Is there anything on this earth that COVID-19 hasn’t changed? From major impacts to our work routines and savings accounts to less crucial aspects such as limited seating at your favorite restaurant, our lives have thoroughly been turned upside down. And tragedy has unfortunately visited countless families around the world.
While taxes may seem to some people like an insignificant concern in the midst of a global health crisis, the effects of the pandemic on your taxes are not to be taken lightly. The success of your business can be strengthened through solid tax strategies. And those strategies need to be constantly evolving due to the chaotic times we find ourselves in.
While the long-term outlook for our country is uncertain, it’s obvious that we’re in for a brutal winter season. Positive cases are rising in most states, and the nation as a whole is setting dubious records.
“The United States logged 9 million COVID-19 cases Thursday just hours after reporting a single-day record of 80,622 infections, the latest NBC News tally showed,” reports NBC News. “It was the first time the US had crossed the 80,000-case threshold since the start of the pandemic and the third time in a week that a daily case record was broken, the data showed.”
Experts might disagree on whether this is still the “first wave” of the pandemic or the onset of a “third wave,” but the results remain the same. We are living through an event with massive power to disrupt and even destroy small businesses.
Given this fact, it’s crucial for small business owners to view their taxes through the lens of this pandemic.
“We won’t be able to look back on 2020 without remembering the COVID-19 pandemic […] And when it comes time to pay our 2020 taxes, we’ll be reminded all over again of everything we went through this year,” say the experts at Fool.com. “Some of the tax changes you’ll notice are helpful and others could lead to a nasty surprise if you’re not prepared.”
Do you want to know what wasn’t a “nasty surprise?” The IRS extended some of the deadlines for federal tax return filing and payments. Hopefully, you’ve been using this extra time wisely so that you can find the best opportunity for tax savings.
It’s important to note that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included a fair amount of additional assistance that will help small business owners come tax time. Make sure to work closely with your tax advisor throughout the entire process. The IRS isn’t going to knock on your door and provide a list of all the tax relief options available to you. It’s on you to seek them out and use them effectively.
Let’s take a look at a handful of the deadlines and requirements that have been altered for your benefit. This list is only intended to be a high-level introduction to these new tax guidelines and is far from comprehensive, so it’s crucial for you to seek professional guidance from someone who can help you navigate the nuances and make sure your taxes are accurate.
- Extended federal tax returns filing and payment deadlines: As you probably already know, the IRS postponed many deadlines from April to July 15. These 3 extra months gave many small business owners breathing room as they tried to navigate the COVID-19 crisis. The filing deadline extension applied to individual returns and income tax returns for C corporations, among others.
- Borrowing from your IRA with no tax penalty: In a typical year, borrowing money from your IRA brings consequences. But the difficulties brought on by the pandemic resulted in key changes to these rules. If you own an IRA and were financially impacted by the pandemic, you are allowed to take what are called “tax-favored coronavirus-related distributions” from your account up to $100,000 in total. As long as the money is repaid within 3 years, there will be no tax penalty.
- The employee retention tax credit: Don’t forget this valuable credit from the CARES Act. Details may vary depending on your unique situation, but it is meant to provide a 50% credit for wages you’ve paid to an employee. Be aware that certain limits apply.
- Your net operating losses deductions: The rules have been relaxed for your business’s net operating losses. You are now allowed to “carry back” those losses to a prior year if it will benefit you from a tax refund perspective.
Remember, this list is just the tip of the iceberg. There are many more tax updates and benefits that you need to know about. As you consult with your accountant, be sure to allot more time than usual for your taxes next spring. A good rule of thumb might be to double whatever hour amount you would normally dedicate to it. Bringing this added element of deliberateness to the process will help to mitigate the chaos that may be swirling around you due to this awful pandemic.