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Tax Advice from the Small Business Tax Guru – Barbara Weltman
Manage episode 312737930 series 3244175
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Understanding the tax code during normal times is challenging enough but over the past 15 months, we’ve had 5 major tax bills passed. Which was unprecedented but so was COVID-19 and many of the new measures are focused on trying to help small businesses keep their doors open. Now that most small businesses have completed their 2020 taxes they are looking at what tax incentives they might be eligible for in 2021. A key point for small businesses to know is the expenses that were covered by the various government programs like PPP are still deductible on your taxes.
On the payroll side of things, businesses that have 20 or more employees on a group health plan and are subject to COBRA are mandated to pay the insurance premiums from April 1st through September 30th of 2021. You will receive a tax credit for what you pay but it is a bit of an administrative chore to track properly. There is also the employee tax credit that runs through the end of 2021 and has been greatly enhanced compared to what was given in 2020.
If you are a self-employed business owner you need to understand estimated taxes and self-employment taxes. What you need to know is that you have to pay both the employee and employer share of those taxes on your net profits. Also, because your income doesn’t have any withholdings on it like a normal paycheck you have to pay, typically quarterly, any estimated taxes you owe. The challenge, I hear from most self-employed people is they don’t have the money to pay the estimated taxes when the time comes. What I recommend is to create a separate account for taxes and every time you get paid take 10 to 20 percent of those funds and route them to that account. That way the money doesn’t end up getting spent on other business expenses.
When it comes to what you should pay your employees, that is a challenge for small businesses. Most of the Big Box retailers have committed to paying employees $15 an hour which means that is what the labor market expects you to pay as well. The even bigger challenge though is now your employees that are paid above minimum wage will also expect an increase in their compensation. Not to mention all of these changes increase your payroll taxes and benefits costs because your payroll base has increased. Like it or not you have to consider the big picture because the increase in minimum wage will have a trickle-down effect across your business operations.
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