While stimulus checks have a noticeable impact on the coronavirus crisis, many business owners are already wondering what unforeseen financial implications are the last few months going to have on their business. After months of confusing Federal loan programs and ever-changing regulations, here are a few things to consider when planning for your 2020 taxes:
- Updates to certain IRS procedures. As part of the CARES Act, businesses can now deduct 2018, 2019, and 2020 losses by applying them to taxable income for up to five preceding periods. The forms to apply for refunds when carrying back net operating losses can now be faxed directly to the IRS for faster processing instead of previous requirements for forms to be filed with returns. Additionally, Form 3115 for requests to make a change in accounting method can now be faxed directly to the IRS. Instructions for both, as well as any other changes, can be found as www.irs.gov. The change in processing procedures should help to move some of these business requests along. Businesses should be careful to file as much electronically this filing season as possible as paper processing at the IRS is significantly behind following months of limited staffing.
- Make sure your tax advisor is talking to you about payroll taxes. Significant relief was granted to employers who maintained payrolls even during shutdowns of their businesses. The Families First Coronavirus Response Act provided provisions for employers who paid emergency sick leave and family medical leave wages to employees. You may be eligible for refundable payroll tax credits if your business paid these types of compensation amounts to employees. Additionally, the CARES Act included a provision to provide relief to employers who retained employees during calendar quarters in which their gross receipts were 50% or less than the same calendar quarter in 2019. You may also be eligible for refundable payroll tax credits if this applies to your business. Reach out to your current tax advisor for assistance.
- Keep in mind with these refundable credits, and potentially other relief programs, that your business will essentially be deemed to have not paid these expenses, such as the payroll taxes noted above. The credits could be significant in some cases and may significantly reduce your tax-deductible expenses for 2020. Make sure you are also talking with your tax advisor about long term income tax planning for 2020 to ensure you do not have any tax liability surprises. While the IRS issued guidance that forgivable PPP loans would not be taxed in 2020, other relief programs such as individual state grants, etc. that businesses may receive could affect your bottom line.
- Everyone is working from home, and that could raise significant state tax issues for a number of employers. If, for example, your office is in Massachusetts and that’s where the majority of your staff work but suddenly they are all working from home, and three of them live over the border in Connecticut where they are now working full time, you may potentially have payroll tax liabilities in Connecticut. Additionally, having employees working within a state can create nexus for state income tax liability for the business as well. If your staff is now working primarily outside the state where your business is physically located, we recommend discussing state nexus issues with an experienced tax advisor before the end of the year. With state departments of revenue significantly short-staffed, getting answers can be slow right now, and starting early is key to your planning success.
- The same consideration needs to be given to where your revenue is now coming from. Many businesses were forced to increase online sales, and you may now be providing consulting services to clients in states that you were not working in before because video conferencing capabilities have shifted the way you are doing business. If you are potentially selling products into, or providing services to clients in states that you were not previously working in, this too can be a serious consideration for state income tax liabilities. Every state has different rules as to what will make a business required to pay sales and/or income taxes in that state. If your revenue sources have shifted in any way over the last few months, we recommend reaching out to your tax advisor to ensure these considerations are review. Our firm can provide both sales tax and income tax nexus studies. Please contact our office for consulting pricing.
The most important thing you can do for your business is to plan now for all the changes that are impacting you. Have strong tax planning services in place can help you navigate complex decisions now, while you still have time to make changes and pivot your focus before the end of the year. Tax planning not only saves headaches, but it can be an important opportunity to save dollars. Understanding your liability ahead of time prevents pricey penalty and interest fees from accruing. If you’re unsure how any of these may affect your business, please contact our office so our tax advisors can help.