With the clock winding down on 2020, these are things a Staffing Firm can do to manage their tax liability.
Issue 1: Declining A/R related to Declining Revenue
If you are a cash basis tax filer (and you likely are as a Staffing Firm) and your Accounts Receivable balance is going to be lower than it was at the end of 2019, the decrease in A/R will add to your Taxable Income. The following are a few moves you can make prior to the end of the year.
- “Manage your A/R” by relaxing collection efforts as we get closer to year end and taking a leisurely approach to sending end of November and early December invoices to clients.
- Accounts Payable decreasing has the opposite effect of A/R on cash basis taxable income so pay your vendors prior to yearend. This means checks dated and mailed by 12/31. If you are paying some things in installments (Workers Comp or other Insurance Premiums for instance), consider paying any remaining balance in full by 12/31.
- Close some deals which will generate A/R. As with most staffing situations, sales fixes everything. Push your team to finish the year strong.
Issue 2: Employer Social Security Deferral
If you chose to defer payment of your employer social security expenses as allowed by the CARES Act, the deferred amount will increase your 2020 taxable income. (It should be on your balance sheet if properly accounted for). Check out our FICA deferral checklist for free below.
- Look at your cash forecast and overall tax picture. Paying some of the deferred amount is an easy move you can make right up until 12/30 thru the EFTPS payment platform. (Check with your payroll provider for quarterly reporting related adjustments they may need to make.) If you do not have a cash forecast or understand how your overall tax liability is shaping up, talk to your CPA or schedule a free 30-minute consultation with an AdminAssist CFO.
Issue 3: PPP Forgiveness Proceeds are Effectively Taxable Income
If you received a PPP loan and a portion or most likely 100% of it is forgiven, current legislation indicates that amount will effectively be taxable income. Technically the expenses you paid with forgiven PPP funds are not deductible and the PPP forgiven amount is not taxable, but the effect is the same. Its possible the rules will change, and it will be come non-taxable or there will be some flexibility as to it being taxable in either 2020 or 2021. For many Staffing Firm owners, taxes could amount to 40% or more of the PPP forgiven amount.
- Plan for the worst-case scenario where the entire forgiven amount will be taxable 2020 income. Many Staffing Firms have restructured or closed out credit facilities following the PPP cash infusion. Now is the time to explore establishing new Line of Credit facilities so an April tax bill does not cause a cash crunch.
- If you are not sure how to complete the PPP Forgiveness process or do not think you’ve reached 100% Forgiveness, schedule a free consultation with one of our PPP experts. If you don’t think you’ll have 100% forgiveness, there is a good chance you are calculating incorrectly.
- If you are ready to establish a new credit facility, AdminAssist specializes in helping match Staffing Firms with lenders and programs appropriate to their needs.