Today we’re diving into the wonderful world of business taxes.
In 2020, few of us wondered how the pandemic would affect taxes. Most businesses in Hawaii were simply trying to survive, as tourism dropped significantly and revenue along with it.
The average small business in Hawaii experienced a 50% drop in revenue and had to lay off at least one employee. Many applied for loans and grants to help survive including Personal Paycheck Protection (PPP), disaster relief grants, and the Economic Injury Disaster Loan (EIDL).
In addition to loans and grants with tax implications, there are new policies designed to help with returns. These include the Employee Retention Tax Credit (ERTC) and increases to business expense deductions.
Starting to feel a headache coming on? This article will give you the game plan you need to conquer tax season.
If you’ve recently started a business in Hawaii, or want to make sure you get the best tax situation possible, read on.
Also Read: How To Fast-Track Recovery For Your Business
Changing Your Tax Mindset
For many people, taxes seem like a burden, or intimidating with incomprehensible jargon. There are different kinds of taxes, multiple deadlines, and what seems like a million factors that can either reduce or increase your taxes.
It can be difficult to sort it out and work up the motivation to start the process.
I urge you to start down the path, if you haven’t already. Last year was a difficult year for most businesses. We can’t afford to get things wrong in our taxes and end up paying more than we had to, or suffer a penalty for doing it improperly.
It’s time to change our mindset from “just getting through it” to “winning.”
When we take the steps to figure out taxes, and then study how to get the most out of them, it can become fun. It’s fun to see your hard work pay off with a bigger return. It gives you the confidence that your business is set up well for 2021.
So, make a game out of it. This will help relieve some of the tension.
Also Read: Keys To Entrepreneurial Success
How Small Business Owners Can Get The Most Out Of This Tax Season
The game of winning at your taxes in 2021 has three simple strategies.
- Do Not Wait
We often put off taxes because we’re intimidated, and scramble at the last minute when the deadline approaches. The problem is, we don’t do our best work when we panic.
Take a deep breath. You’ve got this. You are capable of surviving and thriving this tax season. But you have to start now, as soon as you can. Don’t wait.
For most businesses in Hawaii, the tax deadline is April 20th, but federal taxes are due on April 15. It’s best to treat April 15th as the deadline. You have one month to get everything done, and that is more than enough time when you’re thinking clearly and confidently.
- Talk To a CPA
Certified public accountants are your best friends during tax season. It’s their job to help you file correctly and take advantage of every tax break you’re eligible for.
While it’s definitely possible to do taxes yourself, I recommend against it. You “don’t know what you don’t know.” Your job is to manage a successful business, not study tax laws. That’s why we hire specialists.
Sometimes we’re afraid hiring a CPA will be a waste of money, but the truth is they can often save you more money than they charge. They also save you time and energy, things you need to make sure your business performs at its best.
- Understand How Loans and Federal Aid Affect You
Though federal and state aid is nothing new, last year many businesses took it for the first time, or at a higher than usual amount.
The loans and grants you took last year affect your taxes. Did you get a PPP loan or something like the Maui County Adaptability Grant? Or a disaster loan like the EIDL? Did you give any of your employees sick or family leave due to the pandemic?
All of these have specific implications for taxes. PPP loans can be forgiven and become non taxable income. But if they aren’t forgiven, they are taxable. Some grants and disaster loans are taxable, and some are not. You can get tax credits on sick leave and healthcare expenses.
In addition to all of this, some businesses are eligible for an increase in business interest expense deduction. Businesses that lost 50% of their year-over-year income for specific quarters may be eligible for a tax credit meant to cover employee wages.
Your CPA can help with this, but you need to make sure you ask these questions. Don’t think “they’ll take care of everything,” and then take your hands off the process.
If you want more help breaking down what this tax season means for you, or any questions about marketing, don’t hesitate to give us a call.
Photos courtesy of Scott Graham, NeONBRAND, and Kelly Sikkema.