COVID-19 and taxes: Advice for small businesses

April 10, 2020 : H&R Block

The coronavirus crisis is affecting pretty much everything and everyone. If you feel overwhelmed, you’re not alone. We understand that, as a small business owner, the crisis might be hitting you in more ways than one. You might be fighting to keep your business afloat or supporting your employees when your profits are nonexistent.

There are no easy answers on how to deal with these situations, but we can at least give you some resources to help you through these trying times.

In this article, we’ll walk you through the major tax incentives and implications related to the pandemic that could impact your business.

And though it won’t be the focus of this article, don’t forget to take care of yourself as well as your business. Working to provide help and inspire confidence in our clients and communities everywhere is our purpose at H&R Block. We know this is a time when confidence is hard to come by. We only hope this info will be part of what helps you and your business get through to the other side of this situation.

Now, here’s what you need to know:

Use the Employee Retention Credit
Currently, the government is offering two tax incentives to help you continue to pay your employees without having to bear the full financial burden yourself. Both came through thanks to the Coronavirus Aid, Relief, and Economic Security Act, more commonly called the CARES Act. The first is called the Employee Retention Credit.

If your small business has been hit hard by the coronavirus crisis, you might be able to claim a tax credit of up to 50% of qualified wages (up to $10,000) paid to your employees. You qualify if one of these is true:

  • You had to fully or partially suspended operations due to a coronavirus shutdown order.
  • Your business has declined by more than 50% (compared to the same calendar quarter last year).

There are some limits to this, like how much you can claim per person. To put it simply, think of this as the government paying your employees 50 cents for every dollar you give them, up to $10,000.

And just because this is a credit doesn’t mean you have to wait to claim it. There are a few different ways you can get access to that money now, right when you need it most.

To learn more about how to apply for this tax credit, read our detailed CARES Act small business article.

Take advantage of the Payroll Tax Postponement
To keep more money in your pocket, the CARES Act also lets small business owners defer their share of Social Security tax contributions for employees during 2020.

Half of the payment will be due by Dec. 31, 2021. The remaining half will be due by Dec. 31, 2022.

(This doesn’t include Medicare taxes or the employee portion of Social Security and Medicare taxes.)

Get credit for sick leave payments
Have you heard about the Families First Coronavirus Response Act (FFCRA)? The government is requiring small and midsize employers (fewer than 500 employees) to provide sick leave benefits to employees. Sick leave could apply to employees who are sick, caring for sick people, or caring for children.

If you provide these benefits to your employees, you could qualify for a refundable sick leave tax credit based on how much you paid out.

Worried about how you can pay for all of this? If you have fewer than 50 employees and these payments could put your business in jeopardy, you may be exempt.

To learn more about the FFCRA and find out if your business is exempt or if you’re eligible for tax credits, check out this very detailed FFCRA explanation from the IRS.

Delay tax payments
Thank the Treasury and Internal Revenue Service (IRS)! They pushed back the federal tax deadline this year from April 15 to July 15. States are also pushing back their individual deadlines (check out our collection of state tax updates and due dates).

What does this mean for your small business?
You can hold onto your money for a bit longer, which may help you get over some small financial bumps you’re facing at the moment.

  • You won’t owe any of the usual penalties if you can’t pay your taxes right now. As long as you get the money in by the new due dates, you’ll be fine.
  • You have more time to file and pay estimated taxes if you’re self-employed. Both your first quarter and second quarter federal taxes are now both due on July 15. You’ll probably need that extra time because figuring out your estimated taxes will be trickier this year. Your income and expenses have probably changed quite a bit very quickly.

If all of these new calculations sound overwhelming — in addition to everything else going on in your life — reach out to your tax pro for help. Don’t have one? Find the right expert for your business with our tax pro finder.

Look ahead to tax breaks
We’re a tax company, so this is what we know best. It might not help your business’ current financial problems, but make sure you track all of your income and expenses this year. If you have a net operating loss during 2020, you may be able to claim this year’s loss as a carryback to a more profitable prior year when you file your taxes.

Read these tips on how to handle business losses.

This will help improve your business’ long-term financial wellness. Plus, thinking ahead to the future of your small business can also help get you through the worries of today.To learn more, see our article on the top small business deductions.

Rely on your network
We have plenty of tax pros who specialize in small business, but don’t limit yourself to just them as a resource for advice.

Reach out to other small business owners, both ones you know and ones you don’t yet know. People in the same town or same industry. How are they handling accounting and tax issues right now? They’re going through the same issues you are and might have suggestions and tips that we haven’t thought of yet.

Take care of yourself
You can help your business get through all this, but only if you also get through all this. The number of resources and companies offering ways to manage your stress and other issues is huge. And now, the number offering free or reduced-cost services during the coronavirus crisis expands every day.

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