US TAX CHANGES FOR SMALL BUSINESS OWNERS

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• US TAX CHANGES FOR SMALL BUSINESS OWNERS

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US TAX CHANGES FOR SMALL BUSINESS OWNERS

• The pandemic has affected nearly every small
  business posing a threat to their sustainability.
  The government brought many schemes to support
  these businesses. This document gives a top line
  overview of the tax deductions/credits and
  allowable expenses for these small businesses.
• Section 162 of the Internal Revenue Code allows
  businesses to deduct all ordinary and necessary
  expenses paid or incurred during the taxable year
  in carrying on a trade or business. Note that no
  deduction is allowed for personal, family or
  living expenses.

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Tax deductions 

• 20 pass-through tax deduction- If you function
  as a Sole-Proprietorship, Partnership, LLC,
  S-Corp then you are a pass-through entity,
  meaning a legal entity where income "passes
  through" to investors or owners that is, these
  entities are not subject to corporate income tax
  or any other entity level tax. These qualify for
  an automatic 20 deduction from business taxable
  income. For more details click on the link
  https//www.irs.gov/newsroom/irs-highlights-tax-re
  form-changes-that-affect-businesses 

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• Business Vehicles- If you are using a car for
  business purposes then you can deduct, he entire
  amount of the car up to certain limits. It must
  be noted that only the expenses incurred for
  business purposes can be deducted. This can be
  claimed either by subtracting business miles or
  by capitalizing the vehicle as an asset and
  depreciating the portion of that cost each year. 

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• Business Travel- You can deduct 100 of expenses
  concerning business travel, vacation, and
  lodging. The travel should be solely for business
  purposes. 
• Business meals- business meals are 100
  deductible for tax years 2021 and 2022. This rule
  was made for the hospitality industry so that
  they can recover from the pandemic. 

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• Home-office deduction- this allows you to deduct
  expenses concerning mortgage interest, property
  taxes, insurance, utilities, WIFI repairs, and
  also depreciation from taxable income. The
  important point to note here is that you use a
  part of your home for business. 
• Business Interest Expenses- If your business has
  any debt then you can deduct the interest expense
  associated with it. It must be noted that the
  principal payment is not an expense therefore
  this cannot be deducted. However, you can deduct
  the entire amount that the bank earns from
  issuing debt to you. 
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Tax changes 

• Coronavirus Aid, Relief, and Economic Security
  (CARES) Act- was set up in response to the
  economic downturn as a result of the pandemic.
  This Act came with the concept of the Paycheck
  Protection Programme (PPP), which are forgivable
  loans to small businesses. PPP is considered as a
  forgivable loan till the time the money is being
  utilized for payroll, rent/mortgage, and utility
  payments. Any kind of fund which is received by
  business as a way of PPP is not considered as
  taxable.

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• Economic Injury Disaster Loan (EIDL)- This
  programme supports businesses that suffered a
  temporary loss of revenue caused by the pandemic.
  EIDL funds are typically not taxed at the federal
  level. But it's important to monitor your state's
  ruling on how it treats forgiven funds in terms
  of both taxation and expense deductions. EIDL
  loan is not forgivable. Borrowers do have to pay
  back EIDL loans according to the SBAs (Small
  Business Administration) repayment terms. 

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• Employee Retention Tax Credit (ERTC)- Eligible
  employers can get immediate access to this credit
  by reducing employment tax deposits they are
  otherwise required to make. Also, if the
  employer's employment tax deposits are not
  sufficient to cover the credit, the employer may
  get an advance payment from the IRS. This act
  encourages businesses to keep employees on their
  payroll. The refundable tax credit is 50 of up
  to 10,000 in wages paid by an eligible employer
  whose business has been financially impacted by
  COVID-19.

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Eligibility criteria

• Full or partial suspension of the business by the
  government
• significant decline in gross receipts i.e., more
  than 50 drop in the gross receipts for any given
  quarter when compared with the same quarter in
  2019.

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• Families First Coronavirus Response Act (FFCRA)-
  this programme provides small and midsize
  employers refundable tax credits that reimburse
  them for the cost of providing paid sick and
  family leave wages to their employees for leave
  related to COVID-19. Businesses that provided
  paid leave falling under this category can claim
  100 tax credits. 

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