I answered this question recently on a post for Alignable, so I thought I would answer it here on our blog as well…
Like many things related to taxes and business, the answer is going to be some version of “it depends…” but here are a few things to think about:
1) Are you in a refund position or do you owe?
This would be the first consideration I would review with a client. If you are likely to get money back based on your withholdings or estimated payments during 2019, there’s no need to wait–the IRS is still processing refunds and you should get those deposits without much delay. So go get your money! Why wait? And if you owe–you can certainly wait until July, but just know many tax preparers are able to file your taxes today and set payments to take place in the future (like July 15th) for you. One bonus tip: If you DO owe money for 2019, we’re encouraging many business owners to consider entering an installment agreement this year, as the IRS is a very INexpensive place to borrow money. It’ll be cheaper for you than a line of credit and certainly cheaper than borrowing on a credit card. So even if you have the cash on hand to pay, consider the installment agreement as a cost-effective way to keep some cash cushion on hand.
2) Is your 2019 income going to reflect more favorably for purposes of the CARES act personal rebate payments?
The $1200/person and $500/child payments are based on 2018 data if you haven’t filed yet, 2019 data if you do. So if you could use the money now, and if 2019 shows a decrease in income that would result in a higher payment, you might want to file that return sooner than later. Just know that the ultimate amount the rebates will be based on is 2020 income, and the 2018/2019 numbers are only a temporary proxy for the 2020 income. If you don’t qualify yet, but you WILL qualify based on this year’s numbers, you’ll see that benefit on the following year’s tax return.
3) Does your 2019 business tax return reflect a stronger cash flow for demonstrating ability to repay for the PPP or EIDL loan programs?
The SBA has said that in addition to general creditworthiness of the borrowers, and other program-based application criteria, the business’ ability to repay based on cash flow is one factor in their lending decisions. They in other words want to make sure that in “normal times” the business would have the ability to repay the loan on a cash flow basis. So if you look better from a cash flow basis based on 2019 in that regard, it might make sense to file sooner.
4) The uncertainty of the times…
This is the final point, and the least specific. Two months ago, few of us could have imagined what life would be like right now. Who can remember back to early January 2020?!? When it was going to be “our year” or the “power decade?” Haha… We were ready to crush it! And we’re facing a very different reality very quickly. The lesson here is that we don’t know what we don’t know, and it’s probably prudent to brace for more uncertainty this year. That means put things off if you can put them off. Wait and see what happens. Chase new ideas, new innovation, new creativity with speed and passion, but with your debts, obligations, etc, play it cautiously. Take the loan forbearance if you can. Wait a few months with your tax payments. Do we really know what things will look like two or three months from now???
I hope that’s been somewhat helpful. Talk to your advisors, get feedback, be patient with people as everyone in the “small business support sector” is working round the clock right now, and stay positive! If you’re really feeling lost, we’ve added a PDF with a practical 5 Step plan to feel a little more like you’re in the drivers’ seat again. It’s on our website, and it’s a free resource for all small business owners.
