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Last year, during the onset of the COVID-19 pandemic, the US government made lots of changes to how individuals and businesses could file tax returns and pay income taxes, most notably delaying the due date for tax payments, introducing generous tax credits, and making electronic tax filing (or e-filing) and online services more accessible and easy to use. The same types of reforms are happening for the 2020-2021 tax year. Small business owners need to learn about these changes in order to correctly deal with tax preparation and pay their business taxes.
In this article, we’ll focus on the implications of the COVID-19 pandemic with respect to small business taxes and how small business owners can navigate paying their 2021 business taxes online.
How Has the Coronavirus Changed How Businesses Are Handling Their Taxes?
The COVID-19 pandemic induced a lot of changes and interventions by the federal government to provide relief options surrounding the taxes due by small businesses. While this isn’t an exhaustive list, we wanted to highlight some examples of how COVID-19 has affected your tax bill.
Individual Taxpayer Deadline Extended to May 17, 2021
For small businesses that are operated by a single individual, the filing deadline was extended to May 17. This includes single-member LLCs and sole proprietorships. This, importantly, does NOT include businesses like S corporations, partnerships, and corporations.
Severely Impacted Businesses May Qualify for Pandemic-related Tax Credits
As an example, the Employee Retention Tax Credit, passed in the Taxpayer Certainty and Disaster Tax Relief Act of 2020, expanded similar tax credits originally passed with the CARES Act. The Families First Coronavirus Response Act (FFCRA) allows businesses to get tax credits for 100% of sick-leave pay, family-leave pay, qualified healthcare plan expenses, and the employer share of FICA taxes for sick-leave costs.
Talking with a certified tax professional could help you find other tax credits that could give you some tax relief. This is especially true for any policy changes made to your local taxes by your local government or your state’s Department of Revenue. You will want to make sure you do not miss out on any potential savings that could help your business financially.
Some Tax Relief Needs to be Paid Back
While some tax relief programs produced permanent reductions to 2020 tax bills, others just delayed certain payments. Employers who elected to defer payroll taxes between March 27th, 2020 and December 31st, 2020 must pay half of the deferred amount by the end of 2021 and the other half by the end of 2022. If you were someone who elected to take advantage of one of these options, you should be preparing to meet the resulting financial obligations. You definitely don’t want to let this outstanding tax liability catch you off guard. Speaking with a certified public accountant (CPA) can help you make sense of what you owe and how this deferral may impact your tax liabilities.
What Are My Online Tax Payment Options as a Small Business Owner?
Small business owners have plenty of options available to them to make all the necessary payments for any taxes they may encounter.
Using IRS Direct Pay
The IRS allows business owners paying business taxes through their personal taxes to pay taxes for the Form 1040 series, estimated taxes, and other associated forms like installment payments or extensions directly from a bank account, whether that be a checking or savings account. This online service is completely free, too!
The Direct Pay website from the IRS allows payments to be made on any weekday from 12am to 11:45pm ET, and on Sundays from 7am to 11:45pm ET. The tool also allows you to look up any past tax payments you have made so you can update your records or respond to requests for audits.
Only two payments can be made within a 24-hour period and are limited to no more than $10 million. Larger electronic payments should be made via the Electronic Federal Tax Payment System (EFTPS) or same-day wire transfers.
Paying with a Debit/Credit Card
You can also make your business tax payments by using a business debit or credit card. Sometimes small business owners do this to maximize their cash back/travel rewards associated with their credit cards. But remember to be cautious of the fees surrounding this. The fees charged when paying your taxes with a credit or debit card can wipe out the benefit from increased rewards.
- Pro Tip: The fees almost always cancel out any typical rewards earned by making a large tax payment but can be worth it if you are trying to clear a large sign-on bonus threshold.
The IRS lists a number of approved payment processors through which you can make these transactions with clear and transparent fees and comparison tables.
Paying Through the EFTPS Tool
Large corporations and small businesses that elect to pay their taxes as a corporation, like those who are formed as an LLC or S corporation, can make their payments through the Electronic Federal Tax Payment System (EFTPS). You can even use the EFTPS to make employment tax payments or estimated tax payments.
You will need to set up an account using your employer identification number (EIN) or social security number (SSN), a pin number of your choosing, and a (hopefully very strong) password. Payments can be scheduled in advance and the tool makes it easy to track and archive past payments.
Importantly, if your business has employees, you’ll need to use the EFTPS system to pay payroll taxes, make federal income tax withholdings, deal with FICA (Social Security and Medicare taxes) and federal unemployment taxes.
Paying Through a Tax Preparer Software or Service Provider
When you e-file through a tax prep software like TurboTax or a service provider like H&R Block, they’ll often allow you to pay through their platform. This type of service will have its own sorts of processing costs and fees which are usually included in the price of the overall service.
The best way to learn about these options is to speak to representatives at the institution you are planning to use for your tax preparation. They will be able to provide you information relevant to your business and give you a detailed explanation of the different fees and costs associated with their online tax preparation software plans and packages.
Taxes are often one of the most difficult aspects of running a business for small business owners, and with the recent changes and relief packages that have been passed in the wake of the COVID-19 pandemic, things have only gotten more complicated. As such, if you have elected to take any of the options for relief that either the federal government or your state or local governments have provided, be sure to seek professional help from a CPA in dealing with your taxes. You will want to make sure that you are getting all of the savings due to your business while at the same time avoiding any mistakes that could end up being costly sometime down the road.
As always, at Biz2Credit we are dedicated to helping small businesses, especially during this trying time. For more important information surrounding the pandemic and other small business programs, be sure check back here at our Biz2Credit Blog!