Businesses buoyed by coronavirus relief funding may face a new wave of uncertainty this tax filing season as rules about how that money should be reported on federal and state income taxes continue to shift.<\/p>\n\n\n\n
Congress made coronavirus relief programs like the Paycheck Protection Program<\/a> and the Shuttered Venue Operators Grant tax-exempt, while still allowing companies to deduct business expenses paid with the funds they received, effectively creating two layers of tax relief for struggling businesses.<\/p>\n\n\n\n But, not all states followed suit \u2014 and many have been inconsistent with the tax treatment of COVID-19 funding at the state level \u2014 causing confusion for businesses owners.<\/p>\n\n\n\n Here\u2019s how various types of COVID relief funding<\/a> may impact your 2021 business taxes. When in doubt, consult with a tax professional to decode any changes or nuances in your state\u2019s tax code.<\/p>\n\n\n\n Paycheck Protection Program<\/strong><\/p>\n\n\n\n Forgiven PPP loans aren\u2019t taxable income as far as the IRS is concerned. And expenses that normally would be deductible are still deductible, even when paid with a PPP loan. But some states deviate from the federal code on one or both of these points.<\/p>\n\n\n\n In Utah, for example, forgiven PPP loans are considered taxable income on state returns. And in California, only private companies that experienced a 25% drop in gross receipts can deduct expenses paid with a PPP loan.<\/p>\n\n\n\n Other states altered their tax treatment of PPP loans and expenses in 2021, meaning businesses may need to file amended returns.<\/p>\n\n\n\n COVID-19 Economic Injury Disaster Loans<\/strong><\/p>\n\n\n\n Funds lent through the Small Business Administration\u2019s EIDL program<\/a> aren\u2019t taxed as income, says Armine Alajian, a certified public accountant and founder of the Alajian Group, an accounting firm with offices in Los Angeles and New York.<\/p>\n\n\n\n \u201cEIDL loans are pure loans paid in 30 years at 3.75% interest. This is not taxable because it\u2019s not income, it\u2019s a loan to pay back,\u201d Alaijan says. \u201cThe payments are not tax-deductible either.\u201d<\/p>\n\n\n\n Businesses that received a targeted or supplemental EIDL advance don\u2019t need to report those funds as income for federal tax purposes either. While those funds are technically grants, they are excluded from taxable income.<\/p>\n\n\n\n State and federal COVID Grants<\/strong><\/p>\n\n\n\n Grants are typically treated as income on business tax returns. That\u2019s not the case with two large-scale federal COVID grants: the Shuttered Venue Operators Grant and the Restaurant Revitalization Fund.<\/p>\n\n\n\n Money received through either program isn\u2019t taxed as income on federal returns, and you can deduct expenses paid with your grant money. You may need to report these funds on your state taxes, though, as some states don\u2019t align with the federal government on this.<\/p>\n\n\n\n State grants are a different story. These funds are often considered income on both state and federal returns, but some states have made exceptions for COVID-relief grants.<\/p>\n\n\n\n If you\u2019re unclear on your state\u2019s rules, check your tax documents and consult a tax professional, says Talibah Bayles, founder and CEO of Birmingham, Alabama-based TMB Tax & Financial Services.<\/p>\n\n\n\n \u201cBe very intentional about looking at any 1099s you receive due to a grant,\u201d Bayles says. That form will indicate if the grant is taxable. \u201cIf you have a 1099 and it is taxable, talk to a tax professional. What were the program requirements? Are there any nuances at the state level that would allow you to treat it as not taxable on the federal level?\u201d<\/p>\n\n\n\n Employee Retention Credit<\/strong><\/p>\n\n\n\n The Employee Retention Credit has gone through several iterations over the past two years, causing headaches and heartburn for many small-business owners.<\/p>\n\n\n\n Originally, business owners couldn\u2019t double-dip on PPP and ERC. This was later amended, retroactively, so businesses that took out a PPP loan could claim the tax credit, just not on wages already covered by their PPP loan.<\/p>\n\n\n\n The amount of the credit also changed. Businesses could qualify for up to $5,000 per employee for wages paid between March 12, 2020, through the end of 2021. That figure changed to $7,000 per employee, per quarter, for wages paid from Jan. 1 through Sept. 30, 2021, making it a much more enticing option for small-business owners.<\/p>\n\n\n\n \u201cI do think it is a gem for business owners,\u201d Bayles says. \u201cIt\u2019s a great opportunity for trying to positively impact your cash flow.\u201d<\/p>\n\n\n\n The problem: Most small businesses don\u2019t have payroll.<\/p>\n\n\n\n \u201cEspecially your solopreneurs or even single-member LLCs,\u201d she says. \u201cMost business owners don\u2019t have a formal payroll or have themselves on a formal payroll, so it still leaves out a chunk of people that it was intending to help.\u201d<\/p>\n\n\n\n Businesses that qualify and want to cash in on ERC changes retroactively will need to amend prior years\u2019 tax returns to lower accompanying payroll expenses.<\/p>\n\n\n\n \u201cYou need to reduce the expense in the year in which you\u2019re claiming [the credit], not the year you\u2019re receiving it,\u201d says Ryan Losi, a certified public accountant and the executive vice president of Piascik, an accounting firm headquartered near Richmond, Virginia. \u201cThe IRS says some [ERC] claims will take a year to process.\u201d<\/p>\n\n\n\n That means business owners need to amend personal and business returns from the prior year without actually having cash in hand \u2014 and in their books \u2014 from the credit.<\/p>\n\n\n\n More From NerdWallet<\/strong><\/p>\n\n\n\n Kelsey Sheehy writes for NerdWallet. Email: ksheehy@nerdwallet.com. Twitter: @KelseyLSheehy.<\/p>\n\n\n\n The article How COVID Grants, Relief Programs Impact 2021 Business Taxes originally appeared on NerdWallet.The article How COVID Grants, Relief Programs Impact 2021 Business Taxes originally appeared on NerdWallet.<\/p>\n","protected":false},"excerpt":{"rendered":"Businesses buoyed by coronavirus relief funding may face a new wave of uncertainty this tax filing season as rules about how that money should be reported on federal and state income taxes continue to shift. Congress made coronavirus relief programs like the Paycheck Protection Program and the Shuttered Venue Operators Grant tax-exempt, while still allowing companies to […]","protected":false},"author":7,"featured_media":2539,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"","attr_excerpt":["Businesses buoyed by coronavirus relief funding may face a new wave of uncertainty this tax filing season as rules about how that money should be reported on federal and state income taxes continue to shift."],"footnotes":""},"categories":[40],"tags":[],"class_list":["post-2532","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"yoast_head":"\n