Tips from the Trenches: Tax Tips 2021
By Yacanex Posadas
The tax deadline has been extended to May 17, 2021 giving entrepreneurs and small business owners more time to prepare their returns. Yacanex Posadas, founder of MOBI partner Yacanex Community and Yacanex Business Group, has been hosting webinars in Spanish to help Latino small business owners in Silicon Valley navigate the often confusing process of filing taxes. Entrepreneurs are often sole proprietors or LLCs, and many have suffered business losses, or received funding or other financial assistance amid the pandemic. Additionally, entrepreneurs commonly use personal resources for their businesses, like mobile phones. These issues can make the tax process even more confusing.
In this guest blog post Yacanex shares some of the most common questions and tips with our MOBI readers. His third tax-related webinar in Spanish is being held on Tuesday, March 30, and additional webinars in English are also planned before the filing deadline. Information to register is below.
What are the most common deductions and how do you estimate?
When talking with small business owners about taxes, the most common questions are those having to do with deductions. There is a lot of confusion about what you can and cannot claim as deductions when you file taxes as a small business owner. Here are two examples:
Mobile phone charges: Many small business owners use their mobile device or smart phone to conduct all or most of their business. Does this mean you can deduct all your mobile phone charges? Actually, the answer is no. If you use your mobile phone for business and personal, you must split up the deductions based upon usage. For example, if your bill is $100 a month, and your business usage is 80%, then you would deduct $80 and not $100.
Office Supplies:There are many supplies needed to run a small business, and it’s easy to overlook smaller expenses that may seem secondary to obvious expenses like computers, printers, etc. Cables are among the most overlooked items, and business owners require many cables to operate their businesses, including: HDMI cables, USB cables, and ethernet cables. Be sure to also include monitors, phone chargers, and other items required to run your business, and split deductions based upon usage.
Are grants and PPP loans taxable?
Whether you received a grant, PPP funding, or other financial assistance during the pandemic, be sure you understand the impact to your taxes. Here are a few tips for business owners to know:
1) Most grants will be taxable. Be on the lookout for a 1099 that the grant organization may issue you to add to your filing.
2) PPP will not affect your tax filing. It is tax free. In order to qualify for it to be forgiven (the loan), you must have spent it in the way the program required. To learn more about the terms for first and second draw PPP loan forgiveness and how to apply, visit the SBA’s PPP Loan Forgiveness page.
3) The expenses you used from your PPP are tax deductible, such as paying employees.
What should you do about receipts?
It may be surprising to learn that many small business owners don’t have an established method for tracking receipts. Many entrepreneurs are so busy running every aspect of the business that they might just put receipts in their pockets as they go, and often forget about them later. Create a system for yourself that is always easy to do. Pick a box or basket in your home and put your receipts there every day. If you have time, write a note on the receipt about what the expense was and the purpose. If you have trouble keeping track of your receipts, get in the habit of taking a photo with your smart phone. That way you know you have the receipt saved! Then, once a week input all of the expenses into a book or online spreadsheet. Be sure to note whether the expense can be deducted, and for what percentage. If you track your expenses as you go, there will be less work when it’s time to pay taxes.
On Tuesday, March 30 Yacanex Business Group will host the webinar: “Domina las claves de los impuestos 03 - 2021: ¿Cuáles son los cambios?, ¿cómo afectan el PPP y otros préstamos a los impuestos?” ("Master the Keys to Taxes #3 - 2021: What are the changes? How do PPP and other loans affect taxes?") To register visit: https://ybg.typeform.com/to/lL7tNGnK Additional English webinars will be announced shortly. Visit Yacanex Business Group for more information.
Please also visit Yacanex's guest blog post from last week, "Tips from the Trenches: COVID-19 Grant Tips" for information and tips to pursue the California Small Business COVID-19 Relief Grant Program Round 5 (deadline March 31), EIDL, and the second draft of PPP (deadline March 31).
About Yacanex Posadas:
Yacanex Posadas is the founder of Yacanex Business Group, a full service consulting firm for small to medium sized businesses, and the non-profit Yacanex Community, an organization that focuses on education and entrepreneurship in underserved communities in Santa Clara County, with an emphasis on the Latino population. Yacanex also teaches through the Santa Clara University Neighborhood Prosperity Initiative (NPI) program and provides strategic consultation for MOBI.