Looking at Some Business Activities Before the Year Ends
{6 minutes to read} You may agree with me that there have been multiple moving parts with businesses in 2021 — grants, loans, credits, more deductions, and the list goes on.
Coupled with the virus — doing its own thing — we still have a business to operate, even though it may not be business as usual.
Before I get into the meat of the article, here is a note to freelancers/independent contractors — most of which have operated without a formed legal entity. The importance of forming a business under a legal entity, such as a corporation or LLC, is that a legal entity helps us to be considered for funding — especially during a time of crisis — like the one we are currently in. Some entities are easy to form, so consider opening a legal entity along with a bank account that is associated with the entity’s name.
Key Takeaways:
- Pandemic grants & credits are still on the table. Some are ongoing, though these are mostly state and local grants. Consider applying for these reliefs.
- Pass-through entities — keep in mind that you are taxed on your share of the business income, and the tax agencies expect estimated taxes on your piece of the pie. Most tax agencies allow taxpayers to pay by Jan 15th of the subsequent year for the previous year’s liabilities.
- Bookkeeping (deductions) — keeping your income and expenses orderly can be helpful for your deductions.
- Your mature-years saving contributions can keep more money in your pocket now — so consider setting up a qualified retirement plan.
- SBA Loans, apply for forgiveness — to get off the hook.
Pandemic Benefits:
Grants
Funding for small businesses is still open for some states. Just opened this month is the NYC Small Business Resilience Grant (part of the NYC Small Business COVID Recovery Grant Program). Regardless of the company size, the grant is $10,000, and the company must have been in operation since October 1, 2019, and still be in operation at the time of submission of the application. The grant is to be used to offset certain operational expenses incurred between March 3, 2021, and December 23, 2024.
New York State COVID-19 Pandemic Small Business Recovery Grant Program: the grant is $5,000 to $50,000 based on the gross income, click here for more information
Lendistry is the company that is managing the application process for NYS and NYC — call them directly — they are most helpful. 877-721-0097
Please check with your state of incorporation or operation for other state types of grants — here is the link for California. https://sco.ca.gov/covid19ReliefAndAssistanceSM.html
Credit: If you have payroll reporting, the Employee Retention Credit program is still open through December 31, 2021.
Pass-through entities (this includes self-employed individuals) and Deductions:
Get your books and records updated, so you don’t miss some valuable expenses; home office deduction & payments made to others via platforms like Venmo, PayPal are frequently overlooked. Payments to others total $600 or more — obtain a completed Form W-9 from the receiver. I mentioned that for 2021 qualified meals are 100% deductible.
Child as an employee: What about using the help of those little hands over the holidays — shift the income from parent to child (may lower taxes based on your tax bracket).
Taxes paid: Don’t forget your state estimated taxes are a deduction — so get them paid on time. Keep in mind that taxes are paid on time when paid by Jan 15th of the subsequent year.
Retirement Savings: In a culture that values youthfulness in appearances — it is no wonder the term retirement savings is not well-received, yet it can have an enormous impact from one tax bracket to the next, such as from 32% to 24%. A self-employed individual can contribute up to 20% of net income — up to $58,000 for the tax year 2021. Some plans can be set up for next year — before the returns are filed.
Forgiveness — Sometimes forgiveness must be requested in writing, such as a PPP loan. If you have not yet done so, submit your PPP loan(s) forgiveness applications before the year ends.
In summary, let’s bring together all the moving parts of your business by organizing your books and records. If income is higher in 2021, consider shifting some funds to savings and pulling some deductions into 2021, which would otherwise be for 2022. Take care of those estimated taxes on time to minimize penalties and interest for a late payment. Also, consider getting your freelance/contracting income in the right entity — the one that is right for you.
In closing – The pandemic has impacted us — all — differently. Some businesses ballooned during the pandemic (and needed more hands-on-deck) while others are still trying to find their bearings (alone): “we are in the same storm, but not in the same boat.”
Each business and individual tax reporting is unique, so reach out to schedule a tax consultation that reflects what’s going on in your boat.
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.