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What to know about filing a 2021 tax return if you own a business


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Rules around small business taxes have changed significantly in the last two years. This year is no exception as many of the various pandemic-era deductions and deferrals come to an end. 

The good news is that even though these benefits are ending, the impact on the overall tax rate for most small business owners won’t be significant. Accountants and tax planners say the bigger impact would have come from the Build Back Better infrastructure bill, which includes proposals to increase capital gains tax, limit the 20% deduction for qualified business income under section 199A, and other factors that would increase taxes, but those have not come to pass. Yet. 

“A lot of ways, the tax bill’s been about the dog that didn’t bark. They didn’t do anything on capital gains, they didn’t do anything on state tax. There’s a lot of good news about things that didn’t happen,” said Dean Zerbe, national managing director at Alliantgroup, a tax consultancy. 

Meanwhile, business owners can still apply retroactively for certain pandemic-related benefits. Here are some of the biggest changes that small business owners need to know about this tax season. 

It’s not too late to claim Employee Retention Credit 

Created in 2020 as part of the CARES Act under then-president Donald Trump, the Employee Retention Credit ended in September — a quarter earlier than expected. The ERC is a fully refundable payroll tax credit for employers that can add up to $70,000 per quarter and was created to encourage businesses to keep employees on their payroll. 

The program underwent three major changes in the last two years, which is a big reason why many business owners were unaware of the program or didn’t apply for it.  

The program was originally not open to those who took out a PPP loan. That changed when the second iteration came along. Also loosened up were rules that limited how much a business could get depending on how much it had been impacted by the pandemic. 

For small businesses that missed the program, it’s not too late to file retroactively. Many business owners are not familiar with the program, said Kevin Kuhlman, vice president of federal government relations at the National Federation of Independent Business, but can still apply. Retroactive filings are expected to be a big part of this year’s taxes. 

“We have seen a lot of frustration from business owners about the changes to that program, especially the shortening of it. They kind of felt — especially if they were relying on the tax credit — that they had received a little short shrift,” said Kuhlman. 

Tax treatment of operating losses is less generous 

How business owners can carry back or carry forward net operating loss has changed a lot in the last few years. Previously, NOLs could be carried back two years and carried forward 20 years. Then the Tax Cuts and Jobs Act in 2017 changed the rules by limiting NOL deductions to 80% of taxable income and not allowing…


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What to know about filing a 2021 tax return if you own a business