For many businesses, paying business taxes is the worst thing that can happen to your bottom line. This year, of course, everything is different. The COVID-19 pandemic has thrown so many obstacles in the paths of small businesses as to make pandemic-free tax seasons seem like child’s play. From stay-at-home orders and supply shortages to operating at reduced capacity and confusion over PPP loans, 2020 has presented small business owners with unprecedented challenges. Now that the year is almost over, people have started to place their hopes on 2021 bringing relief, even if things don’t go back to the way they were in 2019. Some of that relief may come from the IRS, of all places. The CARES Act, a piece of legislation designed to mitigate the deleterious economic effects of the pandemic on individuals and businesses, provides for several tax credits and deductions that give companies credit for the money they spent adapting to the pandemic and endeavoring to avoid eliminating employees’ jobs. To discuss your plans for what to do in 2021 once the tax credit money is in your business bank account, contact an Alabama small business lawyer.
New Rules About Net Operating Losses
For the first time, when filing taxes for 2020, you will be able to apply your net operating losses retroactively. A provision of the CARES Act enables you to claim net operating losses you suffered because of the pandemic on your 2020 tax returns. Even better, you can use these losses as a basis to get a refund on taxes you paid on previous, more prosperous years, back as far as 2016.
Quality Improvement Property Deduction
If you had to renovate your place of business in order to prevent the spread of COVID-19, you probably paid for these renovations or improvements out of your company’s own cash reserves or with borrowed funds. For example, you might have installed clear plastic barriers in front of the cash registers, or maybe you turned the back dining room of your restaurant into an outdoor patio. The CARES Act lets you deduct these expenses on your tax return.
A Tax Credit for Research and Development
Small businesses have had to find creative solutions in order to survive during the pandemic, and it probably took some trial and error. “Research and development” is the tax speak term for trial and error. The CARES Act gives you a tax credit for the money you spent researching ways to pivot your business and trying out your new business strategies.
The Section 139 Deduction
Under the CARES Act, you can deduct money that you spent helping your employees beyond paying them their salaries and contractually stipulated benefits. For example, if you helped your employees pay their medical bills, mortgages, or utilities that they struggled to afford during the pandemic (for example, because of the employee getting COVID-19 or the employee’s spouse being laid off from work), these expenses are tax deductible.
Reach Out to Us Today for Help
An Alabama business & corporate litigation lawyer can help you make the best decisions for the future of your business after the COVID-19 pandemic. Contact Cloud Willis & Ellis for help with your case.