By: Mike McCarthy, CPA, CVA | Managing Partner at Hancock Askew
As published in The Beacon Magazine – June 2020 Edition
As a result of the COVID-19 pandemic, the deadline for filing and paying both state and federal income taxes was extended to July 15, which means, by the time this issue hits newsstands, unless you file for an extension, you’ll have about two weeks to file your 2019 taxes. And while the deadline extension may be welcome relief, the extension and law changes that went into effect in response to the COVID-19 shutdown have a real impact on this and future filings. Whether business or personal, here are a few things to keep in mind:
Pay for 2019 and Don’t Forget 2020 First and Second Quarter Payments
If 2020 were a typical year, small business owners would have made their final 2019 tax payment by April 15, 2020, as well as a payment for their first quarter estimate of 2020. The second quarterly payment toward 2020 would have been due June 15. With the delay to July 15, small business owners have had time to hold onto cash and use it to keep their businesses going through the economic slowdown, which has served a critical cash-flow need. Still, business owners should be prepared to make their July 15 tax payment, including their first two quarterly estimates for 2020 taxes. If 2020 results are down and not shaping up as a repeat of 2019 for your business, factor the lower profits into your 2020 tax estimates to reduce what you will owe.
Consider CARES Act Provisions
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows businesses that lost money in 2019 to “carry-back” that loss to more profitable years and seek a refund of prior taxes paid in profitable years. If this applies to your business, this could be a source of cash available now. If you made money in 2018 and 2019 but expect to lose money in 2020, you can reduce your estimated quarterly payments for 2020, and once 2020 closes, you can carry that loss back and get a refund of 2019 or 2018 taxes paid. There are numerous other provisions in the CARES Act for small businesses, including bonus depreciation on assets purchased. Careful planning can make big differences for your business.
Apply for Assistance
In addition to tax planning, the Small Business Administration (SBA) offers programs to help small businesses (generally those under 500 employees) suffering from the economic hardships of closing your business during the pandemic. The loan programs such as the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP) are meant to provide emergency relief to keep employees working and keep businesses going. Make sure to do your research on these programs, they may provide needed cash to make the difference between shuttering your business or keeping it open. The PPP can be forgiven (no repayment necessary, so it’s like a government grant) if the money is spent on approved items to keep people employed.
On the individual tax side, three out of four people get a refund. If you are someone who gets a refund each year, hopefully you ignored the delay, filed anyway, and received your refund money. If not, file today — why let the government hold your money for you until July 15? If you routinely get large refunds, change your withholdings so that you only get a small refund at the end of the year. This will put more money in your pocket throughout the year.
The CARES Act, which is the same law that gave us those $1,200 stimulus checks and the supersized unemployment benefits providing an extra $600 per week, also allows homeowners to claim financial hardship and put their mortgages on hold for up to a year.
There is also a program that allows people to withdraw money early from their retirement plans without penalty. In my opinion, this should only be done as a last resort if all other options have been exhausted. With the stock market down. you would be selling investments at a loss and remain liable for taxes on that income. If you have the means to keep making your retirement plan contributions, you should continue to invest while valuations are lower; this is referred to as dollar cost averaging.