IRS CARES Act and Tax Implementations

IRS CARES Act

The world has altered dramatically in the last year and a half. Many small businesses and individuals suffered financially and emotionally as a result of the virus. Staying away from family, not being allowed to meet relatives, being locked up in a house where your mental health is constantly jeopardized, and not being able to eat at your favorite neighborhood pizza place. Everything seemed to be going wrong. Small enterprises failed because they lacked the resources to stay afloat when the world was collapsing around them. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was one of many attempts by the U.S. government to assist these individuals and small businesses financially. However, now that tax season is here, those Americans must determine whether their plan was taxable. We’ll go over some of the major US government programs and see if they’re taxable or not.

We’ll go over the four CARES Act relief programs: Paycheck Protection Program, Economic Injury Disaster Loans, Employee Retention Credit, and Payroll Tax Postponement in order to assess your taxes. Depending on your type of business and situation, these scenarios may vary. Contact your Miami Tax Accountant, SDG Accountants, if you have a question concerning your business that isn’t answered in this article.

Is CARES Act Aid Taxable?

Many taxpayers have wondered whether or not the CARES Act they received is taxable. It is dependent on the program. Here’s a rundown of several of the CARES Act’s programs, along with whether or not they’re taxable.

Paycheck Protection Plan (PPP):

The Paycheck Protection Plan (PPP) is a small business loan program established by the United States government in 2020 as part of the Coronavirus Aid Relief Economic Security Act (CARES Act) to assist small businesses, self-employed workers, sole proprietorships, and other businesses in paying their employees. Owners of small businesses might borrow up to $10 million, or 2.5 times their average monthly payroll. If you followed all of the loan’s terms, the PPP might be considered a grant, and your loan could be forgiven. Your PPP will not be taxable income if this happens. If your loan is not forgiven, it will be treated as a regular loan and will not be taxed. This is only for tax purposes at the federal level.

It differs based on whatever state you live in when it comes to state taxes. For example, forgiven PPP loans are taxed in Florida; they are either included in taxable income or are not allowed as an expense deduction.

Economic Injury Disaster Loans (EIDL):

Another option under the CARES Act is the Economic Injury Disaster Loans (EIDL), which is an enlargement of a long-running BA loan program that assists persons who are financially impacted by the coronavirus. During the spring and summer of 2020, small businesses could apply for a loan of up to $2 million utilizing an EIDL. If a business owner did not want to pay back the loan, they could take out an EIDL advance, which was a cash advance of up to $10,000 that did not require repayment.

The EIDL is included in income and therefore is not taxable, however, if you paid business expenses using EIDL advance those might be deductible.

Employee Retention Credit (ERC):

The Employment Retention Credit (ERC) is a payroll tax credit for business owners to help keep employees on the job. It is not a loan or a grant. This tax credit is claimed on the tax return of business owners (Form 941), therefore it will not be recorded on their income taxes. The following are the downsides of this credit: it can limit the amount you can deduct on your federal income tax return. Qualified wages are likewise not allowed to be counted as income under the ERC.

Payroll Tax Postponement (PTP):

Another program that allowed firms to defer some payments of railroad retirement taxes and Social Security is the Payroll Tax Postponement (PTP). Like the ERC, these delayed payroll taxes were claimed on the employment tax return rather than the income tax form.

What to Do Next?

The U.S. government is constantly changing these programs, and it is your obligation to keep up with all of the changes. It’s difficult to grow your business while still staying on top of all the tax benefits and credits as a small business owner. Make an appointment with a tax specialist who can help you figure out your taxes and the best CARES Act program for you.

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How to File an Amended Tax Return?

Amended Tax Return

Filing federal and state income taxes is not as simple as you would believe. It’s all too easy to make minor errors on a tax return, such as reporting income incorrectly. Here’s what to do for filing an amended tax return and the steps you need to take.

What is an Amended Tax Return?

An amended tax return is a form provided by the IRS for making changes to a prior year’s tax return. An amended return can be used for a variety of purposes, including correcting errors and requesting a refund. Depending on the sort of inaccuracy you report, amended returns might either boost or decrease your refund. Correcting misreported earnings or tax credits is an example of an amended return. Keep in mind that when attempting to fix mathematical errors, an amended return is not required; the IRS will automatically correct any mathematical inaccuracies.

How it Works?

Amended Tax Return

Every taxpayer is obligated to file their taxes for the preceding year on an annual basis. A taxpayer may discover after filing their taxes that they made a mistake on their tax return and that it has already been accepted. The Internal Revenue Service (IRS) has offered these taxpayers an alternative in this situation. Form 1040 is used to file a regular tax return; however, Form 1040X, which may be found on the IRS website, is used to file an updated return.

As previously stated, mathematical errors are not noted on amended tax returns because the IRS corrects them. After correcting the mathematical inaccuracies, the IRS will simply modify your tax liability and refund proportionately. A letter will be sent to an individual requesting any missing forms or documents in their return.

Reasons to File an Amended Return:

The reasons why a taxpayer should file an amended tax return are as follows:

  • If your filing status for the tax year changed or was entered improperly. For example, if a married couple filed jointly then divorced on the last day of the tax year, they must amend their return and file as either head of household or single.
  • You may amend your return if you recorded the incorrect number of dependents on your return. If you need to add extra dependents, you can file an amended return.
  • You may amend your return if you misreported any claimed tax deductions or credits, or if you did not claim them at all.
  • You may file an amended return for additional income if the income you stated on your tax return for the year was incorrect, or if you get additional tax documents such as a Form 1099 after the tax deadline.
  •  If you discover that the tax you paid is less than what you owe, you can file an amended return. You will avoid any IRS penalties as a result of this.

Filing an Amended Tax Return:

Amended Tax Return

Form 1040X is more difficult to file on your own since it requires you to list all and any changes made to the return, even changes made by the IRS to your original return after it has been processed. The original amount is reported in Column A, the net difference between Column A and Column C is reported in Column B, and the corrected amount is reported in Column C. Many questions and lines on Form 1040X require accurate information, as well as an explanation of the adjustments being made. For the average taxpayer, all of this is difficult and time-consuming, which is why we recommend contacting a Tax Preparer or a Miami Tax Accountant who can guide you through the process and do your taxes for you.

When mailing your amended return to the IRS, it is recommended that you include specific documents. To avoid IRS audits, attach documentation that clearly proves and justifies the adjustment you’re making on your return.

This form cannot be e-filed since it is mailed directly to an IRS agent for processing and acceptance of the return. This implies it could take up to 3 weeks for it to appear in the IRS system after you mail it. Processing the return can take up to 16 weeks after that. On the IRS website, you can check the progress of your amended tax return.

Contact SDG Accountant for assistance with amended returns, and our tax preparers and bookkeepers will file your return for you as soon as possible.

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What Happens If I Do Not File or Pay my Payroll Taxes?

Payroll Taxes

When it comes to unpaid taxes, the IRS is a little harsher on corporations than on individuals. Businesses owe more taxes and are more involved in tax administration than individuals. People who owe taxes are treated harshly by the IRS, who consider it a significant infraction and a serious felony. They are unconcerned with an individual’s or a business’s financial situation, whether they have declared bankruptcy or are deeply in debt; all they worry about is that you pay the taxes you owe. Payroll taxes are the most strictly enforced by the IRS of any sort of tax. They are highly concerned about unpaid payroll taxes and have hefty penalties for late payment.

A company that receives payroll taxes from its employees is obligated to pay those taxes on their behalf. If a company fails to pay its taxes, it is considered fraudulent and is dealt with accordingly.

What are Payroll Taxes?

Payroll Taxes

All businesses must submit all accurate information to the IRS, make monthly payments to the federal payroll tax department, and file informational returns. The company is obligated to provide a W-2 Form to all workers and a Form 1099 to any individual contractors so that they may identify how much they were paid and what deductions and bonuses they received. All businesses must also use the IRS-created Electronic Funds Transfer (EFT) system to deposit Medicare and Social Security taxes for their employers and employees. This deposit can be made monthly or semi-weekly and is based on forms from past years, such as Form 941. If your employer has more than $50,000 in tax withholding each year, they must deposit semi-weekly, and those with less than $50,000 in tax withholding must deposit monthly. The IRS will determine the frequency of your deposits, and you will be notified.

Businesses must also pay Federal Unemployment Tax Act (FUTA) tax each quarter if their total salaries paid for the quarter exceeded $1,500. In terms of all the forms and their functions, Form 940 is used to report your FUTA tax. Other forms include Form 941 or Form 944.  On a quarterly basis, Form 941 is used to report employee wages, employer withholdings, and Medicare and Social Security taxes. Form 944 is the same as Form 940, however, it is reserved for employers with annual tax withholding of less than $1,000 per year.

What happens when a business fails to pay or file its Payroll Taxes?

When a company fails to pay its taxes, particularly its payroll taxes, it is not a minor issue. Many firms get into financial difficulties and are forced to postpone paying their taxes. This results in a failure to submit a penalty of 5% every month, with a maximum penalty of 25%. Other steps that the IRS could take include levying or enforcing a levy or lien on the bank accounts of businesses or individuals.

How to Solve this Problem?

This is a significant situation that might be difficult to handle. The first step you could take is, of course, to pay your taxes if you can find the money, but if you can’t, here’s what you need to do. If it is completely difficult for you to pay your taxes, you can request extensions. The IRS is often able to be patient and provide you with a time period and a plan for paying these taxes. If you are unable to do so, do not wait for the IRS to come knocking on your door; instead, get assistance. Seek expert assistance from a Miami Tax Accountant who has dealt with similar issues and assisted individuals and organizations in dealing with them efficiently.

Any form of tax problem necessitates the assistance of a professional. Allow the pros to handle the process of owing payroll services, which can be difficult and intimidating. We can assist you in sorting through your options and determining the best solution and payment plan for you. Our team consists of Tax Preparers in Miami who have been dealing with issues like these for years and have solved them effectively. Be a part of our happy clients and let us take care of all your tax concerns.

All you have to do is reach out to us; you can email us at admin@sdgaccountant.com or call us: +1 (786) 706-5905.