What Can I Write Off as a Business Expense in 2021?
2020 has been anything but predictable, but, as they say, taxes never go away. Before we know it, tax season will be here. You do not want to get caught unprepared when it comes time to file your taxes in 2021.
This year brought many challenges that most people have never had to face before. A Maryland business tax attorney can help you evaluate your situation and answer your questions about what you can write off as a business expense in 2021.
Standard Business Deductions
Some things have not changed. If your business paid these expenses, they can be deductions on the company’s taxes, with a caveat we will discuss in the next paragraph.
Rent. If you pay rent for your business premises, the rent expense counts as a deduction against income.
Interest. If your company owns a building, instead of renting, the interest portion of the mortgage payment can be a business deduction.
Utilities. As in previous years, utility expenses for your business can be a deduction on your company’s tax return in 2021. Utilities can include things like electricity, gas, water, sewer, and trash.
Business Expenses. Telephone, internet, supplies, website expenses, and many other costs of doing business can be deductions to offset the income they helped to produce. Make sure that you take every allowed business deduction, including bank fees, bank interest, advertising, promotions, net operating losses, depreciation, and retirement contributions.
These business expenses can be deductions on your 2021 tax return, but only if you paid them out of non-Paycheck Protection Loan (non-PPL) funds.
How the Paycheck Protection Loans (PPL) Affect Business Deductions
If you received a Paycheck Protection Loan (PPL) and used it to pay allowed business expenses, you should have gotten forgiveness for the loan. Forgiveness means you do not have to pay back the loan, and you do not have to include the loan amount in your taxable income.
You cannot, however, double-dip with the PPL funds. If you excluded the PPL funds from your company’s taxable income, you cannot also claim the expenses you paid with the PPL as business deductions.
Also, if you deferred some of your payroll taxes under the PPL program, you cannot deduct those deferred taxes on your tax return. You can claim the portion of payroll taxes you did pay, just not the deferred part.
How Other Government Stimulus Programs Can Impact Business Taxes
The government created stimulus programs in a desperate attempt to help companies stay in business during the 2020 pandemic. Here are some of the business tax advantages under the CARES Act:
Usually, a business could deduct only up to 30 percent of its taxable income as business interest expense on its taxes. The CARES Act allows companies to deduct up to 50 percent of their taxable income as business interest income.
Some business entities, like hotels and restaurants, that needed to improve their facilities because of the COVID-19 pandemic, can deduct all of those expenses immediately instead of having to take those deductions over time.
The CARES Act initiated a new Employee Retention Tax Credit. This benefit provides a 50 percent tax credit that applies to the first $10,000 of wages for each employee that meets the program guidelines.
There has never been a year like 2020. It can be a smart decision to work with a Maryland business attorney and a tax professional to prepare your business tax return in 2021.
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