Good Riddance to a Bad Year

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IT’S COMPLICATED 
If ever there were a time to invest in a good CPA, 2020 is it, says Julio Barina, a CPA at Markham Norton Mosteller Wright & Company.

IT’S COMPLICATED If ever there were a time to invest in a good CPA, 2020 is it, says Julio Barina, a CPA at Markham Norton Mosteller Wright & Company.

Pandemic. Business closures. Stock market fluctuations. Few years have brought as much calamity as this one. As we approach year’s end, companies are hoping for tax write-offs to ease some of the damage done by the turbulence of 2020. But tax professionals warn that it’s not time for a sigh of relief just yet.

“There is no magic bullet as we get to year-end,” says Julio Barina, a CPA at Markham Norton Mosteller Wright & Company, a full-service tax and accounting firm with offices in Naples and Fort Myers.

Businesses received some tax relief earlier in the year. Under the Families First Coronavirus Response Act, passed in March, businesses with fewer than 500 employees are entitled to a tax credit equal to 100% of the emergency-sick leave and family-leave payments required by the act. With the CARES Act, also passed in March, the federal filing date for C corporations, trusts and estates was pushed back to July 15, with no limit on the amount deferred and no interest or fees during the deferment period.

The CARES Act also provided some tax benefits.

Under the act, businesses can defer the 6.2% Social Security tax as part of FICA on the first $137,000 of an employee’s 2020 wages paid during the deferral period (March through December). The deferred amount is then divided into two installments and paid over a two-year period. The first half is due Dec. 31, 2021, and the second half is due Dec. 31, 2022.

The CARES Act helped to ease net operating loss deduction rules and allowed losses incurred between 2018 and 2020 to be carried back five years. These net operating loss carrybacks allow business owners to claim refunds for taxes paid during the five-year carryback period. Because tax rates were higher before 2018, this may mean significant refunds for some businesses.

Still, there are currently no special deductions for businesses that had to shutter temporarily during the pandemic. Not yet, anyway. But Barina says that may change; “Things are fluid right now.”

Also affecting the uncertain state of COVID-related write-offs is November’s presidential election. Either candidate may alter tax policy and roll back some of the COVID relief. This puts CPAs in a tricky position. Do they rush to file before policymakers can institute changes? Or do they wait and see, looking to the risk of having to unwind their work? The answer isn’t cut and dried, Barina says. “It’s impossible to look in a crystal ball and say, ‘This is the direction we’re going to go in.’”

This year especially, business owners should lean heavily on their tax professionals. “There are a lot of intricate rules that businesses have to pay attention to,” Barina says. If ever there were a time to invest in a good CPA, 2020 is it.

 

Photo Credit: Getty; Courtesy Julio Barina

 

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