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The Coronavirus Stimulus Package (Segment I)
Preface: Although we are accountants and not bankers, the following is provided for information purposes only. It should not be construed as tax or accounting advice. Contact your trusted advisor before making a loan decision.
The CARES Act signed into legislation on March 27, 2020 provides two forms of government working capital loan venues for small-businesses I) Economic Injury Disaster Loan 2) Paycheck Protection Program.
The CARES Act has revised the loan eligibility requirements for Small Business Loans (SBA). The CARES Act firstly with financing conduits, provides for qualifying small-businesses an Economic Injury Disaster Loan (EIDL). For these purposes, a qualifying business for the loan approval must have fewer than 500 employees or say be a sole proprietorship or an independent contractor;
Qualifying small businesses can forward applications directly to the SBA with the CARES Act legislation. The following loan application information will be required to be supplied: A) The applicant’s credit history; B) proof of the financial ability for loan repayment; C) proof of business jurisdiction in a Disaster Area; and D) proof the enterprises working capital losses are due to the COVID-19;
The CARES Act plan is designed for an SBA loan to be approved for a business in a cash shortage for up to a maximum of $2 .0 Million of financing. This feature is hinged on cashflow needs with loan terms of up to 30 years for repayment with interest rates of 3.75% for qualifying small businesses.
Loans of more than $25,000 may require collateral. The CARES Act provides a clause, so personal guaranties will not be needed for loans under $200,000.
The CARES Act also lifts the requirement that an applicant must not be able to obtain credit elsewhere. These loans will not be declined due to insufficient collateral or lack of collateral.
These emergency loan proceeds can be used for business working capital, payroll, and other general and necessary expenses that the applicant could have paid if the disaster had not occurred. But loan proceeds are not intended to be used to replace lost profits or to finance business expansion.
Also, the CARES Act provides that during the period from January 31, 2020, through December 31, 2020, the SBA may advance an up-to-$10,000 grant to each applicant, funded within three days after completing its application to the SBA.
The grant is not required to be repaid, even if the business does not obtain a loan under the EIDL program, or say should the company receive a grant under the CARES Act’s Paycheck Protection Program.
But if the applying business does receive approval for a grant under the Paycheck Protection Program, the amount of the advance will be reduced from the forgivable amount of such Paycheck Protection Program loan. The advance may be used to pay allowable costs:
I) providing paid sick leave to employees unable to work due to the effects of COVID–19;
II) maintain regular payroll to keep employees on payroll during emergency timeframe;
III) meeting increased costs to obtain supply chains failures;
IV) paying rents or amortizing mortgage payments;
V) repaying other long-term or current liabilities that cannot be met due to revenue losses.
Loan application documentation required includes at least two years company tax returns with all schedules, 2019 year-end financials and 2020 financials as of the current month-end.
Paycheck Protection Program
With payroll pressures, snowballing for the small business community, the Paycheck Protection Program in the CARES Act is designed to infuse cash quickly into the small- business community to keep payroll checks rolling on the presses.
Loans are limited to the lesser of $10.0 million or the sum of 2.5 times the average total monthly payroll costs for the prior twelve months with the CARES Act loan package.
Payments from the CARES Act Paycheck Protection Program loan packages can include:
This newly minted Paycheck Protection Program requires no personal guarantees on behalf of borrowers or collateral pledges. These express loans contain non-recourse features for financing if used for qualifying purposes.
Also, even if other credit sources are available, qualifying businesses can still be approved for express funding. Payments of principal, interest, and fees will be deferred for six months, but not more than one year.
Chances are your business can likely qualify for an express loan package.
The Paycheck Protection Program loans qualify for forgiveness with certain conditions, and forgiveness is not taxable. Credits have a ten-year maturity date. Employees funded on these payrolls must have wages less than $100,000 on an annualized basis to qualify.
Immediate cash infusions on loans for payroll up to $1.0M with seven-year terms can be approved or denied in less than 36 hours. Stock buybacks are prohibited during this loan repayment as well as dividends.
While for many it may feel the caramel factory machine, i.e. the economy, has been halted in and around the nation, these CARES Act loan features are designed to help with the task of restarting it; and that will be a unique challenge for everyone likely.
Managing Your Cash Flow During the Coronavirus Crisis – A Webinar
Ami Kassar, is the founder and CEO of MultiFunding LLC, and author of The Growth Dilemma. He is a nationally renowned expert on access to capital for entrepreneurs. He’s committed to ensuring that business owners have the best possible access to the capital structures to help grow and manage their businesses. Kassar is regularly featured in the national press and writes a regular column for Inc.com. He has advised the White House, the Federal Reserve Bank and The Treasury Department on the business credit markets. In addition, Kassar is a regular speaker at universities and business events across the country on topics including entrepreneurship and access to capital.
Managing Your Cash Flow During the Coronavirus Crisis Webinar Link
Covid-19 Business Update II
Donald J. Sauder, CPA | CVA
The Families First Coronavirus Response (FFCRA) legislated on March 18th, 2020, provides revisions to employment laws for employers who employ fewer than 500 employees, including both full-time and part-time positions. It takes effect on April 2, 2020.
The revised employment laws provide both sick pay with the Emergency Paid Sick Leave Act and paid leave to employees under the Emergency Family and Medical Leave Expansion. Employers are provided an employment tax credit to compensate for the costs of both the paid leave and sick pay.
Benefits of Families First Coronavirus Response include:
Families First Coronavirus Response does not apply if employees are furloughed or with the lay-off of employees before April 2, 2020.
State and local laws may have separate implications. Contact a labor attorney before making any decisions that could subject to employment law risks.
Emergency Paid Sick Leave Act
Emergency Paid Sick Leave requires employers with fewer than 500 employees to provide paid sick leave. Businesses with fewer than 50 employees may claim an exemption from the paid sick leave requirements if it would jeopardize the business. This definition is yet to finalized for what qualifies an employer for the exception.
Except for health care providers and first responders, all employees are eligible to take paid sick leave under the FFCRA regardless of their duration of employment.
Full-time employees are entitled to take up to 80 hours of paid sick leave. Part-time employees also qualify for pay based on the average hours of equal to hours worked over two weeks.
Qualifying reasons for employees to be entitled to paid sick leave include:
Paid sick leave will be paid at the employee’s regular compensation rate capped at 100% of wages up to $511 per day, or a total sum of $5,110 for employee’s subject to reasons one, two, and three above. Then for employees in categories four, five, and six, the wages are up to $200 per day or a total sum of $2,000.
This sick pay is added to any existing sick leave the employer provides. Employers may not require employees to use other sick before the newly legislated Emergency Paid Sick Leave.
Employers will be entitled to a tax credit for the amount of paid sick leave paid
The Emergency Family and Medical Leave Expansion Act
The Emergency Family and Medical Leave Expansion Act require employers with fewer than 500 employees, and exclusions may yet be issued for small businesses with fewer than 50 employers when it would jeopardize the viability of the company.
With this Act Employees are entitled to take up to twelve weeks of job-protected leave.
Reasons employees can take job-protected leave include caring for a child under 18 if the child’s school or place of care is closed or the child care provider is unavailable.
The first ten days of this job-protected leave can be unpaid. An employee can elect, but not be required to use accrued vacation, personal, medical, or sick leave for those days. Paid leave is subject to a limit of $200 per day, and up to a total amount of $10,000.
Today is today, and after all, tomorrow is another day. With the rapidly speeding changes in the business landscape, please talk with a labor attorney before making a labor decision in the current business climate.
DISCLAIMER: The above text does not constitute legal advice and has been prepared for informational purposes only. Please contact your legal advisor with questions about how this relates to your specific situation.
Covid-19 Business Update
Credit: Jacob M. Dietz, CPA
March has been an unusual month with unforeseen changes. Changes will likely continue as March progresses, and beyond March. This update will not go into the medical aspects of Covid-19, but will cover some of the changes that affect small business and individual tax payers.
Tax Deadlines Extended.
The federal government extended the tax return payment and filing deadline from April 15 to July 15. Furthermore, federal 1st quarter estimates that would have been due April 15 are now due July 15.
Most taxpayers, in additional to federal filing requirements, also have state and possibly local filing deadlines. Pennsylvania, as well as various other states, also extended the deadline. If you do not live in PA, consult with your tax preparer about your state tax deadline. The York Adams Tax Collection Bureau and the Lancaster County Tax Collection Bureau also extended the deadline. If you live in another local taxing jurisdiction, contact your tax preparer.
Not all taxes are affected by these delays. For example, the York Adams Tax Collection Bureau states that “At the present time there are no extensions for the filing and payment of Local Services or Mercantile and Business Privilege Taxes.”
If you are hoping to benefit from the extensions that are available, please contact your tax advisor and ask if and how they apply to your specific situation.
Various states have enacted some form of shutdown, including Pennsylvania. Pennsylvania Governor Wolf has prohibiting operating “a place of business in the Commonwealth that is not a life sustaining business regardless of whether the business is open to members of the public. This prohibition does not apply to virtual or telework operations (e.g., work from home), so long as social distancing and other mitigation measures are followed in such operations.”
The police are empowered to enforce this shutdown.
March-21-2020-Industry-Operation-Guidance is a list of industries that may and may not continue physical operations. If you cannot determine if your business needs to close or not, you can email email@example.com.
If your business does not qualify to remain open, you could apply for a waiver. The form can be filled out online here https://expressforms.pa.gov/apps/pa/DCED/Waiver-process-keeping-physical-locations-open.
Alternatively, you could email RAfirstname.lastname@example.org to request a waiver.
Families First Coronavirus Response Act
This act was signed by President Trump and takes effect in early April. This blog will not provide full coverage of the new act, but will point out the law has a requirement for paid sick leave for Covid-19 for companies that employ less than 500 employees.
If you have employees who are affected by Covid-19, including employees who are off work because of family members affected by the virus, consider calling a labor attorney very soon. There could be changes to this coming.
There have been many changes recently, and likely more changes will come. Stay alert to the changing conditions. Be aware of possible needs of your employees, friends, family, and neighbors. Walk in peace. Look up and lift up your heads. Ps 91:15 “He shall call upon me, and I will answer him: I will be with him in trouble; I will deliver him, and honour him.”
Preface: These are genuinely “uncharted waters,” as Governor Wolf said. The economic expedition employers and employees have involuntary embarked on does not promise an easily charted path forward.
Surviving Amidst A Business Euroclydon
Credit: Donald J. Sauder, CPA | CVA
It is a year for the history books—a global pandemic with unparalleled complexity for the globe, nation, and each state community. The continuing pandemic developments are surreal for both business and individual families.
On Thursday, Pennsylvania Governor Wolf ordered a shut-down of non-life sustain businesses. Valid on that day, enforcement is scheduled to begin on Monday the 23rd at 8:00 AM. This Governor’s proclamation is planned to be strictly enforced. Remote business activities are permitted to continue, so employees who can work from home, you can supposedly continue business as usual.
The individual list of Pennsylvania life-sustaining businesses and non-life sustaining businesses can be read on this link. March-21-2020-Industry-Operation-Guidance. If you have a question, please contact your trusted advisor. If you need an opinion on the specifics for your business or the risks of disregarding this crisis order, contact your attorney.
The Families First Coronavirus Response Act was signed into law on Wednesday, March 18th, and goes into effect on April 2nd, 2020. The new law specifics have been expanded requirements for family medical from work. This crisis law extension remains in effect until December 31st, 2020.
The Family Medical Leave Act is for emergency paid sick leave: Full-time employees of employers with fewer than 500 employees that are unable to work due to COVID-19 are eligible for 80 hours of emergency paid sick leave. Part-time employees are eligible to receive the equivalent of the number of hours they would work, on average, for two weeks.
The crisis law extends to the FMLA for an employer with fewer than 500 employees, expands the definition of a covered employee to include all employees who have worked for covered employers for at least 30 days. So now, your employees will be eligible for up to twelve weeks of unpaid leave if they are seeking a diagnosis or have quarantine instructions from a doctor. Or if they are caring for a person under quarantine, self-quarantine, or say for children unable to attend school or childcare, or any similar condition. So, if an employee has a dependent home from school or childcare, they qualify for the FMLA extension parameters.
Any full-time qualifying employee is entitled to 80 hours of paid leave, and a part-time employee is entitled to pay for regular hours worked in two weeks. Employers with one to forty-nine employees must provide qualifying paid time off under the above circumstances. An employee may apply for sick leave before opting on the extension to the Family Medical Leave Act.
There is a clause that employees laid off before April 2nd do not qualify for the new crisis laws. Consult your labor attorney before making any crisis decision.
To quote Albert Einstein, “A true genius admits that he/she knows nothing.” Ernest Shackleton was a genius explorer. Also consider what you can learn from the book Endurance: Shackleton’s Incredible Voyage.
These are genuinely “uncharted waters,” as Governor Wolf said. The economic expedition employers and employees have involuntary embarked on does not promise an easily charted path forward.
Will you be safe in a crisis with a significant cash position? Remember the trivial concern with the Cypriot Financial Crisis 2011 haircuts? Maybe not?
And to our friends, Godspeed. Feel free to call if you want to chat.
Preparing a Business Optim-20 Plan
Donald J. Sauder, CPA | CVA
Watching current and continued developments with the Coronavirus Pandemic? Begin early to prepare for a potentially prolonged economic recovery. The implications of the disruptions to business cash flows, revenue, and market declines highlight the importance of appropriate strategic business plans.
Many businesses are experiencing new challenges on a surprising frontier, and a comparison may be to embarking on a financial “Ernest Shackleton expedition.”
Cash is king. Planning to maintain liquidity levels should be top of mind. Remember, though, that cost reduction measures in aggregate, will lead to a longer economic recovery because of the shift to a slower velocity of money.
Prepare for challenges in supply chains, slower payments on accounts receivable, changes in confidence, or potential defaults. These cash implications will have a ripple effect on the economic domino chain of interdependent business.
Special payment relief is now available to individuals and businesses in response to the Coronavirus Pandemic. The filing deadline for tax returns remains April 15, 2020. The IRS urges taxpayers who are owed a refund to file as quickly as possible. For those who can’t file by the April 15, 2020 deadline, the IRS reminds individual taxpayers that everyone is eligible to request a six-month extension to file their return.
Income tax payment deadlines for individual returns, with a due date of April 15, 2020, are being automatically extended until July 15, 2020, for up to $1 million of their 2019 tax due. This payment relief applies to all individual returns, including self-employed individuals, and all entities other than C-Corporations, such as trusts or estates. IRS will automatically provide this relief to taxpayers.
If you sense that you will need relief from secured or unsecured creditors, begin discussions before the cash need is critical. Prepare a cash flow analysis of why your creditors should see that your business cash flow risks make sense.
A genuine business expedition is before us. Cash will be king. The greed of yesterday may turn to fear. We are working in uncharted territory. The wisdom of your Guide will be crucial from today forward.
Roth IRAS – What You Need to Know
Roth IRAs are tax-favored accounts to which qualified taxpayers can make after-tax contributions. Contributions to a ROTH IRA account can grow tax-free, and neither the contributions nor the earnings on them are subject to tax when a Roth IRA owner receives a qualified distribution from the account. Although a Roth IRA is designed to help a taxpayer save for retirement, it is inaccurate to characterize a Roth IRA as just a retirement savings vehicle.
Roth IRAs offer several advantages over traditional IRAs.
•Distributions can be made completely tax free, as long as they are qualified distributions (generally, distributions made more than five years after the contribution that are made after the owner has attained age 59½, died, or become disabled, and distributions for certain special purposes, including the purchase of a first home).
•The owner is not required to take lifetime distributions, so the tax-free buildup can continue throughout the owner’s life.
•Distributions of contributions are always tax free, no matter when they are made.
A taxpayer that decides to take lifetime distributions can benefit from the same favorable tax treatment accorded to Roth IRAs. Like traditional IRAs, Roth IRAs provide for tax deferral on the earnings. However, since no tax is imposed as long as the distribution is a qualified distribution, as discussed above, this benefit is increased.
Because tax-free distributions of earnings can occur only after the five-year requirement is satisfied, to take full advantage of this (as well as to maximize the amount of earnings on which tax is deferred), contributions to a Roth IRA should be made as soon as possible. In fact, parents or grandparents may want to consider setting up and funding a Roth IRA for their children or grandchildren as soon as the children or grandchildren have enough earned income from part-time or summer jobs. This will ensure that the five-year requirement is met when the individual for whom the Roth IRA is established is ready to make a withdrawal to buy a home, for example.
Before making a contribution to a traditional IRA (or other retirement plan), it generally is important to be sure that you can afford to be without the funds for some period of time, since tax and often heavy penalties are imposed when amounts are withdrawn. However, in the case of a Roth IRA, withdrawals before the five-year requirement is satisfied are tax free as long as they consist only of contributions. As a result, a Roth IRA can act as an emergency fund since you can make tax-free withdrawals from the account to the extent of the contributions made to the account.
For example, assume you contribute $3,000 to a Roth IRA in 2020, 2021, and 2022. In October 2023, when the account is worth $11,000 (contributions plus earnings), you need $5,000 for an emergency. Since you’ve made contributions to the Roth IRA equal to $9,000, you would be able to withdraw the $5,000 tax-free from the Roth IRA. In applying this rule, distributions from a Roth IRA are treated as coming from contributions first. You must keep accurate records of the contributions made to a Roth IRA so that if a withdrawal is made from the account, you can show that the withdrawal is coming from contributions and is, therefore, tax free.
The fact that you can withdraw the annual contributions made to the Roth IRA at any time during retirement without incurring any tax means that these accounts can serve financial planning goals that cannot be served by a traditional IRA.
2019 Tax Filings: Business Mileage Deductions and Educator Expenses
IRS rules provision businesses with the opportunity to deduct the entire cost of operating a vehicle for business purposes. Alternatively, entrepreneurs can use the business standard mileage rate, subject to some specific exceptions. The mileage deduction is calculated by multiplying the standard mileage rate with the number of business miles traveled. Self-employed individuals also may use the standard rate, as can employees whose employers do not reimburse, or only partially reimburse, them for business miles driven.
Many taxpayers use the business standard mileage rate to help simplify their recordkeeping. Using the business standard mileage rate takes the place of deducting almost all of the costs of your vehicle. The business standard mileage rate takes into account costs such as maintenance and repairs, gas and oil, depreciation, insurance, and license and registration fees.
Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is:
Mileage related to unreimbursed business expenses and moving expenses are limited to certain taxpayers as a result of the Tax Cuts and Jobs Act for taxable years 2018 through 2025.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers may have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. If instead of using the standard mileage rate you use the actual expense method to calculate your vehicle deduction for business miles driven, you must maintain very careful records. You must keep track of the actual costs during the year to calculate your deductible vehicle expenses. One of the most important tools is a mileage log book.
Tax Deductions for Teachers with Educator Expenses
Now that tax season is here, many teachers are looking for tax deductions for the expenses from dipping into their own pockets to buy classroom supplies. Doing this throughout the year can add up fast. For those who have already filed, fortunately, eligible educators may be able to defray qualified expenses they paid in 2020 when they file their tax return in 2021.
Educators who work in schools may qualify to deduct up to $250 of unreimbursed expenses. That amount goes up to $500 if two qualified educators are married and file a joint return. However, neither spouse can deduct more than $250 of his or her qualified expenses when they file.
Taxpayers qualify for this deduction if they:
Qualified expenses include:
Eligible taxpayers can claim this deduction when they file their taxes. We encourage teachers to consider tracking their qualified education expenses incurred throughout the school year to obtain this easy tax filing deduction.