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Make the most of your small business tax extension

To ease the burden on business owners impacted by the coronavirus pandemic, the Internal Revenue Service (IRS) has extended the federal income tax filing deadline to July 15, 2020. The extension is automatic; you will not be charged penalties or interest, and there is no need to submit Form 7004.1

If you’re a small business owner and have some extra time until taxes are due, what is your best course of action? Here are some ideas for making the most of this extended tax deadline.

Save up for your tax payment

Determine your tax liability either by using tax software or by speaking with your accountant. Once you know what you owe, devise your payment strategy. If you have enough money in savings, great. If not, you have additional time to come up with the funds.

Consider putting some money away every week in an account earmarked for taxes. However, if your business is experiencing a significant slowdown or if you’ve had to close your doors temporarily, think of ways you can adjust your expenses. Are there services you could cancel? Could you negotiate with partners or vendors to lower costs? Prioritize what you need to do to be able to cover your tax obligation.

Make something different

The pandemic has made many small businesses rethink the way they do business – at least for the time being. From apparel manufacturers who went from making clothing to protective masks to a furniture manufacturer and importer that is using its global supply chain to procure millions of N95 surgical masks, business owners are finding innovative ways to quickly shift their focus, fulfill consumer needs and remain profitable. Consider how you could pivot your business to open up new revenue streams.

Move your business online

During this quarantine period, consumers are increasingly turning to online shopping. Moving your brick-and-mortar business online is an opportunity to maintain relationships with your current customers and attract new ones. It can help keep your cashflow steady and provide a foundation for long-term growth. Set up an e-commerce store, an online menu system or other web-based sales platform, and market your business through email and social channels.

Switch your accounting method

How you record your income and expenses can make a difference in your tax liability. There are two methods, “cash” and “accrual,” and you selected one of them during your business’s first year of operation. 

  • Cash - Expenses are reported when you pay them, and income is reported when someone pays you. 
  • Accrual - Income and expenses are recorded when they are incurred or owed. 

Each method has its pros and cons. Review your current method and see if switching could be better for your business. While this won’t impact your 2019 taxes, now is a good time to make adjustments that may benefit your 2020 tax bill. Learn more by visiting the IRS website.

Keep in mind that while this article addresses the federal tax filing extension, many states have pushed back their tax filing deadlines as well. Check with your state agency for the most updated information.

This discussion is not intended to offer any tax advice or other advice. You should consult with your tax advisor concerning your specific tax situation.

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