials. Government programs provided during the pandemic, including the Paycheck Protection Program and Economic Injury Disaster Loans, have helped countless small businesses.

“So many companies have been bailed out, but this extra paperwork has been really tough on the IRS and state tax authorities,” Orn said. “The unintended consequences of good deeds were difficult to manage.”

As in most years, Orn and other tax experts recommend filing for a tax extension this year.

“We file an extension for each and every customer, even though they should be paying estimated taxes throughout the year,” Orn said. “This gives us more time to do the tax return correctly. You simply have a lot more leeway and less time pressure.”

There are other things to consider as well. It’s not too late to take advantage of the employee loyalty loan. The program, established in 2020 to help businesses during COVID, was subject to changing eligibility rules several times during the pandemic, so not all businesses realized they qualified. In its final form, the program offered a maximum credit of $7,000 per employee to encourage employers to keep workers on their payroll. The credit ended on October 1, 2021, but companies can still apply retrospectively by filing an amended payroll tax return.

Plus, many companies that struggled through 2020 actually had a better year in 2021 as the economy recovered. This could affect the estimated tax payments companies pay throughout the year.

So companies should keep an eye on their liquidity and make sure they have enough on hand to pay more taxes if necessary to avoid penalties.

“There will be surprise profitability this year as companies end up with higher tax bills than they thought,” Orn said. “That’s actually a good thing. The thing small business owners have to worry about is making sure they have the cash flow support for estimated tax payments — it might surprise you.”

Finally, small businesses should remember that funds received through the Paycheck Protection Program or other COVID-related programs do not count towards federal gross income. Unlike other types of loans, PPP loans are tax-free, whether forgiven or not. Businesses may need to report some information about the loan when it is forgiven and when they deduct related costs.