A Taxing Year Of Sucker Punches From A Global Pandemic And Three Hurricanes
We never saw it coming. That’s about all that can be said about the devastating events that we’ve experienced and will continue to live with this year and beyond. And, I can say without hesitation that this is one year and one hurricane season I will be very happy to see end.
Hopefully there will be a vaccine soon to help manage the COVID-19 virus. And maybe, just maybe, we can all move on stronger for what we’ve experienced this year. We’re definitely thankful that we are still here.
Here on the Central Gulf Coast, from East Texas to the panhandle of Florida (including Louisiana, Mississippi and Alabama), we are still reeling from the effects of hurricanes Laura, Sally and Delta. The losses in this area are monumental. And that’s on top of the horrendous loss of lives, businesses, and employment from the pandemic. Due to all of the devastation, the IRS is providing a bit of minor relief for some folks when it comes to tax season.
A Little Tax Relief
For businesses and individuals in the areas affected by either hurricanes Laura, Sally or Delta, the IRS has extended the filing date to January 15, 2021. The tax relief postpones various tax filing and payment deadlines that occurred starting on September 14, 2020. As a result, affected individuals and businesses will have until January 15, 2021, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on October 15, 2020, will now have until January 15, 2021, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief. You can read up more on this at https://www.irs.gov/newsroom/irs-provides-tax-relief-for-victims-of-hurricane-sally-oct-15-deadline-other-dates-extended-to-jan-15
Taking A Tax Loss
For many businesses, 2020 may very well produce a net operating loss (NOL). While Government assistance in the form of the low- or no-interest PPP loans will help with cash flow, they won’t help with profits, which means you could very well have a tax loss for this year. The CARES ACT changed the rules for Net Operating Losses for 2018, 2019, and 2020. These changes mean that the NOLs arising in any of the years stated can be carried back for five years to offset 100% of taxable income. Unused amounts can then be carried forward. The good news is that you don’t have to wait until you file your 2020 tax return to take these carrybacks and get a refund. There is a procedure to obtain a quick/tentative refund by filing for it before you file your 2020 return and without filing amended returns for prior years.
Another important note if you are self-employed and don’t have a profit for 2020 is that you aren’t liable for self-employment tax. If you want to obtain Social Security credits, though, there’s an optional way of figuring self-employment tax if you’re eligible to use this option.
The harsh reality is that some businesses won’t survive the events of this year. Those that do survive may continue to face serious challenges and will need any and all help available when it comes to taxes. Reach out to us and let us see how we can help you lighten your tax burden.