Ask An Expert: Tax planning strategies for 2021.

• Author: Barbour, Tracy
• Position: FINANCE

This was a year for the Alaska business community unlike any other. Business strategies changed and funds were borrowed or granted from multiple sources, meaning traditional expenses and revenues will likely be more complex than last April at tax time--especially given the recent tax law changes. There will presumably be a shift in how businesses in different industries are expected to file their 2020 tax returns, and this will call for a rethinking of tax planning strategies.

In 2018, Congress passed legislation that has had a significant effect on business taxes, and this legislation will continue to impact companies reporting their 2020 taxes, according to Soldotna-based certified public accountant Joseph Moore. "A lower corporate income tax rate of 21 percent and a 20 percent deduction for pass-through entities are the most notable components of the new tax law that will affect 2020 taxes," says Moore, a principal of Altman, Rogers & Co., Alaska's largest locally-owned CPA firm. "Also, 100 percent deduction of eligible equipment purchases is in play for the 2020 tax year."

In addition, many small businesses took advantage of the Payroll Protection Program (PPP). The program loaned small businesses a factor of their historical payroll costs and, if used for eligible costs, the amount could be forgiven tax-free. However, details about the forgiveness of these loans, as well as the deductibility of the costs, are still in flux. "It is hoped that action by Congress and the president will shed light on these issues soon," Moore says in an early October interview.

The forgiveness aspect of PPP loans is a crucial issue for businesses. The state of the current tax law is that any loan amounts forgiven are tax-exempt, but the expenses paid with those proceeds are not deductible, according to Jim Meinel, CPA, who operates an Anchorage accounting firm. This effectively translates into the forgiven amount being taxable. "If the forgiveness occurs by December 31, 2020, companies will see their taxable income jump during the fourth quarter of 2020," says Meinet. "Business owners should be working with their tax preparers to determine if their estimated tax payments should be adjusted. A key date is when the loan is legally forgiven as it is taxable income on that date. It is possible some forgiveness applications will not be processed until 2021, which would push that 'income' into the next tax year."

Changes Impacting Net Operating Losses

An important factor that will affect tax planning will be whether companies received any type of government assistance through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, says Chad Estes, a tax partner in the Anchorage office of BDO, which provides tax and financial advisory services worldwide. For instance, businesses that received funding through PPP, Economic Injury Disaster Loans (EIDL), or the AK Cares Grant Program will have certain reporting requirements when filing their 2020 tax forms.

One important tax-law change businesses should be aware of relates to carrying back net operating losses (NOL) to obtain refunds of previously paid taxes. Under the CARES...