- BRW Tax & Accounting
Coronavirus: How to Handle the Uncertainty of Your Small Business Taxes
From academic schools to national sports, every fabric of normalcy is disrupted because of the COVID-19 pandemic. Amidst these uncertain times, small businesses are struggling to pull their weight. The fear that erupted when folks did hyper shopping had its impact.
Investors, for instance, are no longer willing to invest in small businesses that drive the economy. No one thought the bear market would become a reality, but it is now. Sure, small businesses should get all the help from the state and the federal government.
That said, the market uncertainty is still dangling, which makes it harder for small business owners to make informed decisions. Here are the most crucial guidelines small businesses should be aware of:
What Can Small Businesses Do?
Currently, payback protection has become a lifeline for small businesses. It is essentially part of the CARES Act, which comprises $350 billion of government-based loans to facilitate small companies that want to maintain their annual payrolls until Jun. 2020.
Qualified companies will be able to borrow more than 2.5 times than their average cost of monthly payroll. With more than $10 million loans, the interest rates won’t exceed higher than 4%. It does, however, depend on how much exactly your small business wants to borrow and how it utilizes that fund. It means you can use a small part of the loan or entirety of it.
Make the Most Out of Federal Aid
Navigating the operational activities of your small business can be nerve-wracking during a pandemic. Whether it’s slow spending, disruption of the supply chain, or low workplace productivity, small business owners can experience a lot of stress.
In fact, almost 75% of small businesses are facing disruptions of supply chain activities because of the coronavirus. Like most small businesses, you might not have a sufficient budget to deal with a significant decline in your revenue stream. And this is where small business owners have to make extra efforts to receive federal aid.
Uncertainty, after all, leads to panic. And the last thing small businesses should do is to panic. Besides, the federal government wants to respond to the needs of the small business during these tumultuous times. So, get low-interest loans, federal cash payments, tax deferments, and tax credits reserved for employers without hesitation.
New Small Business Tax Provisions
Yes, there are new changes in the CARES Act. As of now, some of the policies revolve updated tax policies that may affect your small business:
Employer Deferred Payment and Payroll Taxes
Employers who didn’t get forgiveness when it comes to their Paycheck Protection Program loan have the freedom to delay payroll tax payments. In essence, it covers the share of business owners’ Social Security tax.
Remember, the deferred payments associated with tax should be paid back within a two-year time. It means you can pay half by the end of Dec. 31, 2021, and the other half by the end of Dec. 31, 2022.
Employee Retention Credit
Employers whose small business operations were put on hold temporarily for permanently because of a lockdown order, or small businesses whose total receipts decreased by at least 50% as compared to the last year will qualify for an individual refundable tax credit. It is a 50% tax credit that small business owners can use to pay wages to workers during the Coronavirus pandemic.
Get Cash Payments
Contemporarily, the CARES Act can offer cash payments to individuals. For small businesses, however, there’s an economic relief in the form of tax cuts in payroll. It is a payroll tax cut for employers that would last throughout the pandemic period.
Keep an Eye on Tax Breaks
Often, the simplest solution can help your small business get back on track. As much as the current financial turmoil might be getting hard to bear, you should still monitor all of your expenses of the current year.
For instance, if you expect to get a loss in the 2020 tax year, you can claim the current year’s losses through a carryback for a profitable year when you submit your tax returns. Furthermore, small businesses will have to learn to handle their losses.
In fact, think in terms of long-term financial stability rather than short-term gains. So, look out for tax breaks that can offer some semblance of security to your small business. Besides, when you plan for the future, you will be able to get rid of unnecessary worries attached to your small business.
Look for the Tax and Loan Opportunities
Small businesses should look for the bright side and avail the benefit and added support from federal and state government in the upcoming weeks. Also, keep an eye on online resources by the United States Treasury Department and as well as the SBA.
You can still follow the standard tax practices if your small business’ tax situation is not complicated. However, it is vital that you don’t try to handle all of your tax and accounting matters on your own. Instead, seek the services of a professional and experienced tax expert to keep your financial books error-less and remain informed about any newly updated tax legislation.
Don’t Lose Touch with Your Business Network
There’s no need to limit yourself when you can take advice from tax pros and follow the practices of your competitors. Sure, the competitive drive is going nowhere. However, it wouldn’t hurt to reach out to other prominent business owners who might be going through the same situation in your industry.
Handling tax and accounting problems, after all, require a certain degree of effort from your part. In essence, a collective progressive approach would help you get a better perspective of the market situation.
Conclusion: The Future is Not So Grim
The truth is, the impact of Coronavirus may last longer than small businesses expect. Therefore, make sure you continue to receive financial relief packages and tax deferments. Sure, more self-distancing measures mean less growth rate, but the containment period will eventually flatten the COVID-19 curve and bring the financial structure of your small business back to normal.