In addition to health concerns, COVID-19 has brought anxiety upon many business owners. Not only are business owners having to make sure their employees, their family, their friends and the community are safe, non-essential businesses are being required to shut-down, or greatly change how they provide their service or product offerings. Not to mention, many business owners are having to operate out of their home, while trying to get their entire workforce, or part of their workforce operating remotely. It sounds impossible, but somehow we are all figuring out a way. At DKB we truly believe in the power of the business community, and are doing what we can to provide support.
One of the key business and financial concerns for business owners and management teams is cash flow. Below you can find a list of tax strategies, which may be applicable for your business, to generate one-time or recurring cash-flow.
Tax Refund for C Corporations.
This is geared towards corporations who have overpaid in regards to their estimated tax payments for the tax year.
If your tax deposits significantly exceed your anticipated tax liability, one option is to file a quick refund claim before the original tax return filing date. To apply for this the over payment must be at least 10% of the expected tax liability and/or at least $500. If this is a strategy you plan to act upon, it must be done by April 15th. Currently this does not appear to be impacted by the deadline deferral for calendar year corporations due to the impact of COVID-19.
How to Apply? A corporation must file form 4466 no later than April 15th. The IRS typically acts on these claims within 45 days from the date it is filed.
Please Note: If your refund request is greater than the refund due when the return is filed the corporation will be liable to pay additional tax and interest.
Estimated Tax Payments.
This is an area that can have an immediate impact on cash flow. Many owners of closely held businesses, sole proprietorships and flow-through entities calculate and pay quarterly tax payments by relying on the prior year safe harbor method. Essentially this means that 2020 payments will be based off of 2019 operating results. Generally this payment is unrecoverable until the company files their 2020 tax return in 2021. That means it could be well over a year before you see any refund money coming back from the IRS for overpayments.
COVID-19 will have an unpredictable impact on many businesses. Business owners are operating at the bare minimum to stay afloat. Therefore, gauging 2020 payments off of 2019 activity may not make since during these unprecedented times. For the majority of companies, taxes due may be much less for the 2020 tax year. Working closely with a professional, and anticipating your company’s tax exposure can help a business owner to meet tax obligations, while optimizing resources.
R&D Tax Credits.
Review past, current and planned investments to develop or improve products, processes or software. Such investments whether successful or not, have the possibility to yield R&D Tax Credits. These credits may result in significant tax savings.
Evaluation of Partner Allocations and “At-Risk” Basis.
This is an effort to minimize gross income allocations and/or maximize loss allocations. This may include amending existing partnership agreements or applying alternative positions to avoid, or accelerate income allocations.
The partner at-risk basis is done via the partnership liability allocation rules in order to maximize the ability to claim current losses and reduce partner’s tax liabilities. Examples include creating guarantees, indemnifications, capital contribution obligations, and deficit restoration obligations.
Take Advantage of the Fix to the “retail glitch” on Qualified Improvement Property.
The fix, which comes under the CARES act, allows for QIP to be bonus eligible. This has an impact on many hard hit business sectors such as real estate, retail, restaurants, etc. As it currently stands business will need to file amended tax returns. However, we are hopeful that the IRS will come up with another plan of action, as it seems impossible they will be able to review all of these returns, and get cash in the hands of business owners in a timely manner.
For further information, tune in to our podcast on the same topic, which can be accessed here “Tax in Ten: Tax Strategies to Increase Business Cash-Flow,” or feel free to reach out to a member of our COVID-19 Task Force at any time at firstname.lastname@example.org.