Are You Prepared for the “New Normal” Business and Tax Implications?
2020-11-16 | by Gene Reynolds
COVID-19 health and safety concerns. Paycheck Protection Program (PPP) loans. Predominant work-from-home scenarios. Who could have predicted at the beginning of this year how much businesses would be materially altered in 2020?
Now that we are several months removed from the initial shutdown, some temporary changes are starting to lean toward becoming permanent. For example, your team may continue to work remotely into 2021 and perhaps beyond. How does that impact collaboration and your hiring decisions about available talent? What about protecting the security of your critical financial data if teams are accessing information remotely?
Then, there are the tax implications associated with this year’s disruption and the need to think through various year-end tax planning strategies. Walking through relevant tax planning strategies could help you reduce your tax liability and avoid a surprise tax bill when you complete your tax return.
Overall, there are many different considerations for business owners to think through in the “new normal,” particularly for small to medium-sized businesses that are still recovering from the pandemic disruption and trying to turn the corner to growing their business again. Let’s examine the critical factors for both your business and your taxes.
Navigating Business Changes in the “New Normal”
The biggest change that affected virtually every business in 2020 was remote work. Even for companies where the work needs to happen in-person — e.g. manufacturing, fabrication, production, and warehousing — many back-office personnel were able to perform their necessary duties from home.
Now that the cement is starting to set on this work-from-home change, it’s time to think through the long-term implications for your business.
- Do we need to downsize or move our office location?
- Do we need to re-negotiate our rental agreement?
- Do we have the appropriate technology infrastructure to protect our data?
- Do we need to add different pieces of software to support teamwork, collaboration, and communication — both internally and externally?
- Do we need to introduce new employee benefits to keep employees engaged and motivated?
As a business owner, you may still be in post-pandemic recovery mode trying to help your team make it from week to week after such a dramatic interruption. But, eventually, you need to think through long-term business strategy to ensure you have the proper tools to position your company to keep growing.
Along the lines of work-from-home becoming more permanent, a critical piece of the puzzle is data security. Small to medium-sized business were already heavily targeted before the pandemic. Now, they are being targeted even more in 2020 as bad actors try to expose vulnerabilities in technology systems to swipe data or hold your data ransom.
Business owners need to think critically about where to invest technology resources in the “new normal.” If you are planning to allow your teams to continue working remotely for the foreseeable future, then you don’t want to experience a setback. Take proactive measures to have your technology team or an outsourced expert review your systems to address gaps and ensure valid protections are in-place.
On a positive note, business owners can also think bigger and broader about their available talent pool. If you previously only sought local talent in Houston to fill roles, you may be able to expand your search to find talent from outside of Houston to work remotely. This could open the door to a different type of employee with a different skillset that could be instrumental in helping your business grow.
Addressing Unique Tax Situations in the “New Normal”
The unfortunate reality for the business community is that no one is 100 percent certain how this year’s changes will ultimately affect your tax bill. For example, PPP loans.
The U.S. Congress is still working through various legislation regarding PPP loan forgiveness. Why this matters is that business owners who applied for a PPP loan may not know until 2021 how much of their loan is actually forgiven. This could have significant implications on your taxable income for the 2020 tax period.
To mitigate uncertainty surrounding PPP loan forgiveness, it’s critical for business owners to look at year-end tax planning strategies that are more fixed in nature. By taking the time to review tax planning, you can offset any potential negative tax implications from variables such as PPP loan forgiveness.
While not every tax-planning strategy may apply to your business, consider these potential avenues to pursue.
- New equipment purchase. You could increase your tax benefit if you buy equipment at the right time for depreciation purposes.
- Income deference. Consider delaying invoicing (cash method) or the delivery of products/services (accrual method) until January 2021.
- Small business health care tax credit. You may qualify for a tax credit if contributing to a portion of employees’ health insurance.
- FMLA credit. The Paid Family and Medical Leave credit expires at the end of 2020. This is the last opportunity to take advantage of the credit.
- Qualified business income deduction. Some business owners may be eligible for qualified business income that could reduce taxable income.
There are other opportunities to reduce your tax burden before the end of the year. Taking the time to think through year-end tax planning while we wait for further guidance on the tax implications of PPP loan forgiveness is a smart idea.
Reynolds & Associates Can Support Your Business
We know this is a very challenging time for business owners trying to balance short-term changes with long-term strategy. Throughout the pandemic, our CPA firm has come alongside owners across multiple industries in Houston to think through various business and tax challenges.
As we look ahead to the “new normal,” we can provide the same support for your company. Whether it’s walking through various business situations related to work-from-home scenarios or year-end tax planning strategies, we are here to help.
It is especially important to talk to us about year-end tax planning before the end of the year. We want to help your business make informed tax-related decisions so that you can reduce your 2020 tax bill and be positioned to grow in 2021.
Contact us today to find support before the end of the year! Our expert team is ready to walk through this with you.
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