11 Tax Strategies to Help Your Organization Generate Cash Flow

Welcome to my Talking Tax newsletter, where each month I’ll share actionable advice for how to navigate the major trends and issues in corporate taxation and how to put tax strategy at the heart of business decisions.  

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By now, the initial turmoil of the pandemic-recession has faded into a kind of grey zone—with some businesses struggling to stabilize operations while others are starting to plan for recovery. Specific circumstances vary depending on industry, financial standing, customer base, and more, but many organizations are still trying to do more with less. Maintaining stable financial performance will continue to be a top priority in the coming months, and it isn’t clear how much volatility still lies ahead.      

Regardless of where you are on your path to recovery, protecting cash flow is a priority, and an effective tax strategy can help you along that journey. I’ve outlined 11 tax strategies all businesses should consider for lowering their total tax liability and increasing cash flow:

1.      File net operating loss (NOL) carryback and alternative minimum tax (AMT) credit refund claims to reduce tax payments and obtain immediate refunds for taxes paid in prior years.

2.      Decrease estimated tax payments based on lower 2020 income projections assuming overpayments are anticipated.

3.      Review U.S. customs and duties for relaxed tariffs on some products and watch for extensions to pay duties, taxes and fees.

4.      Mobilize cash from foreign operations while considering repatriation costs (e.g., previously taxed earnings and profits and basis amounts, withholding taxes, local reserve restrictions, Sections 956 and 245A).

5.      File Form 1138 to relieve 2019 tax payments due with the 2019 returns, for corporations expecting a 2020 loss.

6.      Analyze the tax impact of income that derives from the cancellation of debt during debt restructuring for possible exceptions due to insolvency or bankruptcy.

7.      Consider claiming abandonment losses to generate ordinary losses under Section 165 for specific assets, and for insolvent investments in subsidiaries that are at least 80% owned, under Section 165(g)(3).

8.      A CARES Act provision allows an employer to defer payment of its share of Social Security taxes. (But only until the earlier of (1) December 31, 2020, or (2) the date the employer’s Paycheck Protection Program (PPP) loan is forgiven. Half of the deferred deposit must be repaid by December 31, 2021, and the other half must be repaid by December 31, 2022. The deposit deferral is not subject to interest or penalties if the deferred amounts are timely repaid.)

9.      Under the CARES Act, any remaining corporate AMT credit should be fully refundable beginning in 2019, with earlier elective application in 2018.

10.  Secure a quick tax refund in 90 days by using Form 1139 to file for the five-year NOL carrybacks for losses generating in 2018 through 2020. The CARES Act has temporarily eliminated the 80% income limitation.

11.  The CARES Act’s Employee Retention Credit provision allows for a refundable payroll tax credit, for eligible employers harmed by COVID-19, equal to 50% of up to $10,000 in qualified wages per employee. But employers generally are not eligible for the Employee Retention Credit if any member of their controlled or affiliated service group obtained a PPP loan.

What other tax strategies would you recommend businesses consider today? Leave a comment below, I’d love to hear your thoughts.

Have a question about your company’s tax strategy? Get in touch with me: [email protected]