Dispatch #44 - Triple-Whammy Tax Deadline is Just Around the Corner
The IRS extended its income tax filing and payment deadlines until July 15th in response to the COVID-19 outbreak. This helped contractors conserve cash, but it also means that in 30 days, payments are due for three tax periods at once:
YE 2019 Balance Due
Q1 2020 Estimated Tax
Q2 2020 Estimated Tax
If your construction firm was profitable last year and is on track to earn a profit this year, it might take a lot of cash to cover its shareholders’ individual tax payments next month. This assumes a pass-through entity like an S Corporation, and although the dates differ, much of the logic applies to C Corporations as well.
Complicating the situation are two other factors—the income tax impact of potential PPP loan forgiveness and profit uncertainty for the remainder of the year during the COVID-19 recovery period.
To prepare for July 15th, here are three action items you can take:
Refresh your company’s 2020 profit forecast and ask your CPA to estimate how much income tax company owners will need to pay on 7/15/20, 9/15/20, 1/15/21, and 4/15/21. Do not look for rock-solid numbers; instead, look for ballpark estimates based on best available data.
Update your 13-month cash flow forecast to include these tax payments. One stellar feature of a 13-month cash flow forecast is that it captures a full year of periodic payments such as tax, insurance audits, and 401K profit-sharing contributions.
Look for shortfalls and start making course corrections to avoid a cash crunch.
One final thought to consider: what will your construction firm’s balance sheet ratios be after making the 7/15 tax payments plus carrying its PPP loan? Now is a good time to re-run the ratios and touch base with your banker and surety agent (see Dispatch #24).
Need help with this or other financial matters faced by construction contractors? Let’s talk!
David Stern CFO makes every effort to provide useful and accurate information. This content, however, is not intended as a substitute for specific business-related financial advice. We disclaim all warranties and liabilities from its use.