Here are links to information released by the U.S. Chamber of Commerce this weekend.  We believe these items can help small businesses understand and use the CARES Act’s many elements.

• The Coronavirus Emergency Loans Small Business Guide and Checklist takes a small business step-by-step through the process of preparing to file for a loan.
  • This interactive map shows how much aid is available under the Small Business Paycheck Protection Program to help small businesses in each state.
  • The Chamber’s web tracker shows how businesses of all sizes are stepping up efforts to combat COVID-19.
  • The U.S. Chamber Foundation is publishing a live blog tracking the contributions from businesses of all sizes and sectors that are helping fight the coronavirus.

On March 27, 2020, Congress passed, and the President signed the “Coronavirus Aid, Relief, and Economic Security Act” — the “CARES Act.”  The Act aims to boost the economy with over $2 trillion in relief. This relief ranges from individual tax rebates, expanded access to 7(a) loans with forgiveness, expanded unemployment benefits and a variety of tax breaks and incentives. 

Individual Stimulus Payments 

Individual taxpayers will receive advance refunds of credits against 2020 taxes equal to $1,200 for individuals, or $2,400 for joint filers, plus $500 for each qualifying child. Generally, income tax credits reduce a taxpayer’s income tax liability and are claimed on the tax return for the year they arise. However, the government will make advance payments of the credit as soon as possible, with eligibility and credit amounts based on information from 2019 or 2018 tax returns.   

The amount of each recovery rebate credit is phased out by $5 for every $100 in excess of a threshold amount. This threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed). The phaseout begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. Thus, the rebates are completely phased out for single filers with 2018 (or 2019, if applicable) adjusted gross income over $99,000, heads of household with $136,500, and joint filers with $198,000. The credit for each qualifying child phases out with each additional $10,000 in AGI over the threshold. 

Our friends at Kiplinger tax have created a free calculator which allows you to compute your projected stimulus payment. Kiplinger Stimulus Check Calculator  

Small Business Loans 

To provide American small businesses with payroll support the CARES act provides forgivable loans to businesses with fewer than 500 employees (including sole-proprietorships and nonprofits) with access to nearly $350 billion in 7(a) loans administer by Small Business Administration. Visit our website at CARES Act: Paycheck Protection Program to see an in-depth look at the Paycheck Protection Program. 

Qualified Improvement Property Technical Error Correction 

The CARES Act has corrected an error in drafting the Tax Cuts and Jobs Act which disallowed 100% bonus depreciation on qualified improvement property. As a result of the CARES Act, the QIP drafting error has been corrected retroactively allowing for bonus depreciation for these expenditures. Taxpayers may have an opportunity to amend their 2018 tax filing to claim bonus on these assets and receive a refund of taxes paid. 

Temporary Modification of the Business Interest Expense Limitation. 

For taxable years beginning in either 2019 or 2020, the taxable income limitation for purposes of applying the business interest expense limitation has been raised to 50% up from the 30% limitation created by the Tax Cuts and Jobs Act. Additionally, a new provision allows for taxpayers to choose between 2019 and 2020 taxable income for purposes of the 2020 interest expense limitation calculation. 

Changes to the Net Operating Loss Rules 

Suspension of the 80% taxable income limitation 

The Tax Cuts and Jobs Act (the “TCJA”) imposed a limitation on the amount of NOLs that a taxpayer may deduct in a tax year equal to the lesser of the available NOL carryovers or 80% of a taxpayer’s pre-NOL deduction taxable income.  The CARES Act temporarily suspends, for tax years 2018 through 2020, the taxable income limitation to allow a taxpayer’s NOLs to fully offset taxable income.  

Temporary reinstatement of NOL carrybacks 

For NOLs arising in tax years after December 31, 2017, the TCJA eliminated a taxpayer’s ability to carryback an NOL to reduce taxable income in a prior tax year.  The CARES Act provides for a modified NOL carryback.  Specifically, the CARES Act allows NOLs arising in tax years 2018 through 2020 to be carried back to each of the five tax years preceding the loss year.  A taxpayer may elect to forgo the carryback, and instead treat losses arising in those years as NOL carryovers. 

Delays of Payment of Employer Payroll Taxes 

Employers will be able to defer the employer portion of Social Security taxes beginning with the enactment date of the law through the end of 2020. Fifty percent of the deferred taxes become payable on December 31, 2021 with the balance payable on December 31, 2022.  

Similarly, a self-employed taxpayer can defer paying fifty percent of his or her self-employment tax that would be due. 

The IRS is expected to revise Form 941, Employer’s Quarterly Federal Tax Return, to track the employer’s decision to defer tax deposits. 

Note that this deferral is not available to those who receive benefit from forgivable loans. 

Removal of Early Retirement Plan Distribution Penalty for COVID-19 Related Payments 

Normally, distributions from a qualified retirement plan are subject to a 10% penalty if they occur before the taxpayer reaches the age of 59 1/2.  The CARES Act eliminates this penalty when taxpayers take a 2020 distribution from the retirement plan that is “related” to the Coronavirus, up to an amount of $100,000.  A distribution is a “Coronavirus-related distribution” if it is to an individual that either (a) is diagnosed with COVID-19, (b) has a spouse or dependent diagnosed with COVID-19, or (c) experiences adverse financial consequences as a result of being quarantined, laid off, furloughed, or having their work hours reduced due to COVID-19.  

Please be aware, while qualifying distributions avoid a penalty, they remain taxable to the individual.  This tax liability can be paid over a three-year period starting from the year of the distribution, and the individual may repay the amount to the plan to avoid this tax liability.  Finally, the CARES Act also increases the amount an individual can borrow from their retirement plan to $100,000 for the 180-days following the date that the CARES Act is enacted. 

New Above-the-Line Charitable Contribution Deduction for Non-Itemizers 

The CARES Act amends how charitable deductions function for non-itemizers.  Normally, charitable contributions are itemized deductions, which can only be utilized by taxpayers who do not utilize the standard deduction.  Typically, only a very small percentage of taxpayers itemize.  The CARES Act provides that individuals can make charitable contributions and get a deduction for this contribution, even if the individual does not itemize.  While there are certain restrictions (the contribution must be made in cash, the new deduction cannot exceed $300 and is only available to taxpayers who do not itemize, etc.), this new law represents a change from the previous rules. 

Increased Charitable Contribution Deduction for Individual Itemizers and Corporations  

Although those individuals who do itemize are not able to take advantage of Section 2204, the CARES Act also provides a charitable benefit to those taxpayers.  Previously, individual taxpayers who itemized could only utilize charitable deductions in the amount of 60% of their adjusted gross income.  The CARES Act provides that for individual taxpayers, 2020 charitable contributions may be deducted in the amount of 100% of the taxpayer’s adjusted gross income for 2020 (with any excess amount eligible for a carry forward of 5 years).  For corporate taxpayers, Section 2205 increases the 2020 charitable deduction limit to 25% of taxable income, as opposed to the previously applicable 10% limit. 

Exclusion from Income of Employer Payment of Employee Student Loan Debt 

The CARES Act provides for an exclusion of up to $5,250 from income for payments of an employee’s education loans. In order for the exclusion to apply, the loan must have been incurred by the employee for the education of the employee. The payment can be made to the employee or directly to the lender. The exclusion only applies for payments made by an employer after the date of enactment and before January 1, 2021. 

Employee Retention Credit 

The CARES Act grants eligible employers a credit against employment taxes equal to 50 percent of qualified wages paid to employees who are not working due to the employer’s full or partial suspension of business or a significant decline in gross receipts. The credit can be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters.   

An eligible employer is defined as:   

• An employer whose trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease (COVID-19); or   

• An employer that experiences a 50% decline in gross receipts for the calendar quarter compared to the same quarter in the prior year.   

Qualified Wages. The credit applies to qualified wages paid after March 12, 2020 and before January 1, 2021. If the employer has more than 100 full-time employees, qualified wages are wages paid to employees who cannot work during the COVID-19-related circumstances described above. If the employer has 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.   

HRKCPA Comment   

This is very similar to the paid leave credits granted to employers under the Families First Coronavirus Response Act signed into law on March 18, 2020, with some changes to the requirements. Most significantly, neither the employee nor the employer must be directly impacted by the infection. 

Excess Business Losses Temporary (and Retroactive) Removal 

Recently enacted section 461(l) provides that the amount of net business loss an individual may use in a year to offset other sources of income is capped at $250,000 if single and $500,000 if married filing jointly. Any excess loss was converted into a net operating loss which was subject to additional limitations pre-CARES act. The CARES act temporarily halts the limitation enacted by Section 461(l) not only for 2020, but retroactive to January 1, 2019. As a result, any taxpayers who were limited by this provision in 2018 or 2019 can file an amended return to claim a refund. 

On March 27, 2020, Congress passed, and the President signed the “Coronavirus Aid, Relief, and Economic Security Act” — the “CARES Act.”  The Act institutes the Paycheck Protection Program which is a nearly $350-billion program intended to provide American small businesses with payroll support in the form of a loan which can be forgiven. This loan is administered under the Small Business Administration (“SBA”) 7(a) loan program.

Who is eligible for this program?

Generally, businesses and certain non-profits that have fewer than 500 employees are eligible for loans. There are affiliation rules through which nominally separate entities may be aggregated for purposes of the business size limitation. Certain food service and hospitality businesses are exempted from the affiliation rules.

How is the loan amount determined?

Loans are generally available up to the lesser of 2.5x an entity’s average monthly payroll cost or $10 million. Interest will not exceed 4%.

How is the loan amount forgiven?

*Businesses are eligible for forgiveness equal to the following costs incurred during the 8-week period after the origination of the loan.

• Payroll costs (defined as salary, wages, commission, cash tips (capped per employee at an annual rate of pay of $100,000); vacation, parental, family, medical, or sick leave; allowances for dismissal or separation; group health care benefits, including insurance premiums; retirement benefits; and state or local taxes on employee compensation. For seasonal businesses, the calculation is based on the average total monthly payments for these payroll costs for the 12 weeks beginning on February 15, 2019 or for the period from March 1, 2019 through June 30, 2019.
• Payment of interest on mortgages entered into before February 15, 2020
• Payment on any rent under leases entered into before February 15, 2020
• Payments for utility services that began before February 15, 2020

*HRKCPA Note: during the 8-week period you must provide to your bank substantial documentation and certify to your bank that these eligible costs were paid. It is critically important that you have a plan in place to not only accurately account for these costs but be able to provide the necessary documentation to substantiate your costs during the 8-week period.

 The total amount forgiven can be up to, but not exceeding, the principal amount of the loan. Loan forgiveness may be reduced based on reduction of employees or reduction in employee pay.

 What are the repayment terms, costs and conditions?

• Loan Terms: 4% interest rate and maximum maturity date of 10 years for any remaining balance after application of loan forgiveness
• No Collateral or Guaranty Required
• Loan Fees will be waived
• No prepayment penalty for any payment on loans
• Applicants must provide a good faith certification that the loan is economically necessary, that loan proceeds will be used for authorized payments, and is not duplicative of another pending loan or funds received, along with the 7(a) loan application and documentation including IRS payroll tax filings, state income, payroll, and unemployment insurance filings, and financial statements verifying debt payments.

 Hear what AICPA CEO Barry Melancon has to say about the Paycheck Protection Program.

https://youtube.com/watch?v=-bhFvqPMWTE

Harper Rains, Knight & Company, P.A. will assist you, our client, navigate this process and help provide your bank the necessary computations to compute the maximum loan and maximum amount of forgiveness you are eligible for under this stimulus program. We have dedicated professionals monitoring the program and are here to serve you throughout this process.

To get started please email Covid@hrkcpa.com with your contact information, normal point of contact at Harper, Rains, Knight & Company, P.A. and we will be in contact with you to discuss the next steps.

Q&A: Understanding SBA Disaster Loans and What They Mean for You

(SBA disaster assistance Q and A)

If you’re a small business owner struggling financially due to the COVID-19 outbreak, there is help available. The SBA is offering Economic Injury Disaster Loans of up to $2 million – here are answers to the FAQs.

How much funding can I get?

Small businesses that need support through the disaster recovery period can borrow as much as $2 million. The Economic Injury Disaster Loan (EIDL) provides an interest rate of under 4%.

How do I know if I qualify for Disaster Assistance?

The best way to determine whether you meet the criteria for a “small” business is through the North American Industry Classification System Codes and the Table of Small Business Size Standards through the SBA. Keep in mind that in order to determine qualification, a business is gauged both on its own without affiliates and when combined with its affiliates. Affiliates is a term that is used broadly when it comes to Disaster Loans: click here to see the specific regulations.

Both with and without affiliates, to qualify the business is not allowed to go above the established standard for its industry, and the rule on whether to use the numbers for the business alone or with affiliation is based on whichever of the two is higher.

To get an idea of what would be considered small for different industries, the standard for the manufacturing industry dictates that for a business to be considered small it can’t employ more than 500 people. For a sit-down restaurant to qualify as small, it cannot average more than $8 million in revenues per year; and for retailers the average annual sales can’t be over $7 million.

Q. Is there a maximum amount of assistance that I can get?

Yes. No more than $2 million is available under the program currently being used.

Are there limits to what the loans can be used for?

The purpose of the loan is to help businesses survive through the disaster recovery period and to mitigate the economic damages that it suffers. The loans are explicitly only to be used for that purpose until things get back to normal. This means that businesses that have suffered financial injury can apply for an EIDL to cover their losses and to provide what they need to continue business operations to replace what they would have needed under circumstances prior to the

crisis. The amount cannot exceed that threshold, and will be calculated based on three criteria:

• What your total debt is
• What your operating expenses are for the disaster recovery period and what will provide working capital during that time that puts you in a reasonable position
• What your working capital position and manageable expenses would have been had there been no disaster

When making the determination, the SBA will not necessarily determine that the amount of financial injury you demonstrate will be the same amount that you are eligible to borrow. Each decision will be based on the data and backup you provide as well as what they view as the reasonableness of your ask.

Additionally, the loans cannot be used to make improvements or grow the business beyond making repairs to damage caused by the disaster. The only exception is if there are local building codes that demand changes that result in expansion.

Are the terms of the loans reasonable?

Terms will be dependent upon the availability of alternative sources of credit, and how much time it is likely for the business to need to repay the loan, but they can have interest rates of 4% or less and maturity of up to thirty years.

Understanding the Application Process –

Does my credit affect my ability to get a loan?

Your credit history will definitely be taken into consideration by the SBA. Additionally, you will need to demonstrate your ability to repay the loans when they come due, and you will probably be required to pledge collateral such as real estate to secure the loan, though lack of collateral will not preclude approval. For loans of $25,000 or more, whether for a physical business loan or an EIDL loan, collateral will be particularly important.

The SBA is required under the EIDL system to review the financial statement for the business, as well as for stakeholders including each officer, each partner and director, and each stockholder whose ownership stake is twenty percent or greater. Personal repayment will need to be guaranteed by the business’ principals, and those individuals may also be required to pledge additional collateral in order for the loan to be secured, though this requirement may be waived for loans relating to the COVID-19 crisis.

What other information is required beyond credit history?

Your application must include a signed and dated IRS Form 4506-T, which will serve as notice to the IRS that your tax return information can be released to the SBA so that they can consider your loan. The application also requires current information on your finances, including:

• Most recent federal income tax returns
• Personal financial statement
• Schedule of liabilities listing all fixed debts
• Completed set of all SBA paperwork
• Year-end profit-and-loss statement and balance sheet for that tax year
• A current year-to-date profit-and-loss statement
• Monthly sales figures for increases in the amount of economic injury

When should I apply?

The timing of your loan application is entirely up to you and your perception of need. The entire decision-making process generally takes two to three weeks assuming that all of the information has been provided in the application. Please note that though a decision may be made in less than a month, a congressional study revealed that actually getting the EIDL loan has historically taken 43.3 days.

What about my business’ previously existing mortgage? Can it be refinanced through the SBA program?

Absolutely. Either all or a portion of previously existing business mortgages can be refinanced if no other credit for doing so is available. The SBA will also step in where uninsured damage involving 40 percent or more of the property has occurred, as long as the refinance plan includes repairs. For more information on this aspect of the program, speak with an SBA disaster loan officer.

I have an insurance claim pending – Should I wait for it to settle before filing a loan application?

No. You should not allow anything to delay your application, especially because there is a filing deadline. When your settlement is finalized you can add it to your application. Keep in mind that if you apply and are approved for a loan for total replacement, you are required to apply the funds that you receive from your insurer directly to repayment of the loan.

Does the SBA require personal financial statements from stakeholders to process the disaster loan?

To secure the disaster relief loan, stakeholders — including the business’ partners, officers, directors and any stockholders with 20 percent or more ownership — will need to personally guarantee repayment of the loan, in some cases will even be required to pledge additional collateral for security. They will also have to provide financial statements.

Where Do I Start?

• Contact our office – There will be a huge backlog of applications. Sending in an incomplete package will slow down the approval process. Our experts will review what program is right for your business and help plan for the cash flow disruption so you can thrive once the economy takes off again. We can get through this together – all you have to do is notify us you’re considering an EIDL.
• Put together a forecast – One of the first things that you will need is a budget and financial forecast that looks forward for at least half of the year – going beyond six months would be even better. Having this forecast in hand will provide invaluable information upon which the SBA will base its decision about the impact that the disaster will have on your business, and on your worthiness for a loan. Even if the SBA turns you down, the information will support your case when you seek funding from other creditors.
• Start familiarizing yourself with the forms you’ll need to fill out and the documents you’ll need to assemble – In order to prove your need for a disaster relief loan, you’ll need a significant number of supporting documents. You’ll also be required to take a deep dive into the financial impact that the disaster will have on you. This is not a situation for estimates. The SBA will want to see your work.
• Check your work at least twice – When you’re completing the forms, go over it several times to make sure you haven’t skipped over anything. Any application packet that is incomplete is a packet that is not going to be approved anytime soon.
• Take the urgency of the situation seriously – You may think you’re okay in the moment, but things are going to get worse soon. Don’t delay – complete the application for the assistance loan ASAP.
• Be gentle with the SBA staff – You’re stressed and so are they. You can make their job easier by getting your paperwork in early and making sure you haven’t skipped anything, but even if you have done everything perfectly, they are still going to be frazzled and overloaded with work. Be patient.

If you keep in mind that everybody is struggling with the same issues and concerns, you will put yourself in a better emotional place. For assistance with this process or to discuss your options, contact us today.

As the whole world grapples with the personal, professional, and economic fallout of the COVID-19 outbreak, we wanted to help our tax and small business clients stay up to date on the latest news affecting them each day. Keep checking back for the top headlines to stay informed.Here is some of the important news to keep up with today: March 27 The Hill: House passes $2 trillion coronavirus relief bill, with Trump to sign quickly The Wall Street Journal: How the Coronavirus Paid Leave Rules Apply to You Politico: House to pass $2 trillion coronavirus package — but not without last-minute drama The Wall Street Journal: Construction Companies Lobby to Keep Working as Coronavirus Spreads Fast Company: An official World Health Organization COVID-19 app is coming soon March 26 Forbes: What To Do About Your Student Loans During The Coronavirus (COVID-19) Crisis The Wall Street Journal: Small Businesses in Limbo as They Await Coronavirus Assistance for Them Politico: More questions and answers about the coronavirus checks Fast Company: Applying for a small business disaster loan? What to know about the COVID-19 stimulus package Forbes: When You File Your 2019 Tax Return Will Impact Your Stimulus Payment Tax Foundation: Tracking State Legislative Responses to COVID-19 Forbes: How Will The Coronavirus Bill’s Individual Tax Payments Work? March 25 The Hill: White House, Senate reach deal on $2 trillion stimulus package Politico: Here’s what’s in the $2 trillion stimulus package — and what’s next Fast Company: Coronavirus stimulus checks: What we know so far The Hill: New York Governor Cuomo: ‘Numbers don’t work’ in ‘terrible’ Senate stimulus package Fast Company: What to do if you’re laid off during COVID-19: Start with these unemployment resources

Article Highlights:

Recovery Rebate
Penalty-Free Retirement Withdrawals
Waiver of the 2020 RMD Requirement
Temporary Removal of Charitable Contribution Limits
Employer Student Loan Payments
Employer Delayed Payroll Tax Deposits
Employer Credit for Retaining Employees
Temporary Reinstatement of NOL Carrybacks
Limitation on Losses
Prior Year AMT Credit for Corporations
Limitation on Business Interest
Loan Guarantees and Subsidies

The ‘Coronavirus Aid, Relief, and Economic Security Act’ (Cares Act) includes many tax and financial breaks for both individuals and businesses. We broke down many of the essential elements and how they can assist you and your business during this troubling time.Recovery Rebate – The most talked about provision is the ‘recovery rebates’ for individuals. These rebates are actually credits allowed on taxpayers’ 2020 tax returns that will be paid out in advance by the Treasury. Each eligible individual will receive $1,200 ($2,400 for married couples filing jointly) plus an additional $500 for each qualifying child. These rebates are intended for low- to middle-income individuals, so they are phased out for higher income folks. For unmarried individuals the credit begins to phase out at an AGI of $75,000 and is fully eliminated at $98,990. For those filing as head of household, the phase-out range is $112,500 to $136,490, and for married couples filing jointly it is $150,000 to $197,990. The Treasury will determine who will receive a check and the amount they are entitled to based on the individual’s 2019 tax return. Where no 2019 return has been filed at the time of the rebate payment, the Treasury will use the 2018 tax return. For those who have not filed either a 2018 or 2019 return, the Treasury will provide a payment to individuals that received 2019 Social Security or Railroad Retirement benefits. Where an advance rebate is more or less than allowed because an individual’s filing status or family size is different in 2020 or the credit is subject to phase-out based on 2020 income, the adjustment is made on the 2020 tax return. Thus, individuals may be entitled to an additional credit or possibly have to pay back a portion of the payment they received. This means that individuals who otherwise wouldn’t have a 2020 return filing requirement based on their income will likely have to file to reconcile their advance rebate with their actual credit. The rebates will not be paid to individuals who are claimed as a dependent of another on a prior year return. Additional Key Provisions – The Cares Act is over 500 pages covering tax provisions, economic stimulus, business loans, health care and more. Following is an overview of the key issues relating to individuals and small businesses. Individuals:

Penalty Free Retirement Withdrawals – Penalty-free withdrawals from qualified retirement plans (including 401(k)s, TSAs, SEPs and traditional IRAs) are allowed. The withdrawals are limited to $100,000 and the income is taxable over a three-year period with an option to also recontribute the withdrawal over a three-year period.
RMD Waiver – There is a one-year waiver for the 2020 required minimum distribution (RMD) from qualified plans and traditional IRAs for taxpayers that turned 70.5 in a year before 2020 and those that turn 72 in 2020. This prevents them from having to take a distribution when the stock market is in a decline.
Charitable Contributions – A suspension of charitable contribution limits applies for 2020. Generally, for cash gifts, tax deductible charitable contributions are limited to 60% of adjusted gross income (AGI). The suspension of the limitation will allow taxpayers to make larger charitable contributions during this trying time. Also included is an above-the-line charitable deduction limited to $300 of cash donations for those that don’t itemize their deductions.
Student Loan Payments – Employees can exclude from income payments (Up to $5,250) made before January 1, 2021 by their employers towards their student loans.

Businesses:

Payroll Deposits Delayed – In order to provide businesses with more financial resources to weather this epidemic, employers can delay payroll tax deposits for 2020 with 50% not due until December 31, 2021, and the balance due by December 31, 2022.
Employee Retention Credit – In order to help businesses retain employees and keep them employed during this crisis, Congress has provided a refundable employer retention credit equal to 50% of qualified wages. This credit can be used to offset quarterly employment taxes. The qualified wages under this provision are limited to $10,000 per employee in 2020.
NOL Carryback Reinstated – Under the 2018 tax reform legislation (TCJA), a business net operating loss (NOL) was no longer allowed to be carried back to a prior year, had to be carried forward to the next tax year, and the carryforward loss deduction was limited to 80% of the carryforward year’s taxable income. Under the CARES Act, carryback of losses incurred in 2018 through 2020 has been reinstated and the 80% of taxable income limitation repealed. This is designed so businesses with financial problems can file for tax refunds from the carryback years when they were profitable and had paid income taxes.
Limitation on Losses – The legislation retroactively turns off the excess active business and farming loss limitation rules implemented as part of tax reform to apply after December 31, 2020 instead of after December 31, 2017.
Prior Year AMT Credit for Corporations – Allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and provides an election to accelerate claims to 2018, with eligibility for accelerated refunds.
Limitation on Business Interest – Generally allows businesses to elect to increase the interest limitation from 30% of adjusted taxable income to 50% for 2019 and 2020 and allows businesses to elect to use 2019 adjusted taxable income in calculating their 2020 limitation.
Loan Guarantees and Subsidies – Includes over $300 billion for Small Business Administration (SBA) loan guarantees and subsidies and additional funding for SBA resources.

Of course, there are additional details that we will be providing in the days ahead. Please call if you have questions.

If you’re a small business owner struggling financially due to the COVID-19 outbreak, there is help available. The SBA is offering Economic Injury Disaster Loans of up to $2 million – here are answers to the FAQs. Q: How much funding can I get? Small businesses that need support through the disaster recovery period can borrow as much as $2 million. The Economic Injury Disaster Loan (EIDL) provides an interest rate of under 4%. Q. How do I know if I qualify for Disaster Assistance? The best way to determine whether you meet the criteria for a “small” business is through the North American Industry Classification System Codes and the Table of Small Business Size Standards through the SBA. Keep in mind that in order to determine qualification, a business is gauged both on its own without affiliates and when combined with its affiliates. Affiliates is a term that is used broadly when it comes to Disaster Loans: click here to see the specific regulations. Both with and without affiliates, to qualify the business is not allowed to go above the established standard for its industry, and the rule on whether to use the numbers for the business alone or with affiliation is based on whichever of the two is higher. To get an idea of what would be considered small for different industries, the standard for the manufacturing industry dictates that for a business to be considered small it can’t employ more than 500 people. For a sit-down restaurant to qualify as small, it cannot average more than $8 million in revenues per year; and for retailers the average annual sales can’t be over $7 million. Q. Is there a maximum amount of assistance that I can get? Yes. No more than $2 million is available under the program currently being used. Q. Are there limits to what the loans can be used for? The purpose of the loan is to help businesses survive through the disaster recovery period and to mitigate the economic damages that it suffers. The loans are explicitly only to be used for that purpose until things get back to normal. This means that businesses that have suffered financial injury can apply for an EIDL to cover their losses and to provide what they need to continue business operations to replace what they would have needed under circumstances prior to the crisis. The amount cannot exceed that threshold, and will be calculated based on three criteria:

What your total debt is
What your operating expenses are for the disaster recovery period and what will provide working capital during that time that puts you in a reasonable position
What your working capital position and manageable expenses would have been had there been no disaster

When making the determination, the SBA will not necessarily determine that the amount of financial injury you demonstrate will be the same amount that you are eligible to borrow. Each decision will be based on the data and backup you provide as well as what they view as the reasonableness of your ask. Additionally, the loans cannot be used to make improvements or grow the business beyond making repairs to damage caused by the disaster. The only exception is if there are local building codes that demand changes that result in expansion. Q. Are the terms of the loans reasonable? Terms will be dependent upon the availability of alternative sources of credit, and how much time it is likely for the business to need to repay the loan, but they can have interest rates of 4% or less and maturity of up to thirty years. Understanding the Application Process Q. Does my credit affect my ability to get a loan? Your credit history will definitely be taken into consideration by the SBA. Additionally, you will need to demonstrate your ability to repay the loans when they come due, and you will probably be required to pledge collateral such as real estate to secure the loan, though lack of collateral will not preclude approval. For loans of $25,000 or more, whether for a physical business loan or an EIDL loan, collateral will be particularly important. The SBA is required under the EIDL system to review the financial statement for the business, as well as for stakeholders including each officer, each partner and director, and each stockholder whose ownership stake is twenty percent or greater. Personal repayment will need to be guaranteed by the business’ principals, and those individuals may also be required to pledge additional collateral in order for the loan to be secured, though this requirement may be waived for loans relating to the COVID-19 crisis. Q. What other information is required beyond credit history? Your application must include a signed and dated IRS Form 4506-T, which will serve as notice to the IRS that your tax return information can be released to the SBA so that they can consider your loan. The application also requires current information on your finances, including:

Most recent federal income tax returns
Personal financial statement
Schedule of liabilities listing all fixed debts
Completed set of all SBA paperwork
Year-end profit-and-loss statement and balance sheet for that tax year
A current year-to-date profit-and-loss statement
Monthly sales figures for increases in the amount of economic injury

Q. When should I apply? The timing of your loan application is entirely up to you and your perception of need. The entire decision-making process generally takes two to three weeks assuming that all of the information has been provided in the application. Please note that though a decision may be made in less than a month, a congressional study revealed that actually getting the EIDL loan has historically taken 43.3 days. Q. What about my business’ previously existing mortgage? Can it be refinanced through the SBA program? Absolutely. Either all or a portion of previously existing business mortgages can be refinanced if no other credit for doing so is available. The SBA will also step in where uninsured damage involving 40 percent or more of the property has occurred, as long as the refinance plan includes repairs. For more information on this aspect of the program, speak with an SBA disaster loan officer. Q. I have an insurance claim pending – Should I wait for it to settle before filing a loan application? No. You should not allow anything to delay your application, especially because there is a filing deadline. When your settlement is finalized you can add it to your application. Keep in mind that if you apply and are approved for a loan for total replacement, you are required to apply the funds that you receive from your insurer directly to repayment of the loan. Q. Does the SBA require personal financial statements from stakeholders to process the disaster loan? To secure the disaster relief loan, stakeholders — including the business’ partners, officers, directors and any stockholders with 20 percent or more ownership — will need to personally guarantee repayment of the loan, in some cases will even be required to pledge additional collateral for security. They will also have to provide financial statements. Where Do I Start?

Contact our office – There will be a huge backlog of applications. Sending in an incomplete package will slow down the approval process. Our experts will review what program is right for your business and help plan for the cash flow disruption so you can thrive once the economy takes off again. We can get through this together – all you have to do is notify us you’re considering an EIDL.
Put together a forecast – One of the first things that you will need is a budget and financial forecast that looks forward for at least half of the year – going beyond six months would be even better. Having this forecast in hand will provide invaluable information upon which the SBA will base its decision about the impact that the disaster will have on your business, and on your worthiness for a loan. Even if the SBA turns you down, the information will support your case when you seek funding from other creditors.
Start familiarizing yourself with the forms you’ll need to fill out and the documents you’ll need to assemble – In order to prove your need for a disaster relief loan, you’ll need a significant number of supporting documents. You’ll also be required to take a deep dive into the financial impact that the disaster will have on you. This is not a situation for estimates. The SBA will want to see your work.
Check your work at least twice – When you’re completing the forms, go over it several times to make sure you haven’t skipped over anything. Any application packet that is incomplete is a packet that is not going to be approved anytime soon.
Take the urgency of the situation seriously – You may think you’re okay in the moment, but things are going to get worse soon. Don’t delay – complete the application for the assistance loan ASAP.
Be gentle with the SBA staff – You’re stressed and so are they. You can make their job easier by getting your paperwork in early and making sure you haven’t skipped anything, but even if you have done everything perfectly, they are still going to be frazzled and overloaded with work. Be patient.

If you keep in mind that everybody is struggling with the same issues and concerns, you will put yourself in a better emotional place. For assistance with this process or to discuss your options, contact us today.

Article Highlights:

COVID-19 Epidemic
Employer Reimbursement
Paid Sick Leave
Family Care Leave
Procedures for Reimbursing Employers

The COVID-19 epidemic has created situations where employees are not able to work because they tested positive for the virus or have been quarantined after coming in contact with someone who has tested positive. It has also caused parents to miss work because their children’s school has closed due to the outbreak and there is no one to watch the kids. As a result, the federal government is providing sick leave benefits and child care leave benefits to affected taxpayers whose employers have fewer than 500 employees. The way this is being handled is the employer will pay the benefits to the employee and then will be reimbursed by the government (more on this later in this article).

Sick Leave – To qualify for paid sick leave, an employee (regardless of how long employed by the employer) who is unable to work in person or to telecommute for any of the following reasons qualifies for paid sick leave:

Is subject to a COVID-19 federal, state, or local isolation or quarantine order.
A health care provider advises them that they should self-quarantine as a result of concerns related to COVID-19 (self-quarantining without advice does not qualify).
Is seeking medical diagnosis as a result of having symptoms of COVID-19.
Is caring for somebody (not necessarily a family member) who is subject to a federal, state, or local isolation or quarantine due to COVID-19; or who has been advised to self-quarantine by a health care provider as a result of COVID-19.
A child’s school or care facility has been closed or is unavailable as a result of COVID-19 and the employee needs to care for the child. The exact definition of what paid sick time comprises is based upon the number of hours that an employee works. For full-time employees, paid sick leave is 80 hours. Those who work part-time will be entitled to the same number of hours of paid sick leave that they would normally work during a two-week period. A special calculation method is used for those who work a significantly different number of hours each week. Referring to the numbered qualified reasons listed above, the leave pay that is based on reasons 1, 2 and 3 will be paid at the same rate the employee is normally paid, up to a maximum of $511 per day and a total of $5,110. Those who need paid sick leave based on the reasons numbered 4 and 5 will be paid their sick leave hours at a rate equal to two-thirds of their normal pay, with a maximum of $200 per day and a total of $2,000. These sick pay benefits are only available through the end of 2020.

Family Care Leave – Employees are able to take up to 12 weeks of leave if they can’t work (in person or via telework) because of their care responsibilities for a child or children under 18 years of age whose school or care facility has been shuttered as a result of COVID-19. The twelve-week period will provide compensation after the first ten unpaid days (though employees can use accrued paid sick or vacation time to provide payment for those ten days). The compensation will be calculated at two-thirds of the employee’s normal wages for the number of hours that they were regularly scheduled to work, maxing out at $200 per day and a total of $10,000.

Although the law does not require the employer be provided any advance notice, employees should give the employer notice as soon as events permit. Employers are specifically prohibited from requiring employees to use other accrued paid leave before using these emergency leave benefits. Employers who pay qualifying sick or child care leave will recoup the payments by being able to retain the income, Social Security and Medicare taxes (payroll taxes) withheld from employees that they would normally submit to the government in an amount equal to the amount of qualifying sick and child care leave that they paid. The employer’s share of Social Security and Medicare taxes are also eligible to be retained. Where the payroll taxes aren’t enough to cover the leave payments, employers may request an accelerated payment from the IRS. The IRS plans to announce details of the accelerated payment procedure before the end of March, 2020. If you have questions related to these special benefits for 2020 or need additional details, please give this office a call.

Article Highlights:

Automatic 2019 filing and payment extensions
If you can’t pay
Loans
Credit card payments
IRS installment agreement
Retirement funds

Although most American taxpayers receive a refund each year when they file their income tax returns, there are those who for one reason or another end up owing. However, lots end up owing on April 15th and many don’t have the means to pay what they owe. In an unprecedented move to dampen the economic hardship of the COVID-19 virus, the IRS has given taxpayers until July 15th to file their 2019 returns and pay their 2019 tax liability and without having to file a request for extension of time. The due date has also been put off to July 15 for some 2020 estimated tax payments. No penalties or interest will apply during the extended filing period. Generally, tax due occurs when a wage earner has under-withheld on his or her payroll or a self-employed individual failed to make adequate estimated tax payments during the year. This can be a huge problem for those who are unable to pay their liability. If you are currently unable to pay the tax you owe, this extension of the payment due date gives you additional time to make arrangements. It is generally in your best interest to make other arrangements to obtain the funds for paying your taxes rather than be subjected to the government’s penalties and interest for payments made after July 15, 2020. Here are a few options to consider.

Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
Credit Card – Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay a credit card discount fee (the fee charged by the credit card company), you will have to pay the taxes due and pay the higher credit card interest rates.
Short-Term Payment Plan – If you are able to fully pay the tax owed within 120 days, you can apply for a short-term payment plan online at the IRS web site. You won’t be charged a set-up fee, but will still have to pay penalties and interest until the balance owed is fully paid.
Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate. There is a user fee to set up the payment plan. However, the IRS generally waives the fee for low-income taxpayers who agree to make electronic debit payments. In making the agreement, a taxpayer agrees to keep all future years’ tax obligations current. If the taxpayer does not make payments on time or has an outstanding past due amount in a future year, they will be in default of their agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of the streamlined option.
Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement and the distributions are generally taxable at your highest bracket, which adds more taxes to your existing problem. In addition, if you are under age 59½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further.

If you have questions about the payment extension, please call this office for assistance. Don’t just ignore your tax liability because that is the worst thing you can do.