New York, March 26 (BUS): Small businesses hit by the pandemic, inflation and shipping problems are facing yet another challenge to add to the tax board.
Tax season can be complicated for everyone, but as the April 18 filing deadline approaches, small business owners, contractors, entrepreneurs and others face an ever-changing set of rules and regulations, the AP reports.
Additionally, many deal with late returns and refunds from previous tax periods. The Internal Revenue Service has warned of the backlog and says further delays are expected.
“The situation is worse this year than it was last year,” said Jane Marks, owner of The Marks Group, a small business consultancy in Bala Cynwyd, Pennsylvania. “It seems to be getting worse every year, and this year is definitely worse than in previous years.”
The IRS said earlier this month that it is hiring 10,000 workers to deal with a backlog of 23 million items resulting from reduced operations during the coronavirus pandemic. But with staff understaffed at both the federal and state levels, monetary policy advisors have found it difficult to reach anyone if problems or questions arise.
“I’ve never seen this in my career, they’re all understaffed and all understaffed,” said Scott Oren, chief operating officer of HR and accounting startup Kruze Consulting.
But he urged businesses to be patient with the IRS and state-level tax officials. Government programs offered during the pandemic, including the Payroll Protection Program and Economic Disaster Loans, have helped countless small businesses.
“A lot of businesses have been bailed out, but this extra administrative burden has been really tough on the IRS and government tax agencies,” Oren said. “It was hard to deal with the unintended consequences of good deeds.”
Orn and other tax experts recommend filing for a tax extension this year, like most years.
“We offer an extension to each customer, even though they must pay estimated taxes throughout the year,” Oren said. “It gives us more time to do the tax return properly. You can just have more leeway and there is not a lot of time pressure.”
There are other things to consider as well. It’s never too late to claim employee retention credit. The program, which was created in 2020 to help businesses during COVID, has been subject to a change in eligibility rules several times during the pandemic, so not all businesses have realized they qualify. In its final form, the program introduced a cap of $7,000 per employee, designed to encourage employers to keep workers on their payroll. The credit expired on October 1, 2021, but businesses can still apply retroactively by filing a modified payroll tax return.
Also, many of the companies that struggled through 2020 had a better year in 2021 as the economy recovered. This may affect the estimated tax payments businesses pay throughout the year.
So businesses must monitor their cash flow and make sure they have enough on hand to make more tax payments, if necessary, to avoid penalties.
“This year, there’s going to be some windfall in profit, as companies end up with bigger tax bills than they thought,” Oren said. “That’s actually a good thing. The thing to worry about for small business owners is making sure they get cash flow support for their estimated tax payments — that might surprise you.”
Finally, small businesses should keep in mind that any money received through the Paycheck Protection Program or other COVID-related programs does not count toward gross income at the federal level.
Unlike other types of loans, PPP loans are tax-free whether or not they are waived. Companies may have to report some information about the loan if it is forgiven and if they are deducting related expenses.