As the world continues to contend with the COVID-19 pandemic and its economic fallout, businesses are doing all they can to mitigate risks and plan for a recovery that’s anything but certain.
The path forward will likely not be linear. Different regions, industries and business segments may be in different stages of recovery simultaneously.
The tax function plays a critical role in navigating recovery and positioning businesses to emerge from this crisis more resilient than before. Effective tax strategy can preserve liquidity, lower costs and work in tandem with overall business strategy.
Read on to explore the tax relief strategies that can help take your business from reacting to the day-to-day challenges to preparing for the future.
Finding Relief: Tax Strategies to Generate Immediate Cash Flow
During “the dip” immediately following a crisis, businesses of all sizes are in triage mode, taking immediate action to both protect their employees and keep the lights on. Achieving these goals requires agility, strategy and resilience, as well as liquidity.
During these challenging times, companies must have access to cash to help offset unforeseen costs, whether for buying personal protective equipment (PPE) for on-site employees or investing in the technology needed to keep a remote workforce safely and efficiently connected.
The tax function can be instrumental to identify and execute cash flow opportunities and to maintain the levels of liquidity needed to navigate the uncertainty that lies ahead. In the short term, tax professionals should look to “low-hanging fruit” to generate benefits as quickly as possible.
Optimizing Operations: Uncover Tax Relief Opportunities
During “the Trough” period of economic recovery, the initial tumult of the pandemic and economic fallout has passed, but significant challenges remain. Although companies that have managed to survive up to this point will have overcome immediate safety and cashflow problems, they still face an uncertain future. No one can predict how long the downturn will last, whether the world will revert into crisis mode or whether the path towards long-term recovery has begun.
Despite the uncertainty, savvy companies can position themselves to outperform their competitors by capitalizing on market shifts and strengthening their core business models. To do so, liquidity will continue to be at a premium, but many companies at this stage should be able to spend a bit in order to reap considerable returns. The tax function is poised to help them do just that.
After taking advantage of tax solutions that are within reach, it’s time to consider low-risk strategies that will plant the seed for future growth.
Moving Forward: New Tax Strategies to Reimagine the Future
In the recovery phase, demand for goods and services continues to rise to pre-pandemic-recession levels. The wisest companies won’t spend this time resting on their laurels but will instead use it to reimagine their futures in a world forever changed.
Plans made prior to spring 2020 may no longer make sense in a post-COVID world. To stand apart from competitors, companies need to not only recover from COVID-19, but also integrate the lasting forces of change brought on by the pandemic to emerge more resilient and agile than before.
It’s time to reset vision and strategy—and tax needs to be an integral part of that process.
Here are some ways that tax can align with new business strategies:
- Workforce: In this phase, businesses have likely confirmed near-term strategies around where employees will work. While these plans need to balance employee safety and operational efficiency, they also come with important tax impacts.
Planning for What’s Next: Be Prepared to Seize Opportunities
The reality for many is that it may take years to get to the phase when a business is meeting or even exceeding market growth. During this stage, a company has fully recovered from the business challenges of the pandemic-recession and is experiencing significant growth. It’s a time when many businesses will be executing the long-term plans they’ve crafted throughout their recovery journey. But companies should consider the tax effects of acting on these plans.
Key Tax Strategies
- Use tax transformation to maintain a broad view of your total tax liability.
- Leverage automated solutions for manual and error-prone areas, including state and local sales and use taxation, value-added tax, etc. as your business executes on tax transformation plans.
- Consider the tax benefits of outsourcing non-essential functions to third parties to lower your company’s total tax liability.
- Review federal Work Opportunity Credit criteria for eligible new hires.
Consider eligibility for paid family and medical leave. Under the new law, an eligible employer is allowed the paid family and medical leave credit, which is an amount equal to a percentage of wages paid (up to 25%) to qualifying employees during any period in which those employees are on family and medical leave due to a critical illness or the birth (or adoption or foster care) of a child.