Small Businesses Can Benefit From Pandemic Tax Breaks
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What pandemic tax breaks should small business owners know right now?
Here's your money briefing for Monday, August 24th. I'm Charlie Turner for The Wall Street Journal. If you're a small business owner, you may be entitled to special tax breaks because of the pandemic.
This year, the pandemic is a federal disaster. And so that means that certain losses can be claimed on your 2019 return, especially if you haven't filed it yet, which many people have not. And that could put needed cash into business owners' hands in some cases.
Special writer Laura Saunders is here to run through some pandemic tax breaks for small businesses. That's after the break.
For small business owners struggling to stay afloat because of the pandemic, taxes might not be the first thing on their minds. But our special writer Laura Saunders says that if you own a small business, you shouldn't overlook certain tax breaks that could help this year, regardless of whether your business is on the ropes or booming. Laura joins us now. So Laura, before we get into it, are we talking about tax provisions that were specifically prompted by the pandemic, or have they been around for a while?
Are the tax provisions discussed new or longstanding but newly relevant?
We're talking about both. Congress and the president have done things specifically for this year in response to the pandemic. But then there are other provisions that have been around longer. They're longstanding, but they're newly relevant because of the circumstances this year.
Well, let's go into them now. First, you say small business owners should claim 2020 losses on their 2019 tax returns. I thought this pertained to federal disasters. What's going on here?
When can small businesses claim 2020 disaster losses on a 2019 return?
It's not that they should claim them. They should consider claiming them because it's a complicated calculus. But, you know, we have this provision and it usually applies to earthquakes and fires and things like that. But this year, the pandemic is a federal disaster. And so that means that certain losses can be claimed on your 2019 return, especially if you haven't filed it yet, which many people have not. This is very unusual to be able to claim a 2020 loss on a prior year return. And that could put cash, needed cash, into business owners' hands in some cases.
Well, so what are some examples of this? Maybe restaurant owners?
Well, this is the tricky part. This is not a broad brush provision. It's for certain losses that tend to be like casualty losses. That is, they're sudden and they're due to the disaster. Now, for example, if a restaurant owner saw their revenues go down because of capacity restrictions, they can only have 50% or 25% of people in the restaurant,
Which pandemic-related losses qualify as casualty losses versus ordinary revenue drops?
That would not count as a kind of disaster loss that can be recouped. But if they had a loss involving food spoilage or maybe a payment to get out of a lease, that might count as a loss that's deductible. One thing about all the provisions we're talking about today is they're probably all going to require professional help, but they could also save a good bit of money.
So I guess summing up, some pandemic losses are deductible and others aren't?
Well, some losses are deductible on last year's return as pandemic losses, and some are not, because there are other losses we're going to see in just a minute that are much more broadly allowed.
Okay, now small businesses can also take advantage of what's called an expanded carryback provision for losses this year. And it's tied to the 2017 tax overhaul. What's that about?
Yeah, okay, now the first one we talked about talked about taking your 2020 losses on your 2019 returns. This one we're talking about has to do with all your operating losses.
How does the expanded NOL carryback let businesses offset past profitable years?
Anytime your expenses outstrip your profits, your revenues, you could get a loss. And the 2017 overhaul said you couldn't carry those losses back to profitable years. However, Congress has said that it can be carried back up to five years. And so this is a real opportunity. If you had some really good years back there and you've got some losses this year and you it's a broad array of losses, then you could carry them back and offset and get some money or pay lower taxes or something.
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Chapters
6 chapters
1
What pandemic tax breaks should small business owners know right now?
0:05–1:14
2
Are the tax provisions discussed new or longstanding but newly relevant?
1:14–1:41
3
When can small businesses claim 2020 disaster losses on a 2019 return?
1:41–2:44
4
Which pandemic-related losses qualify as casualty losses versus ordinary revenue drops?
2:44–3:45
5
How does the expanded NOL carryback let businesses offset past profitable years?
3:45–5:59
6
When can small firms switch to cash accounting to defer taxes and improve cash flow?
5:59–7:10
Speakers
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