Business owners are the lifeblood of our economy, and millions of businesses, big and small, are being impacted by the coronavirus. If you’re a business owner facing financial challenges, we offer the following suggestions and resources that you should be aware of.
Talk with your landlord to see if you can negotiate rent concessions. Discuss your prior stability in making rent/lease payments and the fact that you will strive to resume full payments as quickly as possible. Also remind the landlord how costly it could be to find a new tenant in the current economic environment, plus the costs of another space buildout for a new tenant.
If you have existing loans, talk with your lenders about any flexibility in making payments, at least for a period of a few months. Many banks are trying to work with individuals and companies.
Key Business Assistance Provisions Under The CARES Act
The CARES Act includes significant resources of approximately $500 billion to help business owners. If you’re a small business owner, reach out to the Small Business Administration to inquire about options.
Some of the key highlights, which should be reviewed with your tax preparer, include:
- The Paycheck Protection Program extends loans that are fully backed by the SBA. The maximum duration is 10 years. The most attractive feature is the ability for a forgivable portion equal to 100% of certain expenses (e.g., payroll costs, rent, utilities and health insurance) incurred during the 8-week period immediately following issuance. Such discharged debt would be non-taxable, and loan payments can be delayed 6-12 months. HOWEVER, qualification is restricted to employers who retain and continue to employ the same number of employees. Provisions are available to hire back employees if you’ve already curtailed employment. Businesses apply for Paycheck Protection Program loans through lenders, not directly with the SBA. Try reaching out to your own lender first. Even if they haven’t offered SBA loans previously, they might be offering these new ones under the CARES Act, since they are 100% guaranteed by the Federal Government.
- There was an expansion of SBA section 7(b)(2) Economic Injury Disaster Loans (EIDL) to include economic injury loans relating to COVID-19. These loans are made directly by the SBA and can be applied for online. You can request an advance of up to $10,000 when submitting your application. No repayment of the advance is required, even if the loan request is subsequently denied, so long as it is spent on approved expenses (paid sick leave, payroll, rent or mortgage, etc.). However, the loan amount itself is not eligible for forgiveness. You can apply through December 31, 2020.
- SBA Express Loans are an existing disaster loan program. They are limited to approved lenders and regular requirements apply; they were not changed. However, the CARES Act did increase the maximum amount of Express Loans from $350,000 to $1,000,000 through December 31, 2020. These loans are not eligible for forgiveness.
- The SBA Express Bridge Loan Pilot Program allows small businesses who currently have a relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These can be term loans or used to bridge the gap while applying for a direct SBA Economic Injury Disaster Loan (EIDL). They will be paid in full or in part by the proceeds from the EIDL loan and are not eligible for forgiveness.
- The Employee Retention Credit program that helps to reduce employer payroll taxes for small businesses (typically with fewer than 100 employees). However, qualification for this program is subject to a number of restrictions, including being dependent upon company revenues relative to past periods. Qualification should be carefully reviewed with your tax preparer. Furthermore, this program is not available to employers who receive a Paycheck Protection loan (outlined above).
- There’s also a significant provision to defer the payment of 2020 payroll taxes for small business owners. If you qualify (which includes not partaking in Paycheck Protection loans), you can defer paying all payroll taxes in 2020, with a requirement to pay 50% of your 2020 payroll taxes by 12/31/2021 and the remaining 50% by 12/31/2022. It’s important to note that this applies to self-employed individuals as well.
- Net Operating Loss (NOL) Rules are now loosened to help business owners. Losses can now be carried back for up to 5 years (including losses from 2018, 2019 and 2020) and can be carried forward indefinitely. Furthermore, losses can now offset up to 100% of taxable income (up from the previous limit of 80%).
- Excess Business Loss: Beginning with the 2018 tax year, The Tax Cut and Jobs Act (TCJA) limited the amount of business losses that a taxpayer, other than a business corporation, can deduct. The CARES Act removes this limitation for tax years beginning before 1/1/2021 (i.e., 2018, 2019 and 2020). An opportunity exists to amend 2018 tax returns where business losses were limited. This may be particularly useful if removal of the limitation results in an overall loss.
- Qualified Improvement Property depreciation changes: An unintended consequence of the TCJA was an unfavorable change to depreciation rules for changes made to real property, known as “Qualified Improvement Property” (QIP), that assigned it a tax life of 39 years, rendering it ineligible for bonus depreciation. Changes under the CARES Act make QIP eligible for bonus depreciation with a shorter, 15-year, depreciation life. This change applies retroactively to tax years beginning after 12/31/2017 (i.e., 2018). The fix allows taxpayers an opportunity to amend 2018 returns now or take a catch-up deduction in 2019 via method change.
- Accelerated Refund of Corporate Alternative Minimum Tax (AMT): The TCJA repealed the Corporate AMT beginning with the 2018 tax year. For taxpayers with AMT credits, a credit could be claimed in subsequent years, ending with the 2021 tax year when all remaining credit could be claimed. The CARES Act accelerated these AMT deductions. A taxpayer may now take the entire credit amount on a 2018 return and request a refund of the credit.
We strongly encourage reviewing the above options with your tax preparer for further guidance.
For additional information on how to manage your personal finances if you’re negatively impacted by the COVID-19, please visit our How To Manage Financially During The Coronavirus.
This is also a wonderful time to consider how you can help others. If you’re contemplating such actions read our Tips For Helping Others During The Coronavirus as well as our piece on How Kids Can Give and Help During Coronavirus.
Finally, we offer perspectives on Financial Opportunities During The Coronavirus Financial Downturn.
SageVest Wealth Management works with a number of business owners and self-employed individuals. If you’re seeking advice on how to navigate forward, please feel free to Contact Us.