With all the unique events of 2020, it’s especially important to have your records in tip-top shape lest a missed item result in unnecessarily higher taxes or government adjustment. Use our below checklists for small businesses and individuals to run through the various scenarios to be sure you’re ready. Also scan through our list of tax law changes to see if there’s something that may benefit your return this year.
2020 Small Business Checklist + Tax Law Changes
The most important thing any entrepreneur can do is to make sure their business performs a final review and tie-out of 2020 numbers, especially in a year like this one when there’s been non-standard activity like PPP loans (and possibly forgiveness), government grants, new revenue streams, new cost categories, etc. Download our 2020 Business Pre-Appointment Checklist to tick through various trouble areas unique to last year plus our tried-and-true steps to close out your annual books. (Bonus tip: Here’s our post on good checkups to perform each month, plus recommendations on how to record PPP transactions.)
Many of last year’s business tax law changes stemmed from COVID-19 relief provisions, but here’s some good highlights to be aware of:
- Qualified ‘disaster relief payments’ deductible & non-taxable – Enacted in 2002, this tax law became applicable in 2020 because COVID-19 was officially recognized as a “federally declared disaster”. As a result, any payments companies make to employees to assist with ‘reasonable and necessary personal, family, living, or funeral expenses’ incurred as a result of COVID-19 are fully deductible as a business expenses and fully tax-free to the employee.
- Payroll Protection Program expenses fully deductible – Originally disqualified from deductibility last summer, the law enacted on December 27 made expenses paid with PPP (e.g., payroll) fully deductible resulting in a rare ‘non-taxable income coupled with tax deductible expense’ scenario that’s very beneficial.
- Losses can be carried back 5 years – Eliminated in 2018, the ability to carry business “net operating losses” to old tax years and claim refunds from previously paid taxes is now possible again for the 2018 to 2020 tax years. So if you ran a loss for 2020 but paid taxes in older year, it’s very likely you can be refunded all/part of those taxes when filing this year.
- Bonus depreciation now possible on ‘qualified improvement property’ – Previously certain property improvements didn’t qualify for faster depreciation, but the new law corrects the error and makes them now eligible. So if you’ve made property improvements and want to accelerate your depreciation deduction, this one’s for you.
- EIDL Advances are non-taxable – The up-to-$10,000 Economic Injury Disaster Loan Advance received by businesses last year was officially declared non-taxable under the law enacted right at the end of the year. So be sure it’s classified properly in your books to avoid getting taxed on it.
2020 Individuals Checklist + Tax Law Changes
An orderly approach to your taxes is equally as important for individual as businesses (and occasionally even more important), and this year is no exception because of the all the COVID-19 tax exceptions. Download our 2020 Individual Pre-Appointment Checklist to tick through both the normal items to look for and keep these new tax law changes in mind:
- Additional Economic Impact Payment eligibility – More popularly known as the ‘stimulus checks’ sent out twice thus far, EIPs were technically advance payments on a 2020 individual tax credit. Depending on how much you received, you may be eligible for more at the time you file your return, so be sure to make a note of how much you received.
- Charitable contribution for standard deduction – Normally only individuals who “itemize” their personal deductions can reduce their tax with charitable contributions, but a law change specific to 2020 allows up to $300 to be claimed even by those who don’t itemize (which is a greater number following the sweeping 2018 tax law changes).
- Non-prescription drugs now qualify for HSA, MSA, FSA, and HRA – Previously only doctor-prescribed medications would meet the criteria for use of medical funds from the various health plans listed here. Starting in 2020, non-prescription drugs, medication, and menstrual supplies count. (The regular ‘medical expense itemized deduction’ still retains the requirement to be prescribed.)
- Retirement plan distributions & RMDs – If you made a ‘coronavirus-related distribution’ from your retirement plan that would normally be taxable, there are mitigating provisions that let you spread the tax over three years, avoid the 10% penalty, and even recontribute amounts back within three years. And under the law change, there’s no 2020 Required Minimum Distributions for those who are past ‘retirement age’ and otherwise would have to withdraw funds.
- IRA now available for age 70.5+ – Previously taxpayers over age 70.5 were disqualified for making Traditional IRA contributions even if they met all the other requirements. That restriction is now permanently removed.
Additional Useful Information for this Tax Filing Season
Here’s a rundown of some additional pointers helpful to this year’s tax filing season:
- Cut-off dates – February 26 is the cut-off date to receive the last piece of information and conduct your tax interview to ensure timely filing of S-corp and Partnership returns by March 15. March 26 is the cut-off date for Individual and C-corp returns due April 15. And April 30 is the cut-off date for Exempt Organization returns originally due May 15.
- Securely upload documents to your e-Cabinet – Before your tax interview, securely save PDFs of your tax documents to your personal e-Cabinet so they’ll be ready to review together.
- All tax interview appointments are virtual – Our team went fully virtual in March 2020 and expects to continue for the foreseeable future. We can do door drop-off/ pickups when helpful – just be sure to give our team a call beforehand to ensure someone’s here. (More info on our protocol.)
- Check your refund status – Return already e-filed and just waiting for the direct deposit or refund check? Keep tabs on your federal and state refund using the quick links provided in our updated Where’s My Refund? post.
- Extend your tax return – Tax documents delayed or circumstances too crunched? Elements Circle Members at the Active and Support level will have extensions automatically filed for them, and other Members can submit a Change Request by midnight before the deadline for our team file one for you, or self-file following the information available in our Filing Tax Extensions post.
- Catch the latest on our Twitter stream – Although hopefully not to the degree as last year, this tax filing season does promise to take some twists and turns before the end. Be sure to check out and even Follow our Twitter stream to keep up with the latest on our analysis, government announcements, tips, and more.
Our Philosophy: Good Tax Design is Simple
It’s our belief that a good tax design combined with simple habits can make your tax day a non-event and save you money, even in the midst of these pandemic times.
Our Design Team will be working creatively and diligently helping Elements Members, and if you’d like to experience an Optimized Tax too, just reach out to setup your personal Coffee Conversation.