Update on CARES Act 4/15/20
Executive Summary
While everyone’s tools in their toolbox may be the same, Fineman West takes a business approach to navigate the CARES Act and Increase Cash Flow
Since the passage of the CARES Act on March 27th, there has been a flood of information – much of which is conflicting – but we believe that we have a very good handle on this law which is still evolving on an almost-daily basis. This article is organized to update you as to the Loan Programs that may be available to you, to Employment Programs that may provide relief to you as an Employer and then to a Potpourri of Tax-Related Items, including a few ideas that we hope will generate the cash that we understand you need right now. Below is an executive summary of the recent updates and how Fineman West can help. Click on the link to get a more detailed discussion on each specific item.
Loan Programs
Our advice remains the same that at least one of these loan programs will make sense for nearly all of our clients, and should be applied for. How can we help: Prepare loan applications, maximize loan computations, and prepare forgiveness of loan calculations.
The EIDL Program In A Nutshell
The EIDL program is applied for at the SBA website at: https://covid19relief.sba.gov/#/ To receive the emergency grant (which can be up to $10,000), you must apply for an EIDL, and even if your EIDL application is not ultimately approved, the emergency advance does not have to be repaid. The amount of the forgivable advance/grant will be determined by number of employees at $1,000 each, with a maximum advance of $10,000. Click here for expanded discussion.
PPP Loan Forgiveness
While the EIDL loans discussed above may include up to $10,000 which does not have to be repaid, the real difference between the EIDL and the PPP loans, is that, with PPP Loans, the entire loan may be forgiven! The primary purpose of the PPP loan is to cover payroll and loan forgiveness is determined – upon applying for the forgiveness – 8 weeks after receiving the loan. To obtain forgiveness you must be able to demonstrate that the loan proceeds was used for payroll and certain other operating costs and you maintained a certain level of staff or payroll expense. Click here for expanded discussion
California Small Business Disaster Relief Loan Guarantee Program
This loan program is a guaranteed loan program for any business in California with 1 to 750 employees, and provides for loans which are guaranteed up to 7 years and for 95% of the loan, with the funds meant to help small businesses through this challenging time. The loan proceeds can be used for business continuance or to cure “economic injury” as a result of the COVID-19 pandemic. Click here for expanded discussion.
Main Street Lending Program
This program has been established by the Federal Reserve, and establishes a 4-year loan where both principal and interest payments are deferred for one year. Business’ that wish to apply must commit to make reasonable efforts to maintain payroll and retain workers, and must follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Even if you receive a PPP Loan, you can still obtain one of these Main Street Loans. Click here for expanded discussion.
Employment Programs
Businesses with employees that have been severely impacted by COVID-19 can also now utilize brand new tax credits.How can we help: Analyze benefits of employee tax credits versus applying for loan programs and computation of the new tax credits.
Credit For Sick and Family Leave
There are payments required by employers whose employees have been variously impacted by COVID-19 including: where the employee is unable to work due to quarantine or illness, where the employee is caring for someone with coronavirus, and where the employee is caring for children due to daycare or school closure. The employer can now claim a tax credit for payments made for sick and family leave for up to ten weeks of qualifying leave. Click here for expanded discussion.
Employee Retention Credit
The credit is a refundable credit, and is equal to 50% of up to $10,000 in qualified wages – including health plan expenses – paid after March 12, 2020 and before January 1, 2021. There is a “cap” on the credit of $5,000 per employee and applies against the employers employment taxes payable on salaries/wages paid to all employees. Click here for expanded discussion.
New Form 7200
For those employers who can anticipate that their net payroll tax deposit will be offset by excess credits, can make a request for an “advance payment” in the amount of their anticipated excess by filing Form 7200 to request advance payment of the excess credits. Click here for expanded discussion.
Other Major Payroll Tax Relief
An Employer is able to delay remitting their share of the Social Security tax when making their payroll tax deposits. The available delay requires that this employer share of the social security be remitted 50% on December 31, 2021, with the other 50% remitted by December 31, 2022. Click here for expanded discussion.
Tax Related Items & Planning Ideas
Proper tax planning and implementation can help create significant cashflow even if you are generating significant losses.How can we help: Prepare and amend tax returns to take advantage of the key provisions of the CARES Act; Prepare cashflow so that you can maximize your ROI on tax refunds and be prepared to make tax payments on July 15th; Make certain tax elections to accelerate deductions on your current tax returns, and many more!
Extension of Tax Filing and Payment
The due date for tax returns and certain “specified forms”, which were normally due on April 15th, has been pushed to July 15th, as have the payments of 2019 tax. Estimated tax payments for the first and second quarter estimates for 2020 are also due on July 15, 2020. Click here for expanded discussion.
Net Operating Losses [“NOL’s”]
The CARES Act now permits NOL’s for tax years 2018, 2019 and 2020 to be “unrestricted” and 100% utilizable retroactively, back 5 years! Any client who was not able to fully utilize a 2018 or 2019 loss (if the tax return has already been filed) should ask us to revisit that loss to recalculate it and file a claim for refund or an amended tax return. Click here for expanded discussion.
Business Interest Limitation
Under the brand new CARES Act, for taxable years beginning in 2019 and 2020, there is an increase in the allowable interest deduction from 30% to 50% for certain taxpayers. If your 2019 tax return has already been filed, we can amend it to increase the allowable interest expense. Click here for expanded discussion.
Qualified Improvement Property
The CARES Act now considers Leasehold Improvements to be 15-year property, eligible for 100% bonus depreciation! This change is effective for property acquired and placed into service after September 9, 2017. We could conceivably go back to 2017 and 2018 to recalculate and claim additional depreciation by filing amended tax returns. Click here for expanded discussion
Disaster Loss Planning
Because the current COVID-19 Pandemic has been declared a nationwide “disaster” by the President, we believe that it may well qualify as a casualty loss under Internal Revenue Code Section §165(i). If a business suffers a “casualty” to the extent caused suddenly by the impact of the COVID-19 Pandemic, this casualty loss may be able to be claimed on either the 2019 or 2020 tax returns. Click here for expanded discussion
Pulling Cash Out of Retirement Plans
For clients who are really desperate to obtain available cash, the CARES Act does permit withdrawals up to $100,000 without any early withdrawal penalties if you are under 59 1/2. And, while certainly taxable as ordinary income, you can pay that tax over 3 years, if you elect to do so. Moreover, once you recover financially, you can recontribute the distribution within those same three years without the normal restrictions on contributions. Click here for expanded discussion.
Manufacturing Companies
For our clients with inventory – and in particular, our manufacturing clients – we want to emphasize the particular opportunity that we believe is available now, utilizing the “disaster loss rules” found in the Internal Revenue Code, made possible because the President has issued a National Disaster Declaration across the entire United States due to the COVID-19 Pandemic. The partners at Fineman West & Company, LLP understand these stresses and we can help. Moreover, we understand HOW to utilize the disaster loss rules to ease your pain not only by calculating the maximum deductible loss on your 2019 or 2020 tax return, but also by offering our counsel and advice on such other important questions, such as:
- Will I need to increase my credit line with my lender with these new cash flow impediments?
- With the extended dating from stores and their own financial problems, will the factors be cutting credit lines to the stores?
- Will I need to get outside credit insurance to supplement the factor’s credit insurance?
- What payment plans make sense with my suppliers?
- Will my lender be changing availability formulas and how do we adjust to it?
Click here for expanded discussion.
Another Comprehensive Planning Idea
We believe that for most of our clients, 2020 will be their very worst financial year, whereas 2019 may have been one of their best years in their history. Here is an idea that can work for a presently unincorporated client … a sole proprietor, single member LLC, or an LLC that is taxed as a partnership. Click here for expanded discussion.
In this unprecedented time, the only constant is change. Fineman West is here to help you navigate through these times of uncertainties. Let us help you with the financial and tax aspects of your business while you focus on what you love – growing the business.
