Tips for Tax Planning During the COVID-19 Pandemic
It seems as if the ways in which the COVID-19 pandemic has touched our lives are virtually endless. One such example is how to plan for your taxes, particularly since you don’t know what the tax laws may be in a few months. Here’s a look at some of the challenges you may be facing when it comes to tax planning and ways you can address these issues.
Payroll Tax Deferral
One of the more confusing tax changes has been the payroll tax deferral that came via an executive order from President Trump. Per this order, employers could defer paying their payroll taxes until the future, thus saving a good chunk on their tax bill and passing these savings along to their employees.
This tax deferral can also impact a wide array of your finances, but it is important to keep in mind the longer view. For example, according to New Jersey tax attorney Matthew Dopkin, it is important to remember that Congress has not passed any permanent tax cuts. As such, you will have to pay this money back at a later date. While many believe that the executive order was meant to pressure Congress into making this payroll tax permanent, there is no guarantee that will happen. Therefore, if you plan on enrolling in this tax deferral, you absolutely must assume that you will have to pay the money back in the future.
Tax Law Changes
The start of this pandemic saw a slew of tax law changes at the federal level. Many state and local levels of government did the same thing — alter their tax laws in order to accommodate the economic havoc caused by COVID.
These changes can get extremely detailed and be easy to miss. If you have a complicated tax situation, lost a business or are unemployed as a direct result of the pandemic, your best bet is to contact a professional accountant or tax law attorney who has experience in this field. This way, you can be assured that you will have a comprehensive picture of how your finances may have been altered by the COVID pandemic and subsequent legal changes.
Stimulus and Loan Programs
Two of the most effective programs at the start of the COVID-19 outbreak were the COVID stimulus checks and the PPP loan program. The stimulus checks provided roughly $1,200 per person, per family with declining numbers as a person’s income rose. The PPP loan program allowed businesses to borrow money to stay afloat and then potentially never have to return that money if they met certain conditions.
While both programs have proven to be extremely popular and useful, they both may impact the taxes that someone pays in various ways. Fortunately, there are no taxes on the COVID economic stimulus checks, but there may be taxes on other economic benefits you received as a result of COVID, such as unemployment checks or expanded unemployment programs. There are no taxes associated with the PPP loan program, but there are tax implications as you cannot deduct expenses associated with taking out the loan or with compliance.
Furthermore, keep in mind that any changes in your economic situation may have tax implications. If your business closed, you will unquestionably have lost several sources of income and tax deductions. All of this can have implications for your taxes. This is something you need to keep in mind from a planning perspective. If you did lose a business or a job but got a new one, keep in mind that any previous deductions that you had counted on could impact your overall future tax bill.
There is no question about it. One of the best things you can do if you are trying to prepare for taxes is to contact a law firm with decades of experience in the area of tax law. If you are looking for a New Jersey tax attorney, consider meeting with the Dopkin Law Firm, which is based in Cherry Hill, today. You can contact us by filling out the form on our website or by calling (215) 519-4269.