Tax season is often considered by many to be in April when tax returns are due. But the savvy business person knows tax season extends throughout the year, with the end of the year and the beginning of the year critical planning times.
John Barnard, owner of John M. Barnard, CPA, PA, a certified public accounting firm in Statesville, is one of two appointed directors on the Carolina Farm Credit Board of Directors. As a tax specialist who works extensively with the agricultural community, he says this year poses an extra layer of challenges, particularly to those who have acquired Paycheck Protection Program loans to help them during the COVID-19 pandemic.
“One of the things that many in the agricultural community are having to do right now is begin to look at what they need to do to secure forgiveness on those loans so they don’t have to pay them back,” John says. “The Federal Government is still working on guidelines. They continue to push back the start of the payback period.”
In the meantime, there is action you can take to get the greatest benefit out of the program.
The One Thing You Must Do Now
John says that while it’s unclear at this point what the government requirements will be for PPP recipients as far as how they must report loan expenditures, there is something that’s critical for every recipient to do now: maintain really good records.
“You are going to have to show how much you spent in all of the categories that qualify,” he says. “That includes specific time periods. There is a lot of detail.”
While the Paycheck Protection Program is considered a loan, John explains that “if you do all the right things and spend it correctly and meet all the requirements, you can have that loan forgiven. If you don’t, you begin paying it back.”
“This is going to require more than just your average good records. You are going to have to be able to delineate between different types of expenditures that qualify, and time frames. You may know what your payroll is for the year, for example, but your records are going to have to show your qualifying payroll expenses for the particular days you qualify. It’s involves a bit more diligence than the norm.”
The Federal Government hasn’t provided the final cutoff date yet, but as it stands now, it will be for 2020 expenditures and only for certain periods. “In other words,” John says, “from when you receive the loan to a certain period based on what the government finalizes.”
“You have to maintain the records to make sure you get all the deductions that you are legally allowed,” he stresses. “Maintaining good records is the best thing you can do. You will need adequate documentation to provide to the lending institution, in this case Carolina Farm Credit, to show you qualify for loan forgiveness. That’s a biggie.”
In Part 2 of “Year-End Tax Planning,” John shares other considerations that are important such as year-end purchases of farm equipment. In “Kick Off 2021 with Wise Tax Planning Strategies,” John shares six tips every farmer needs to consider in the New Year.