Tax season is coming. Are you ready?
After an unusual year, it’s smart to get started on your return right away.
We’ve never seen a year like 2020. Revenue headwinds caused by a global pandemic and new health and safety standards continue to create economic uncertainty.
However, what remains certain are taxes. Regardless of what happened in 2020, every business will need to file a return.
After such a complicated year, it makes sense to get started on your taxes as soon as possible. These six tips will help you jump-start tax preparation for 2020.
1. Maintain good business records
Most of us don’t like doing taxes. But stuffing receipts and papers in a file and forgetting about them until tax time can cost you.
“People often wait until the last minute and don’t gather the necessary documents,” says Lisa Greene-Lewis, a certified public accountant and TurboTax tax expert. “Then they forget a valuable deduction related to their business expenses.”
Whether you’re a business owner or self-employed, having your records ready can also make tax season less of a scramble as the deadline approaches. Greene-Lewis recommends that businesses gather year-end assets, put together an accurate profit and loss statement, and write up a cash flow statement. Individuals who are self-employed need to make sure they have tracked their income and expenses for the year.
2. Keep business and personal expenses separate
One key to keeping good records is to avoid mixing business and personal purchases. “Separating business and personal expenses will help streamline reporting to save you time and avoid any confusion or complications during tax time,” says Ryan Bouchard, head of marketing for Chase Small Business Credit Cards. “A business credit card can be a great tool to help you with managing your business expenses.”
A Chase Ink® business credit card can provide your business with a way to generate and track purchasing records, manage cash flow, and create and manage digital receipts. With Chase Ink, you can also integrate your credit card account with your accounting software so that the records you need are there when it’s time to file.
3. Consider what changed with COVID-19
Greene-Lewis suggests you focus on five issues related to COVID-19 as you prepare your 2020 income tax returns:
- The tax implications of Paycheck Protection Program (PPP) Loan Forgiveness
- Payroll taxes affected by Families First Coronavirus Response Act
- Timing of estimated tax payments for your business
- Stimulus payments from the CARES Act
- Unemployment payments
4. Maximize credits and deductions
Greene-Lewis finds that businesses often overlook potential deductions. Start-up costs, marketing and office supplies are a few of the most common examples. “Those are some of the big fundamentals that, whether you’re a business owner or self-employed, you can’t afford to forget,” she says.
Greene-Lewis suggests reviewing whether you took actions that could lower your tax bill, such as:
- Rewarding employees with bonuses.
- Buying new equipment. Section 179 of the U.S. tax code allows a business to deduct up to $1,040,000 for equipment even if the business is still leasing or financing it1. Plus, if a purchase is made with a credit card, you might earn cash reward
- Exploring new credits or deductions. For individuals, that might mean qualifying for the earned income tax credit for the first time if they were laid off and earned less income.
- Claiming your home office. You may be able to deduct a portion of your rent or mortgage, property taxes, insurance and utilities if it’s a space dedicated to your business – though you cannot deduct your kitchen table or your living room couch.
Intuit offers many free tools to help businesses and individuals understand their taxes. With Intuit Aid Assist, you can use free estimators to help understand which relief programs you might be eligible for. The site also includes a tax credit calculator to help find available tax credits specifically for self-employed workers and smaller businesses, such as tax credits for qualified sick and family leave, the employee retention credit and Social Security tax deferral. In addition, the TurboTax blog offers a Self-Employed Coronavirus Relief Center and the Unemployment Center, which provide useful articles and tips to help business owners and individuals as they navigate this unusual tax year.
5. Remember important dates
Tax Day is April 15 for most households and businesses, including sole proprietorships, LLCs and corporations with a fiscal year ending December 31. For partnerships or multi-member LLCs, March 15 is typically the tax deadline. However, COVID-19 shifted some deadlines in the past, so double-check dates to make sure you’re on track and can avoid costly penalties.
Greene-Lewis also suggests checking on specific tax extenders. “Next year, start looking for some of those tax extenders that are expiring,” she says. For example, individuals may qualify for tax extenders such as mortgage debt relief, mortgage premium insurance, and tuition and fees expenses. Businesses might be able to take advantage of the Work Opportunity Tax Credit. If your business was affected by wildfires in the West or hurricanes in the South, you may also be eligible for extensions and tax relief.
6. Start planning early
You can avoid expensive mistakes by planning and tracking your income and expenses throughout the year. “Make sure you know where you stand financially and you have everything ready for tax time,” Greene-Lewis suggests. With QuickBooks Self-Employed, you can track your self-employment income and expenses throughout the year, and your information transfers to your TurboTax Self-Employed tax return. If you own a business, you can use QuickBooks and have all your financial data ready to file on time.
When planning, make sure you also evaluate what changing your business structure might mean for your taxes. For example, self-employed workers sometimes register as a C corporation and then discover that they have to pay high corporate taxes.
Self-employed workers with questions at tax time can get answers in English and Spanish by connecting live via one-way video to a TurboTax Live CPA or enrolled agent. These experts are available year-round to answer your questions, and they can also review and file your return.
Chase also offers tools that can make tax time go more smoothly. For example, with Chase, you can add your accountant as an authorized user on your Chase accounts. This enables them to safely access, download and export all your business transactions or directly connect your account with leading accounting software, saving you time and ensuring your accountant has all the information they need.
2020 was a year like no other and that’s why it’s so important to prepare now. If you keep good records, use accounting software, talk to tax experts and accountants who know the tax code, and pay attention to the details, you’ll be able to file your taxes knowing you did your best for your business.
For informational/educational purposes only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.
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