The global pandemic has extended itself into 2021, presenting numerous tax challenges. While the Commonwealth of Massachusetts provided many breaks to individuals and business owners, some may face upcoming challenges when filing their taxes in 2021.
Business taxes are only step one
When filing 2020 taxes, many business owners will be under increased pressure. With revenue still down in many establishments, due to continued restrictions on capacity and new COVID-19 precautions, some may be facing a tax bill they find impossible to overcome.
One of the new concerns facing some businesses is the Paycheck Protection Program (PPP) loan. While business owners took advantage of these loans to help their business, keep their staff members paid and pay other expenses including rent, many are now learning those loans may be taxable in Massachusetts.
Beware of loan forgiveness and taxation
A little-known part of the MA Tax Code applies to forgiven loans. This is often of concern primarily to consumers. For example, they negotiate a settlement on a bad debt with a creditor. Then, they must claim the amount which went unpaid on their taxes.
This year, businesses who used a PPP loan and followed the rules making the PPP loan eligible for forgiveness, may now have to pay five percent taxes on the amount of the loan. Ironically, the same program which allowed these businesses to remain afloat, may now be responsible for them closing their doors permanently.
Impact of deadlines extended into 2021
Businesses that collected sales tax or room taxes have had their filing deadlines pushed forward numerous times. Initially, hotels and restaurants responsible for filing sales tax or room tax returns had their deadlines for filing moved to September 2020 and later, into 2021. The problem for many of these businesses is while penalties have been waived, interest has continued to accrue.
Currently, the Massachusetts Department of Revenue (DOR) is extending these deadlines through April 2021. However, given that most businesses in Massachusetts have yet to return to full operations, many will find they are facing a mounting tax bill with a lower amount of revenue. This combination of issues will further pressure businesses to file extensions and ask for waivers of penalties, all the while still dealing with regular interest being added to their accounts.
Avoiding tax problems will not make them vanish
The MA Department of Revenue will continue their auditing and collection activities despite the pandemic. Businesses who have unfiled taxes from 2020 and prior, may be facing several challenges. This will put additional pressures on businesses to file their tax returns and pay higher-than-anticipated tax bills.
Demand notices and audit notices will likely increase as people get back to work, putting additional pressure on you and your business. To keep your business in compliance, you may need more than a qualified tax preparer. Additionally, you may also need to work with an experienced tax attorney who can help you resolve the issues you are facing with the DOR.
Facing an audit, trying to deal with the fallout from learning your PPP loan forgiveness is tied to a substantial tax bill or needing assistance due to unfiled taxes, can all be very stressful. Only by meeting these challenges head-on can you protect your business from aggressive DOR tactics.