Use Tax Breaks In The Corona Crisis: How To Proceed. The coronavirus causes horror and uncertainty around the world and for many people it leads to an existentially threatening situation. But what to do if the income drops and the current expenses remain unchanged? In addition to a government aid package worth billions, the tax authorities and legislators have also made it their business to provide relief in this difficult time. Here is an overview of which tax reliefs due to administrative instructions and due to the Corona tax aid laws entrepreneurs are waving and how they can get them.
1. Special advance payments in the Corona crisis: money-back promise
Anyone who can show a financial disability will receive a special advance payment in February from the Tax Office.
2. Have advance payments reduced in the event of a decline in profits due to Corona
In order to save every cent on expenses and to be able to use it for running costs or invest in new investments, an application should be made to the tax office to reduce the current advance payments for income and corporation tax to zero dollars. In this case, the tax office will also refund the advance payments made in the first quarter of 2020.
Important to know: You must also apply to the tax office to reduce the current trade tax prepayments. The tax office then sends a trade tax assessment notice for the purpose of advance payments to the municipality, which then reduces the current advance payments. So you only lose time if you apply for a reduction or refund of the trade tax prepayments directly from the municipality.
3. Flat rate loss carry-back to reduce advance payments in 2019
Now that the 2020 prepayments are reduced to zero dollars, you should start reducing the 2019 income tax prepayments or 2019 corporation tax prepayments. Because if you expect a loss in 2020 due to the Corona crisis, you can apply for a flat-rate loss carry-back without a 2020 tax return. In this case, the tax office reduces the assessment basis for determining the advance payments 2019 by a flat rate of 30% and thus reimburses part of the advance payments made in 2019.
4. Prevent subsequent advance payments with reference to Corona
If your tax advisor sent your 2018 income tax return or 2018 corporation tax return to the tax office at the end of February, the tax program may automatically set a fifth advance payment for 2019 in the case of back tax payments. In this case, too, you should apply for a reduction in this fifth advance payment with reference to Corona.
5. Corona victims and tax deferral
If you urgently need every penny to protect your company from bankruptcy, you should at least not encumber the tax payments that are already due or due. You can apply to the tax office to defer these taxes.
Entrepreneurs should note that the tax office does not waive the tax payments, but only postpones the due date. This means: the deferred taxes must be transferred to the tax office by 2021 at the latest. Whoever manages it should therefore start building up financial reserves at an early stage.
6. Prevent seizures with reference to being affected by Corona
A visit by an enforcement officer from the tax office can also be prevented by pointing out the Corona crisis. The later payment is preprogrammed. So if financial reserves can be built, that’s what business owners should do.
7. Application for government grants due to corona pandemic
Corona funding programs for low-interest loans or for investment grants . But how are such government payments treated for tax purposes? The following applies:
Subsidies for current expenses: Entrepreneurs who have suffered high losses in sales and profits due to the Corona crisis and therefore receive government subsidies, must tax these subsidies as business income, just like sales. However, sales tax does not have to be paid to the tax office because there is no exchange of services.
Investment grants: In the case of government grants for the realization of investments in business assets, entrepreneurs have a right to choose.
Alternative 1 : You can enter the subsidies as operating income in the normal way. Alternative 2 : You do not tax the subsidies as operating income, but in return you reduce the acquisition costs for the asset by the subsidies received and can therefore only deduct a lower depreciation from the profit.
8. Support for employees in the Corona crisis
If the corona crisis is bearable for the entrepreneur himself, but his employees have money worries because of the corona, employers can give these employees financial and wage tax favorable support.
9. Temporary VAT reduction
In the Second Corona Tax Aid Act, the VAT reduction was decided in the period from July 1, 2020 to December 31, 2020 . The standard tax rate for deliveries and services that are carried out during this period is only 16% instead of 19 % , and the reduced sales tax rate drops from 7% to just 5% in this time window .
10. Reduced tax rate for catering
The catering industry is being hit particularly hard by the consequences of the Corona crisis. In order to relieve the industry of tax, it was decided that generally only the reduced VAT rate has to be shown for meals in the catering trade, even if the customer consumes his food on site. The general reduced tax rate is to apply from July 1, 2020 until June 30, 2021.
11. Investment Deduction: More time to invest
If no investment is made by the end of 2020, the tax office will retroactively tilt the deduction in 2017, which will lead to back tax payments for 2017 and lavish back payment interest. But affected entrepreneurs who do not have the financial means to make the due investment in 2020 due to the Corona crisis can breathe a sigh of relief. In the Second Corona Tax Aid Act, the three-year investment period was extended by one year. In other words: it is sufficient, as an exception, if the investment is made in 2021 rather than in 2020.
12. Higher trade tax credit
The higher trade tax credit to which sole proprietorships or co-entrepreneurs of commercial partnerships are entitled is also particularly interesting. The tax office currently deducts up to 3.8 times the trade tax base on income tax. This is intended to reduce the trade tax burden or, at best, neutralize it.
13. Provisional loss carry-back
In section 4, we have already referred to the flat-rate loss carry-back to reduce advance payments in 2019. If you expect a loss in 2020, you can apply for a preliminary loss carry-back upon application. This amounts to 30% of the 2019 income (income without wages).
14. Further corona tips in brief
Short-time work allowance : When receiving short-time work allowance, point out to your employees that there is a risk of additional tax payments for 2020 and that they should therefore build up financial reserves. The short-time work allowance is tax-free, but increases the tax rate on the remaining income.
Tax returns : If you expect a refund for submitted tax returns, you must submit an application for priority processing . Because due to the corona pandemic, the clerks otherwise only process the applications for tax relief.
Declining balance depreciation: For investments in movable assets in 2020 and 2021, entrepreneurs can use a new depreciation method. We are talking about the declining balance depreciation. It is 2.5 times the straight-line depreciation rate, but no more than 25% of the acquisition costs or the residual book value.