Small business Taxes & IRS Info

Staying in business requires paying your federal, state and local sales taxes.

• Should I need to pay quarterly estimated business taxes?

Knowing what taxes you’ll need to pay and when can be confusing. Generally, yes, you do need to pay quarterly estimated business taxes. If you don’t pay or underpay, you may end up paying penalties and a large tax bill when you file your yearly taxes.

The general guideline is that if you expect to owe over $1000 in taxes by the end of the year, you should pay estimated quarterly taxes. Corporations are expected to make quarterly tax payments if they only expect to owe $500 or more in taxes at year end. Additionally, if you paid more than zero the year before, you may also be expected to pay quarterly taxes.

To be on the safe side, you should pay quarterly taxes unless it is your first year of business and you do not expect to make a profit. You can pay your estimated taxes online or by mail.

• To configure your estimated taxes, use Form 1040-ES

• Corporations can configure estimated taxes using Form 1120-W

PPP LOANS AND TAXES

Commonly asked questions about loan forgiveness and tax obligations related to PPP for small business owners.

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How can I get my PPP loan forgiven?

A PPP loan can be forgiven as long as at least 60% has been spent on employee payroll costs. The other 40% of funds are allowed to be used for expenses, including mortgage interest or rent obligations; utility costs; operations costs such as business and accounting software; uninsured property damage from civil unrest; supplier costs on essential goods; and worker protection expenditures such as personal protective equipment (PPE).

Forgiveness is based on employers continuing to pay employees at normal levels for a period between eight and 24 weeks following the loan’s origination. The Treasury Department released multiple PPP Loan Forgiveness Applications, which must be filled out by businesses seeking forgiveness and then submitted to the private lender from which they obtained the loan. All companies that have accepted a PPP loan or are considering a PPP loan should closely examine the application to make sure they are compliant.

Does a forgiven PPP loan become taxable income?

After the passage of the CRRSAA into law in December 2020, Congress made clear that A FORGIVEN PPP loan is completely tax-exempt and is not taxable income.

Can I write off payroll, rent and utilities as business expenses if I used a PPP loan to pay for them?

Yes. While the IRS and Treasury Department originally said otherwise, the CRRSAA in December 2020 changed these provisions so business expenses paid for with PPP funds can be written off like everyday business expenses. The decision was effectively reversed because some businesses may have had higher taxable revenue in 2020 due to not being able to write off as many expenses.

Can I get a PPP loan and take advantage of Employee Retention Tax Credit (ERTC)?

Yes. As of December 2020, businesses now have the opportunity to take out a PPP loan and obtain the Employee Retention Tax Credit (ERTC) for both 2020 and 2021. For example, if a business took out a PPP loan at any point in 2020, they could now apply the ERTC for their 2020 taxes as long as PPP and ERTC don’t cover the same payroll expenses. Additionally, the ERTC was drastically expanded to help businesses make it through the first half of 2021. The prior credit allowed for a maximum benefit of $5,000 per employee for all of 2020, while the new credit allows for a maximum of $14,000 per employee through June 30, 2021. The bill also expands eligibility for ERTC to include more businesses that had significant revenue reductions in 2020.

Will taking out a PPP loan interfere with my business getting family and sick leave tax credits outlined by the Families First Coronavirus Response Act (FFCRA)?

No, businesses can still take advantage of tax credits from FFCRA while also getting and using a PPP loan. However, businesses are not permitted to use PPP loan funds to pay for sick and family leave wages if the business is expected to get a tax credit for that leave.

Can I defer payroll taxes while also getting a PPP loan?

Yes, employers are allowed to defer payroll taxes (as specified in the CARES Act) from March 27, 2020, through December 31, 2020. The PPP Flexibility Act, which was enacted on June 5, 2020, changed the rules so employers can still defer these taxes even after a PPP loan is forgiven. Fifty percent of the deferred taxes that accumulated in 2020 must be paid by December 31, 2021, and 50% of the deferred amount must be paid by December 31, 2022.

Can PPP loans be used to pay business taxes?

No, PPP loans can only be used to pay for specific outlined expenses (such as payroll, rent, mortgage interest, utilities, personal protective equipment, and business software), so taxes cannot be paid with PPP funds.

Where can I read more about the December 2020 changes to taxes and the PPP?

The U.S. Chamber has released an updated guide to Small Business COVID-19 Emergency Loans that further explains the substantial changes passed into law in December 2020.

Need an advisor on Business Law?

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Contact Tanner France for more information on business legal matters: 5806235055

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