Looking Ahead: Upcoming Considerations for Income Taxes
By Louisa Else, Tax Practice Leader
While many people use some time in January to take a breath, recover from the holidays, and hide inside from the month's often bitter cold (at least here in Wisconsin), many business owners know that every new year also kicks off a rush of deadlines that will be upon us before we know it.
First comes the mad scramble to close the books for the year and make any adjustments, gathering last minute expense reports and documentation. Then the focus switches immediately to those January reporting requirements for things like your employees' W-2s and Form 1099s for your vendors.
Once that is past, we might feel like the worst is over, but of course, the income tax deadlines come crashing in. This year, in addition to normal tax items like the R&D credit and fixed assets, there are also the implications of many COVID-19 relief options to consider. Some items we have thankfully gotten more clarity on in the past few weeks, like the deductibility of expenses that were paid by the Paycheck Protection Program funds – and what a sigh of relief we heard when that was passed! However, there are still many unknowns and potential opportunities to consider like:
- How exactly will we report the two stimulus payments that were received?
- For those individuals who took advantage of the expanded IRA distributions and want to take advantage of the 3-year repayment option, how will that be handled?
- How will states approach all of these relief items? Will some states split with how the IRS is treating things?
With the recent runoff election results in Georgia, there is one more uncertainty that is going to be looming over us as we work through the upcoming tax season, and that is the potential for additional tax reform from the Biden administration. The specifics of what this would bring are still unknown, and we can only piece together ideas based on the words said on the campaign trail, but these potential changes should be kept in consideration as we make tax decisions for 2021. How can we make smart tax planning decisions now that will also remain in the company's best interests if new changes come down the line? Will there be retroactive tax legislation passed for 2021, or will any new laws be effective for future years?
Many of these questions I can't tell you the answer to, but I can tell you that CPAs and firms all across the country are watching, analyzing, and making (then adjusting) plans each day to help navigate all of these interwoven pieces. We are reading articles, watching webcasts, and even having heated discussions with each other as we continue to learn and formulate the best approach on behalf of our clients.