“I’m shockingly flush with cash. My checking account balance is fantastic.”
This isn’t what I expected to hear on the tail end of the most prolonged economic catastrophe of our lifetime. But many practices, after leaning out all their expenses during the shutdown and getting forgivable funds from the Paycheck Protection Program are actually feeling pretty good about their cash situation.
Now, I know that’s NOT the case for everyone, and many practices are still really struggling. But I’m writing today for those who are feeling quite recovered.
If that’s you, and your checking account balance is high, stay conservative. Not only because we don’t know what future waves of coronavirus look like, or whether a recession looms on the back end of all this. Not just because it’s not clear that the high capture rates and sharp recoveries many are experiencing will continue.
Be conservative because your 2020 tax bill will be very hard to forecast.
But we were shut down for two months! Yes, and most practices were able to dramatically reduce their expenses during the shutdown. And two and a half months of payroll were paid by the government – payroll expenses that as of now will not be deductible. And many practices have been incredibly busy, seeing year-over-year growth in June AND July.
Many practice might end the year with revenues down by only5% or 10%; some are even already ahead of last year. If that’s you and you also took PPP, while your revenues might be down slightly, your payroll costs may be over 20% lower. Flat revenues and reduced expenses mean you might actually be MORE profitable this year than last.
Ordinarily, business owners should review their quarterly estimated taxes when they review the prior year’s taxes with their CPA, and then have one more mid-year review to assess any changes for their end-of-year tax planning. This year, I think owners may want to squeeze one more review in just to be sure they’re saving enough to avoid an unwanted surprise in April 2021.
In closing, I’m very pleased and optimistic at the recovery many practices are making and the success of programs like the PPP at keeping practices whole. But as your practices recover and profits start flowing, remember that the government gets the first bite at your profits in taxes. Don’t assume that the pandemic means you’ll owe less in taxes next year.
After graduating, he spent a year working abroad. During that time, he worked for two firms in San Jose, Costa Rica. He interned with Grupo Juridico de San Jose, working in environmental policy to protect a threatened parcel of land, then he worked as a project manager for a US-owned precision machining shop. Nathan then spent 6 months working with street children and orphans in Mexico.
Before getting into the healthcare industry, he was an Assistant Store Manager and completed the Corporate Training Program with Haverty’s Furniture Company in Atlanta, GA. Nathan and his wife Heather have a son, Daniel, and a daughter, Hannah. In his spare time, Nathan enjoys reading and outdoors activities - especially cycling and hiking.
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