COVID-19 has created a unique environment for businesses across the board. Many independent grocers are conscious that the post-COVID way of life is coming to an end. Planning needs to extend beyond just labor supply, inventory, and pay; cash flow is also critical.
The CFO of FMS Solutions, Tatyana Levy, shares three key points that independent grocers should plan for when it comes to their tax plan in the near future, as cash may appear to be growing during this time, but outflows will be extended for future government liabilities.
Point 1: The deferral of FICA, by presidential order (IRC §7508A).
“If you deferred your employer portion of FICA for the period September 1st through December 31st, you have pushed your cash payment forward into the future,” says Levy. “However, unless the government forgives this payment, you will have to make the 2020 deferred payments and typical future FICA payment. It would help if you kept this in mind when looking at your future cash needs. It is not an extra amount with the deferral, so don’t lose sight of your committed cash in your bank account.”
Point 2: Paycheck Protection Program (PPP) loan forgiveness.
The expenses that were paid for using the PPP loan, if forgiven, will not be tax-deductible.
According to Levy, this means if one receives a $1,000,000 loan forgiveness to apply against expenses, they have essentially created $1,000,000 in taxable income. The expenses are not deductible and will add to your bottom line. Based on this example, if one has a 20% tax rate, they will have a $200,000 tax liability.
Because most independent grocers pay estimated taxes based on the prior year, it provides a good reference point to plan for the additional tax expense next year.
Point 3: Estimating tax payments and potential cash expenditures.
Most people were likely to pay estimates in 2020. Typically, taxes come out plus or minus against the four quarters of estimated tax payments. With increased sales and profits come increased taxes. It would be best if you kept this in mind when looking at your cash requirements in 2021.
Begin planning your cash expenditures to ensure having the appropriate cash on hand to pay income taxes, and FICA delayed payments without impacting operating decisions in 2021.
Levy also advises independent grocers considering reaching out to a tax professional right away to ensure time to enact a plan to reduce income taxes.
Tatyana Levy is the CFO for FMS Solutions Holdings LLC. Levy is a CPA licensed in Pennsylvania and is a graduate of Temple University Fox School of business. Her background includes both private equity and public accounting with HIG Capital and Deloitte, respectively.