The coronavirus pandemic has changed the taxation process for 2021. For example, the standard deduction for 2020 has increased to $12,400 for single filers and $24,800 for married couples that are filing taxes jointly. Along with this, the income tax brackets have also increased due to inflation.
As a result, individuals as well as businesses are slightly unclear about the new taxation process, final dates and what they need to do. We tell you all you need to know.
The Upcoming Dates
Update: IRS has extended the federal tax deadline for individuals from April 15 to May 17, 2021.
February 28
This date is of importance to businesses that wish to submit any other 1099 forms (1099-MISC, 1099-B, 1099-DIV, 1099-INT and etc.) These documents are related to business transactions that aren’t covered by W2 (which includes anything that falls outside of wages and tips)
If you are filing these electronically, the deadline is March 31.
March 02
Farmers and fishermen need to file 2020 income tax return (form 1040, which is used for federal income tax returns filed by residents of the US) by this date. However, if you have paid your estimated 2020 tax by January 17, 2021, you can file by April 20.
March 10
This date is important for employees that work for tips. If you received tips worth $20 or more in the month of February, you need to use IRS form 4070 (used by employees who receive gratuities from their customers, to report their tip incomes to their employers)
March 15
Form 1042-S (used by institutions and businesses based in the US, to report amounts paid to foreign persons) need to be filed by this date, both electronically and in person. The recipient of the income must also receive the form by this date.
March 16
Corporations need to file their tax returns by this date. Those that use the calendar year as their tax year are eligible for a 6-month extension but nonetheless should apply for it by this date.
March 31
This is the deadline for forms being filed electronically such as 097, 1098, 1099 (not including 1099-NEC), 3921, 3922, and W-2GS.
Tax planning strategies that small businesses can apply
Small business owners understand every penny counts. Therefore, not only optimizing their revenue, but cutting down on expenses and tax liability is of equal importance to them. However, SME owners may not be aware of smart tricks to cut down on their taxes and hence end up paying more than what they should.
So, if you are in the same category, what are some of the tax-cutting tips that you can apply? Here’s a list.
File the right tax returns for your business.
There are various tax returns that are suitable for all types of businesses, depending on their size and needs.
Sole Proprietorship
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Schedule C
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Schedule C-EZ, Form 1040 (individual income tax returns)
Limited Liability Company (LLC)
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Form 1065 (partnership income return)
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Form 1040 (individual income tax return)
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Schedule C (this can only be used if one person owns the whole of the LLC business)
Partnerships
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Form 1065 (partnership income return)
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Form 1040 (individual income tax return)
S Corporation
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Form 1120S (income tax return for S corporation)
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Form 1040 (individual income tax return)
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Schedule K-1 (individual owner shares)
Consider being taxed as a C- corporation.
A lot of sole proprietorships, LLCs, partnerships and S corporations can benefit from this move, especially after the Tax Cuts and Jobs Act of 2017 (TCJA) brought down the highest corporate income tax rate from 35% to 21%. All you need to do in this tax structure, is file form Form 8832.
Keep setting aside the money to pay your taxes.
A lot of small businesses opt for paying their quarterly taxes all at once to maintain liquidity. However, this is not such a good idea as they are charged with penalties as well as interest.
So instead of opting for this method, you should consider setting aside the money you need to pay for taxes. This requires discipline but would save you from penalties from the IRS.
Make contributions to a retirement account.
Doing this would lower your business’ tax liability as well as ensure a more secure future for your company. As a business owner, you can either opt for a 401 (K) plan or a Simplified Employee Pension (SEP)
Gather all your records.
These include:
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Income statement
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Credit card statements
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Records of payroll
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Balance sheets and receipts
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TIN (Taxpayer Identification Number)
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Bank statements
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Tax returns from the previous year
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Estimated tax payments
Look for tax deductions.
You can receive certain tax deductions depending on your business. A common one that you can use for tax year 2020 is working from home, i.e using your home for work. Other tax deductions include cost of insurance, sold goods and business use of your car.
Now that you know your deadlines and tips, are you all set to file your tax returns like a true pro? Remember, you have the option of letting us handle it all for you. Why go through all that tedious paperwork when we can do it for you? Reach out to us.