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Written by Breanna Hardy
For most industries in the past year, it’s been a waiting game of back-and-forth rule changes. Tax season is coming, and CPAs are still waiting on guidelines after congress approved the new stimulus package on Dec. 27, 2020.
“Right now, normally we’d be gearing up for a more traditional tax season, but because businesses are continuing to struggle, and they’re continuing to seek relief from PPP loans and different tax credits, we’re staying focused on offering a support that the businesses need in order to take advantage of all these credits, programs and loans,” said Cassidy Jakovickas, president and CEO of MBS Accountancy in Fresno.
The start date is also delayed. The IRS announced on Jan. 15 that tax season will start Feb. 12, but the April 15 deadline remains the same. The IRS says the delay is to ensure individuals receive their refunds in a timely manner.
“The IRS is still trying to dissect this 6,000 page bill and apply it properly so that we can apply it properly,” said Beth Perry, partner and CPA at Palmer Perry & Company, formerly Kevin J. Palmer & Company, in Visalia.
Without really having proper guidance, and a clear understanding of everything Congress passed, CPAs can’t afford to be in a hurry.
“Planning for the nation’s filing season process is a massive undertaking, and IRS teams have been working non-stop to prepare for this as well as delivering Economic Impact Payments in record time,” said IRS Commissioner Chuck Rettig. “Given the pandemic, this is one of the nation’s most important filing seasons ever. This start date will ensure that people get their needed tax refunds quickly while also making sure they receive any remaining stimulus payments they are eligible for as quickly as possible.”
Because of the details, CPAs are cautious about all they have to analyze this season.
“The biggest thing that’s going on right now is with that newest bill that Congress passed right at the end of the year, which opened up another round of PPP and expanded different hiring credits, like the employee retention tax credit,” Jakovickas said.
Regarding PPP loan forgiveness and the employee retention tax credit, Perry said, “It’s kind of complicated to do both those things together.”
To qualify for the employee retention tax credit, employers would have had to keep their employees on staff despite the economic hardship during Covid-19. The IRS has made it easier to qualify.
Before, the IRS required a 50% drop in gross receipts, which was hard for some businesses to show. Now, they’ve lowered the revenue loss to 20%, which a majority of businesses can show.
“It makes it a lot easier for some of these businesses, especially some restaurants,” Perry said.
The pandemic has crippled some businesses, yet made others boom. But Perry said this could potentially be a huge credit.
“Taxes are always going to be there, but a lot of the stuff going on related to relief is time sensitive, and we have to adjust what we normally do in order to make sure we’re meeting the needs of what our clients need, like right now,” Jakovickas said.
With a delayed start to tax season, CPAs have less time than years past.
While they have the opportunity to work ahead, CPAs are not able to file taxes even if they wanted to. But with virtual appointments, there might be room for more efficiency.
There’s also an uptick in electronic signatures, which the IRS has not normally allowed.
Another revolving issue: PPP loan deductibility.
“The bill that Congress passed at the end of the year clarified in fact the PPP expenses are going to be deductible,” Jakovickas said.
But state guidance is different.
“At this date, California has not conformed. So for California purposes, you are not able to deduct your expenses that were paid with a forgiven PPP loan,” Jakovickas added.
A bill, AB 281, was introduced to conform California to federal tax laws, which CPAs are watching closely.
Until it passes, CPAs are planning on higher incomes this tax season, which will create a substantial tax bill, Jakovickas said.
“One thing I’ve learned is if you try and plan around speculation at this point, you’re just going to drive yourself crazy,” he said.
“There is a lot of data for CPAs to analyze this season. Because we have more things to think about than just the tax return, we need as much time as possible to think through it in order to do our jobs appropriately,” he added.
Expect more time for CPAs to turn tax returns around because businesses will want to maximize every opportunity related to Covid.
“It’s a really challenging time for smaller, local CPA firms. Because when you think about it, we don’t have the same resources that a regional or national firm has. They’ve got entire back offices dedicated to research and support and pushing out information,” he said. “For CPA firms like us, and like most of the firms in Fresno, it’s kind of up to us to make sure we’re doing everything.”
But Kevin Hinton, partner and CPA at Fresno-based Wiebe Hinton Hambalek, LLP, said that this tax season is a carry over from last season.
Another change in law as of Dec. 27, 2020, included the employee retention credit. Originally when the first round of PPP was issued to businesses, guidance disqualified businesses from the tax credit if they received a PPP loan.
This time, they’ve clarified that businesses can take the employee retention credit.
“Having something changed that late keeps us in a scramble mode,” Hinton said.
“We don’t know what that process is to actually claim the credits,” Hinton added.
The tax forms aren’t even finalized yet. “You have think about the pressure that the IRS has been under, I mean because they’re dealing with all this stuff, too,” Jakovickas said.
“When you kind of compound that with that we’re still handling additional work related to Covid and tax season is pushed back, that’s a lot of pressure on CPA firms to finish quite a bit of work in a short period of time,” Jakovickas said.
But, Hinton said that compared to last year, the “craziest year we’ve ever had,” this one could be pretty normal in the end.
“I don’t know exactly what to expect,” Perry said. “It’s going to be different — that’s for sure.”