Tax regulations are changing quickly right now, and every taxpayer’s situation is unique. Please contact us directly for up-to-date and individualized guidance.
About 9 out of 10 small employers are negatively impacted by the COVID-19 outbreak, with half admitting they can survive for no more than two months in the current environment, according to a recent survey by the National Federation of Independent Business. The federal government has responded with tax deadline shifts, loans, emergency grants, and other relief. But is it enough? Can those who need cash get their hands on it? How will it affect taxes and other business expenses?
SBA Small Business Loan Hang-ups
When $350 billion in federal loans opened up for COVID-19 paycheck protection and disaster grants through the CARES Act, small business owners breathed a sigh of relief. But then came the task of securing the funds.
It’s reported that big banks bungled the process. Some delayed taking loan applications because they weren’t assured that they’d be protected against fraud claims and other liabilities. At the same time, one-third of the 5,000 community banks in the U.S. had to wait for the government’s approval to take applications. The Small Business Administration (SBA) experienced technical glitches on its side as well. In the meantime, online and alternative lenders not yet approved to handle SBA loans are targeting business owners with deceptive loans. And then the initial round of funds ran dry.
The bottom line: More funding is on its way. But be sure the financial institution you use to fill out the application is already an SBA-approved lender. Bigger isn’t necessarily better in this case. You might find superior customer support with a smaller community bank that’s SBA approved.
Confusion Surrounding Tax Obligations
Then comes the uncertainty surrounding how the financial assistance will affect taxes. In the case of the SBA paycheck protection loans, more guidance will be needed and is expected soon.
“Though the money is just starting to go out to businesses now, the crucial tax consequences at the end of the loan forgiveness are murky,” the Wall Street Journal reported on April 11. “The new law clearly states—contrary to typical tax law—that forgiven debt won’t be counted as taxable income. But the law says nothing about whether those ordinary expenses for salaries and other costs still trigger deductions like they normally do…if businesses can deduct those expenses, then the program contains a benefit much more powerful than the loan forgiveness alone.”
Consider your organization’s entire financial picture—including tax liabilities—which may affect the type of loan you need and how much money you request.
More Tax Deadline Extensions
On April 9, the IRS extended additional tax deadlines. April 15 federal income taxes had already been extended to July 15, but Notice 2020-23 (PDF) expands the relief to additional returns, tax payments, and other actions.
“As a result, the extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations, and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due,” the IRS states.
The notice also extends relief to estimated tax payments due June 15, 2020.
Additional Considerations
Dozens of tax changes have been introduced due to the COVID-19 pandemic, and many more are anticipated. Just added to the list of changes are considerations for partnerships, those who have experienced net operating losses (NOLs), and non-filers who need relief. Charitable deduction limits have temporarily changed as well. It’s essential to stay on top of these changes by following news from the IRS, our Bankler Reports, and our blog. For questions specific to your tax situation, feel free to contact us.