To cover businesses from economic shocks caused by the COVID-19 pandemic, the IRS postponed the usual deadlines for filing tax returns. The IRS also postponed several actions that affect various taxes paid by businesses. Businesses were required to submit their 2020 first and second estimated federal income tax installments on 4/15 and 6/15. These deadlines have been moved to 7/15. The extension allowed businesses some flexibility to thin over and plan their taxes to minimize the impact of the pandemic on the business.
IRS offer flexible short-term and long-term terms of payment for businesses
Business owners that won’t be able to file their tax documents by July 15 will have a chance to apply for an extension of their deadline to October 15. The IRS is also offering flexible short-term and long-term payment terms for businesses that cannot afford to pay in full. In addition, the IRS allows qualifying small businesses to pay lower interest rates than those paid by banks. An offer in compromise allows businesses to pay less tax than they owe while request a deferment allows small businesses to postpone payment of their taxes.
Small businesses file either an S-corporation or partnership tax return, which is due on March 15. However, accountants sometimes extend the duration for filing returns to allow their clients to file everything together. Extending of tax returns is mainly done for strategic reasons. The extension is necessary to allow small businesses to put together all their documentation and make informed decisions regarding handling certain tax matters. In addition, small businesses have enough time to determine how the adopted accounting methods affect the reporting of income and taxes.
Options available for small businesses
The extension has opened several tax planning options for businesses to make. For instance, qualifying businesses can claim 100% first-year bonus depreciation when they write off the total cost of their assets on the federal income tax return. This tax break is offered on both new and used assets.
However, claiming 100% first-year bonus depreciation may not be the right move for every business. For instance, businesses that anticipate higher tax rates in future years may end up paying more if they claim the tax break. It is instead advisable for such firms to forgo the bonus depreciation and instead allow the asset to depreciate over a period.
