**IMPORTANT UPDATE** Extensions Granted for Tax and PPP Filing
I wanted to share this right away since it affects the 2020 tax year. The federal government finally “got some act right” and extended two very important deadlines - YES!!! 😁 Keep reading for more info and consult with your tax advisor for your specific strategy.
#1 - Tax Filing Deadline for Individuals is now May 17th
This is a huge help! There have been three changes to the tax code since December 27, 2020, which left tax preparers, software providers and even the IRS have been scrambling to implement these changes since they affect your 2020 tax return. This extra month allows the systems to be updated so that you can file your return using the most current rules. Note: the extension does not apply to business returns.
Some important highlights:
Extension of time to FILE, not to PAY. If you are self-employed, you most likely have a requirement to pay estimated taxes since they are not withheld from your paycheck. Your estimated taxes must still be paid by April 15th to avoid IRS penalties and interest. You can file your final return by May 17th (or file a form 4868 to extend it until October 15) but you must pay what you estimate owing by April 15th as usual. See IRS notice here.
NOTE: Your state may not be offering this extension (though most are). Check your state’s rules here.
An exception: If you are a resident of Louisiana, Oklahoma or Texas, you automatically have an extension to pay and file returns for both individuals and businesses until June 15th due to the effect of the recent winter storm.
Unemployment Income up to $10,200 may not be taxable. If you are one of the millions of people that received unemployment income in 2020 and your modified adjusted gross income (AGI) is less than $150,000, up to $10,200 of unemployment compensation paid in 2020 is not taxable. That is a huge benefit and is unprecedented. See IRS details here. If you have already filed your return and paid taxes on this income, consult with your tax preparer on how to proceed.
#2 - The PPP Application Period Will Be Extended to May 31st
The PPP (Paycheck Protection Program), offered by the SBA (Small Business Administration) is a fully forgivable, non-taxable loan for business owners and Independent Contractors. In most cases, these loans do not have to be paid back nor are they counted as taxable income.
The original deadline of March 31st will be extended to May 31st in the next few days. The House passed a 451-3 vote to extend the March 31st deadline. Next step is the Senate, and then President Biden will sign it into law. I’m confident this will happen.
The program was introduced last year as part of COVID relief efforts. It was reopened this year, so even if you got a PPP loan last year, and you meet certain requirements, you can actually apply for a second draw this year. If you have never received a loan, you can apply for a first draw.
There have been numerous problems and delays (software issues, SBA coding errors, etc) with this round of funding but don’t give up if you qualify. The extended deadline should allow the banks and the SBA time to resolve these issues.
Some important highlights:
Loan Limits Were Increased on March 3rd. The loan limits were changed for all applications submitted March 3rd or later. Under the new rules, if you are a sole proprietor and file a form Schedule C, you can now use your GROSS INCOME instead of your net income to calculate your loan amount. This is a HUGE change and could make a difference of thousands of dollars of TAX FREE MONEY to small businesses. See more detail, and FAQ’s here.
According to the SBA, if you have already received a PPP loan in this round, you cannot go back and re-submit your application under the new rules unless certain parameters are met😪. Refer to the FAQ #66 on the document referenced above for more information.If You Have Not Applied Yet: Work with your accountant ASAP and gather the necessary documentation. Make sure you choose a lender whose software has been updated for the new rules. Unfortunately, many of the large banks have closed their applications already, but when the extension passes, I expect them to reopen. You may apply with your existing bank, or a number of other physical and online banks (fintechs). Do your homework (check Google, etc) and make sure to choose a reputable lender. The SBA has a tool here to help you find reputable lenders.
Whew! That was a lot! I hope this helps with your tax and business planning. Bless someone and share this information!