Many of the various reliefs and incentives put out by the government are intended to help ease the burdens of individuals and businesses alike. Whether you’re a high net worth individual with a complex financial scenario or a small business owner trying to make ends meet during an economic lull, the pandemic will likely impact your tax situation.
Tax Deadlines Postponed
One of the reliefs extended by the IRS is an extension on tax deadlines. Taxes and returns that were due in April are now due by July 15th. If more time is still needed, individuals and businesses are able to extend that deadline further by filing an extension.
In addition, a number of taxes may be deferred for extended periods of time, though that does mean they will come due later on, potentially creating a greater burden in the future.
Adjustments to Tax Policy
Some policies change how businesses might calculate certain parts of their taxes, particularly if they have employees or have taken operational losses.
Employee retention credit
The employee retention tax credit, for example, allows businesses to take a credit to reduce employment taxes. The exact benefit of this credit depends on the size of the company. If the business has fewer than 100 employees, all of them are covered by the credit, whereas businesses with more than 100 employees can only claim the credit for employees who are being paid but who are not currently working.
In either case, the maximum credit per employee is $10,000.
Calculating business losses
In addition, the way businesses calculate their losses may be adjusted for this year’s taxes. For instance, businesses can normally only claim up to $500,000 on business losses. However, this year the amount is unlimited.
In addition, net operating losses (NOLs) can be counted back as far as five years, which in some cases could yield significant tax benefits depending on the rates that apply to any given year’s income.
Additional Tax Tactics
Businesses and individuals can also benefit from additional tactics. These tactics arise more from the general economic circumstances surrounding the COVID-19 pandemic rather than actual policies, but they can be helpful when it comes to moving forward.
Paying taxes now
Some assets may not appreciate as much as they normally would, which means it may be advantageous to pay taxes on them now rather than later. Additionally, a company may not benefit much from selling shares right now in order to cover taxes. It’s often better to take on the cost now and allow assets to rebound.
Switching to a Roth IRA
Funds placed in a traditional IRA are taxed after they are withdrawn. As such, it may be advantageous to switch to a Roth IRA, in which funds are taxed before being deposited, but allowed to appreciate tax free. The lower value of this type of account at this time means a greater benefit once the economy recovers.
Getting legal advice
A tax attorney can help you navigate the complex process of tax planning during these turbulent times. Hart David Carson LLP provides you with the legal advice you need to make sure your tax plan is as sound as possible.