The coronavirus pandemic has dramatically altered the way most businesses operate. From remote workforces to curbside pickup, the ability to adapt and be flexible is now essential for future success. Many companies, however, have already fallen victim to COVID-19. Large retailers, such as Pier 1 and Tuesday Morning, are among the ever-growing list of stores that have filed bankruptcy. The outlook for small business owners, however, may be far worse. It is estimated that 3.5 million small businesses may close by July. Up to 7.5 million may permanently shut their doors, if the pandemic continues through the summer. Thankfully, many states are now working to reopen most businesses to the public. In addition, there are also many COVID-19 resources and tax credits to help small business owners struggling during these unprecedented times.
Tax Credits and Changes
The Coronavirus Aid, Relief, and Economic Security (CARES) Act and Families First Coronavirus Response Act (FFCRA) both include several new tax credits and changes to help small business owners. As always, it is a good idea to consult with a tax professional to determine which of these may apply specifically to your situation.
- Employee Retention Credit – Has your business experienced a partial or full operation suspension due to a COVID-19? Have gross receipts decline more than 50% compared to last year? You could receive a refundable 50% tax credit on employee wages (up to $10K per employee) paid from March 13, 2020 through the end of the year.
- Sick & Family Leave – If your company has less than 500 employees, you may receive credit for paid sick leave and/or family leave between April 1, 2020 and December 31, 2020. Any related healthcare expenses, and your portion of Medicare tax paid during the employee’s absence, may also be covered under FFCRA.
- Property Improvement Costs – Making interior improvements to a non-residential building? You could be eligible to write off those costs (up to 100%) thanks to a provision in the CARES Act. It’s effective for 2018, 2019 and 2020. If you’ve made improvements in the last two years, you may want to amend your tax returns.
- Interest Expense Increase – The amount of interest expense you can deduct on your tax returns has increased from 30% to 50% of your adjusted taxable income (2019 and 2020 tax years only).
- Net Operating Losses – Did you have a net operating loss in 2018, 2019 or this year? You may now have 100% carried back for up to five years, or carry it forward for up to 20 years (80% limitation). For losses in 2020, you may be able to claim them against a prior year and potentially receive a refund of taxes paid in that year.
- Delay of Payroll Tax Payments – Under the CARES Act, you may delay the deposit of your employer-portion of Social Security tax (6.2% tax on wages). Fifty percent of the delayed payment must be made on or before December 31, 2021 and the remainder paid no later than December 31, 2022.
- Filing & Payment Extensions – The new deadline to file your federal income taxes (as well as most states), is now July 15, 2020. The April 14 and June 15 estimated tax payment deadlines have been pushed to July 15, as well.
National COVID-19 Small Business Resources
In addition to the tax credits offered through the CARES Act and FFCRA, there are also a few organizations providing grants and loans to help small businesses. Many of the grant programs that opened in late March were closed by early April due to the demand for financial support. These programs, however, are still accepting applications.
- Hello Alice Emergency Grant – Hello Alice is offering $10,000 grants to help small businesses impacted by COVID-19. Apply now.
- Kiva Crowdfunding Loans – Small business owners can receive up to $15,000 at 0% interest and a 6-month grace period. The loan repayment period is 36 months. Learn more.
- Red Backpack Grant – $5,000 grants for women entrepreneurs. The next application period is June 1 to June 8. Learn more.
- Paycheck Protection Program (PPP) – As of April 27, PPP is accepting applications again. Loans must be used for payroll costs, rent, utilities, and interest on mortgages. Payments are deferred for six months, but is fully forgiven if up to 75% of the loan is used for payroll. Find a lender now.
Many state agencies and local organizations are also offering grants and low-interest loans to help small businesses weather the pandemic. Be sure to visit your state’s government website to see what may be available in your area.