There is Still Money on the Table — Take Steps to Reduce Your 2021 Tax Bill

Handwriting text Tax Refund, Internet Concept excess payment of paid taxes returned to business owners Building An Unfinished White Jigsaw Pattern Puzzle With Missing Last Piece

Greetings,

{6 minutes to read} I hope you are taking some time to enjoy the summer days — with care, Outdoor spaces are priceless.  

First, if you received a PPP loan in 2020 and have not yet submitted your PPP loan forgiveness application, what are you waiting for? The process has been simplified for loans not exceeding $150,000. Some banks make the process simpler and there is no documentation required.

In this article I will share some notes on the following topics, that might impact both individuals and businesses:

  • Advance Child Tax Credit (for individuals)
  • Rent Assistance – up to 12 months (for individuals)
  • Grants for Small Businesses
  • Employee Retention Credit (for business)

So, what’s worth acting upon in August?

Advance Child Tax Credit for Individuals

Many taxpayers, who reside in the US have begun getting their monthly child tax credit. In the previous article, I explained, at length, how the credit operates. Basically, the American Rescue Plan Act (ARPA) allows individual taxpayers to qualify to take a child credit of $3,000 for children under age 18 and $3,600 for children under 6, on the last day of the year. Unlike in the past, qualified taxpayers can take the credits at the time they file their tax returns. ARPA allows advance payments of this credit to be made — automatically — before you file your 2021 tax returns; payments are made on a monthly basis (using your 2019 or 2020 filed tax returns). The IRS created a portal for this credit where you can opt-in or opt-out – Click Here to access the portal.

Rent Assistance for Individuals

In spite of President Biden’s intent to extend the rent moratorium, some states will not be extending the rent eviction moratorium beyond August 31, 2021. This means late fees could be assessed and possible eviction could result from non-payment of rent. In an article written by Ann O’Connell, Attorney at Nolo.com, she highlights the states which will put a hold on eviction and those which will implement the deadline. You can read the details here. 

Consider taking advantage of government assistance. Check with your state of residency to see if you qualify for rent assistance programs. 

For NY, the state extends an Emergency Rental Assistance Program (ERAP). This will provide some assistance to certain renters to cover rent/utility arrears. For more information, click here. 

Among the requirements is an income limitation — see the income per county and household size here.

Some states offer assistance for homeowners by placing a hold on property tax payments — check your individual state’s website. 

Before I close out on this topic, if I may, I would suggest that if you can afford to make a partial payment to your landlord, consider doing so. It would be a show of good faith — Landlords, too, have expenses.

Business

Grants for Businesses

Various states are still offering grants for businesses that have been impacted by the pandemic. Please check with your state for information.

For NYS — there are various grants available. One is the New York State COVID-19 Pandemic Small Business Recovery Grant Program. With this program, a business can get up to $50,000 in a grant. The amount is calculated based on gross revenue, up to $500,000. See the details here.

Employee Retention Credit (ERC)

The intent of the ERC is to encourage employers to keep their employees employed. This is not a loan — this reduces payroll expenses. No forgiveness or pay-back steps are necessary. 

This is a payroll tax credit for employers who have W-2 employee(s). Your payroll service provider is your best resource to assist you with this credit application; don’t go it alone. This is a credit available under the CARES Act and ARPA which extended the credit for wages paid before January 1, 2022. However, Congress is considering ending the credit on September 30, 2021. See the full IRS Notice 2021-23 for this credit here.

To qualify there are a few criteria you must meet:

    •  A substantial reduction in gross receipts. A quarter-over-quarter comparison should show evidence of more than 20% gross receipt reduction.
    • No double-dipping allowed. Wages previously used for other loans, including loans for PPP forgiveness, the Work Opportunity Credit, or Paid Sick and Family Leave are not allowed to be used for this credit. And for the 3rd and 4th quarters only, wages were used for the Shuttered Venue Operators Grant and Restaurant Revitalization Grant.
    • The business must have been in operation before Feb. 15, 2020 – however, there is an exemption for certain companies, referred to as “recovery start-up businesses.” This exception allows qualified companies that started operation after Feb 15, 2020, to apply for the credit.  Please see IRS Notice 2021-23.

What’s the Maximum Amount for This Credit?

    • For the calendar year 2020: 50% of eligible wages and qualified health care costs up to $10,000 for the year. The maximum credit of $5,000 per employee per year – wages paid between March 13 and December 31, 2020, inclusive 
    • For 2021: 70% of eligible wages and qualified health care costs up to $10,000 per quarter, with a maximum credit of $7,000 per employee per quarter.

As with most governmental types of assistance, some patience is needed with the application process. Consider setting aside some uninterrupted time if you wish to seek assistance.

In closing, we are almost at the end of the eighth month of the year, which means we have four months left for tax planning. All the current tax rules are still in effect, so take advantage of the tax benefits that are still on the table. President Biden’s hefty tax budget bill is moving down the pipeline. It is likely to positively impact those among us who fit the description of low- and middle-income earners. It will negatively impact those among us who do not meet that description.

For businesses (small and large), the proposed rate is 28%. Tax planning for 2021 should be a top priority, in my opinion, considering that there is a proposed tax increase in the future. 

If you would like to schedule a tax planning consultation, please don’t hesitate to reach out.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.