Small businesses still struggling with COVID impacts must consider tax implications, too
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The new relief package includes several forms of aid for small businesses, including a new Paycheck Protection Program. The round of aid will also let business owners claim tax deductions on payroll and other expenses their PPP money paid for.
Small business advocates have welcomed the change, but business owners still face a lot of uncertainty when it comes to their tax bills.
Before the new relief package was signed into law, New York City cocktail bar owner Ashwin Deshmukh just wasn’t sure when he should apply for forgiveness on his PPP loan, and how that would impact his tax bill.
“Should we even wait to do the forgiveness application until next year? It’s just a waiting game,” he said.
The new round of relief will let business owners deduct expenses that their PPP money paid for. But the IRS hasn’t yet provided guidance on how exactly the new relief package will affect a business owner’s overall tax liability.
“It’s like a whole new ball game for us, so we’re kind of just grasping,” said Nicole Davis, owner and CEO of the Georgia-based firm Butler-Davis Tax & Accounting.
She said she normally fields a lot of tax questions at this time of year. But this year, small business owners are especially anxious about their taxes, their outstanding debt and whether they should apply for the new round of PPP money.
“There are clients that are reaching out to us on a weekly basis trying to get advice and guidance on how they should navigate their next week of cash flow,” Davis said.
And business owners need clarity soon, said Karen Kerrigan, president of the Small Business & Entrepreneurship Council.
“Because they just don’t know how much capital they need to hold on to versus what they can continue to put into their business to compete and grow,” she said.
Kerrigan said either way, small businesses that receive aid should be keeping good records. The IRS has indicated it could ramp up audits in 2021.
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