Tax Day Has Been Extended: Ways Small Businesses Can Maximize the Additional Time

Shippo Snippets

• Businesses that file using the April 15th tax deadline have been granted a filing and payment extension. The new filing date is July 15th. 

• The extension provides immediate liquidity to businesses that would have owed at the old deadline

• The deadline wasn’t the only tax change for 2020, and the extension provides your tax team ample time to create a strategic plan moving forward

• A business may consider filing earlier than the extended deadline if they are owed a refund or if filing paperwork is required by a third party

• Most states have pegged their deadline to the extended federal tax deadline, but you may want to check your state’s rules to be sure

The Story:

Keeping up with the legislative changes relating to COVID-19 has felt like its own full-time job. They can feel overwhelming at a time when we’re all dealing with a lot—both inside and outside of work. (We hope that you, your family, and your business remain safe and well.)

One small reprieve from the madness is the extension of the April 15th tax filing deadline. Tax season could not have fallen during a more difficult time this year, as many businesses have shifted to an “all hands on deck” strategy in dealing with COVID-19-related challenges. For the businesses that qualify, the grace period will surely be welcomed like a deep, stabilizing breath.

For businesses adhering to the April 15th tax day in 2020, both federal filing and payment deadlines were extended, giving businesses until July 15th to remit their tax payments. 

Unfortunately, not all businesses use the April 15th tax filing deadline. Some corporate structures already filed taxes on March 15th, or proactively filed for an extension.  

 If your business does qualify for the tax day extension in 2020, here are some ways to make the most of it, along with some of the most important tax changes to keep in mind in your planning.

What Businesses Qualify for an Extension?

C-corps, LLCs taxed as disregarded entities, and sole proprietorships—really any business that files their income on a Schedule C—should automatically qualify for the extension. There’s no need to fill out any additional paperwork to qualify. (Most states have pegged their deadline to the extended federal tax deadline, but you may want to check your state’s rules to be sure.) 

Individuals and trusts and estates also qualify for the automatic extension.

Passthrough business entities, such as S-corps and partnerships, adhere to the March 15th deadline. For businesses that filed for an extension, the new deadline is September 15th.

How to Make the Most of Your Tax Day Extension

Plenty of businesses are attempting to stay as liquid as possible during a time when many are facing mandatory shut-downs and the economic effects of quarantine. 

 The extension was a fast way for the Fed to help provide immediate cash flow, explains Riley Adams, CPA and founder of Young and the Invested. “By having these available funds, they essentially act as a 0% interest line of credit from the federal government, allowing businesses more time to remain liquid, pay vendors and employees, and service any financial obligations.”

For businesses that don’t find themselves in a cash crunch, it could be an interesting opportunity to invest in such a way to expand or pivot business as the world around us changes. Alternatively, a business could use the time to pay off debt and fortify its balance sheet.

Next, the new tax day in 2020 provides your company with more time to organize itself before tax filing. Tax organization is best when it happens year-round, but we can be honest, here—that doesn’t always happen, especially when a business is in the bootstrapping phase. 

The extra time may also give your business an opportunity to enact more strategic tax planning in light of the new tax changes for 2020. Waiting may “open up your playbook a bit more,” says  Sharif Muhammad, CPA of Unlimited Financial and writer of Problem Solved: An NJ CPA Blog. 

 The tax deadline wasn’t the only tax rule that changed amidst the flurry of activity last month. “The CARES Act has released a lot of tax provisions, amendments, and repeals that have a significant impact on how a company may choose to file their 2019 tax return,” says Muhammad. For tax planning purposes, it makes sense to wait and see how they all shake out.

Currently, even the experts are still getting their heads wrapped around the new laws. As of this writing, tax professionals are still waiting on the guidance that typically follows new law. Muhammad compared this guidance to FAQs for tax professionals interpreting fresh legislation.

With this additional time, your business’s tax team may put together a new plan that looks a bit (or a lot) different than it would have even just a month ago. This new plan could not only impact the 2020 filing of 2019 taxes, but tax filings in both previous years and in the years that follow.

“Let me give you an example,” says Muhammad. “One of the provisions of the CARES Act is the treatment of Net Operating Losses (NOLs). Under the previous tax changes in the 2018 Tax Cuts and Jobs Act, a business’s ability to carry back NOLs was eliminated. You could only carry them forward indefinitely. Now, with the CARES Act, your NOLs can be carried back five years.”

Consider this change in conjunction with the cut to the top corporate tax rate, which went from 35% to 21% in 2018. If NOLs can be carried back to years before the tax cut, this could potentially save a business some big bucks. In some instances, it may make sense to amend previous tax returns and shift the tax filing strategy this year, and in the years to come.

For some businesses, such dramatic tax strategy shifts may not be prudent or necessary, but the point remains. There have been a lot of changes to the law which could result in a shift in your tax game plan, but some of it is still somewhat murky—even to the professionals. 

When You Should Consider Filing

If your business is owed a refund, it may be in your best interest to file as soon as possible. Of course, the need for a refund must be weighed against the opportunity cost of rushing through tax planning in light of the recent changes to tax law. 

Additionally, some businesses may be required to produce financial statements by creditors or other third parties. Depending on the creditor, this may need to be officially filed documentation.

As of now, the two major COVID-19 loan programs, the Economic Injury Disaster Loan and the Paycheck Protection Program, do not require 2019 tax documentation. The lender will likely require information such as Profit and Loss statements, but not necessarily tax documentation. 

That said, requirements are still fuzzy and a lender, whether the Small Business Association or a private lender administering a loan on behalf of the SBA, could certainly change their tune. 

 But, even if filing for documentation reasons, a business is not required to remit payment until the July 15th deadline. 

Hopefully, this grace period provides businesses with the space they need to breathe—or even grow—during this unusually hectic tax season. (But, be sure to consult a tax professional with any questions regarding your own personal or business tax questions.)

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