We have all fallen. We had a daily routine – we went to work at the office and met face to face with our team, clients, or prospects. Now, however, we work hard just to keep up our spirits and morale while working from home, using Teams, Zoom, FaceTime, or whatever will allow us to see others. This is a new world, and I am confident that we will all adapt in some way. In fact, when the dust settles and this crisis is over, some will probably choose to keep working from home, while others will be thrilled to make the commute to the office.
Below, we will cover a few points to help businesses stay afloat and prepare to adapt or pivot to new ways of meeting and collaborating. We will also be providing insights from a number of Prager Metis’ affiliates to ensure all your bases are covered.
For businesses, we will discuss the use of PPP funds, payroll tax deferral, and how you may be able to take advantage of R&D credits or certain tax law changes including NOL’s and depreciation. In addition, we will guide individuals through preparing for a job if you’ve been terminated, life insurance settlements, and using your retirement money to get through this difficult period.
PPP Funds
As of last week, all of the $349 billion PPP funding was spoken for. However, with additional funding expected to be approved in the coming days, it is essential to make sure your application and back-up support are ready to file.
For those who received PPP dollars, it’s now about how to use these funds to your business’s best advantage. The SBA will be issuing more guidance on what qualifies for forgiveness over the next eight weeks, but one of the key areas to consider is furloughed staff. Do not bring back furloughed staff until you have work for them. The reduction in loan forgiveness related to the reduction in headcount can be avoided if the reduction in FTEs that was made during the period between February 15, 2020 and April 26, 2020 is restored by June 30, 2020. Additionally, the reduction in loan forgiveness for the reduction in wages can be avoided if, by June 30, 2020, the borrower restores the same wage rate the employee was earning as of February 15, 2020 (as compared to the wages paid between February 15, 2020, and April 26, 2020). It is the Paycheck Protection Program, after all. While it’s true that this all may result in less loan forgiveness, it’s important to remember that a 1% interest loan for two years does not become available every day. Use that money to pay rent, utilities, and interest on debt – not to exceed 25% of the forgiveness. From a planning perspective, it is important to keep in mind that there will be no tax deductions for expenses paid for with the proceeds that are forgiven. Finally, it is also critical to review any loan covenants related to any existing debt to avoid defaulting on non-PPP loans.
All businesses should defer the employer’s portion of social security taxes (50% of this deferral is due in 2021 and the other 50% in 2022). This will help with cash flow, especially as you begin to bring back staff. Recipients of PPP funds may also defer these tax payments through the date their application for loan forgiveness is approved. For forgiveness, you have until June 30th to bring your team back.
Business Interruption Insurance: File A Claim, Even If You’ve Been Told You’re Not Covered – from PM Risk Management
During this strange and uneasy time, many business owners are concerned with the losses associated with COVID-19. At PM Risk Management, we have been taking a proactive approach to help our clients navigate this. It is important to note that many insurers have taken the position that claims related to COVID-19 are not covered, either because there has been no physical damage to the property or because the policy contains an exclusion for losses due to virus or bacteria. Some states have proposed legislation that would require insurers to provide some coverage for losses stemming from COVID-19. PM Risk Management is advising clients not to wait on legislation to decide their course of action. Rather, they should be putting the Insurers on notice of any/all potential claims related to COVID-19 and let the carrier respond on coverage. In the event that coverage is extended at some point in the future, the notice of claim is already filed and is timely. Our in-house claims department is working closely with our clients as this continues to unfold.
COVID-19 Crisis Management: Three Tax Strategies To Put Cash In Your Pocket Now – from PM Business Advisors
The COVID-19 crisis has companies more eager than ever to squeeze every dollar out of their organizations to help with massive cash flow deficits. Here are three strategies that many companies can implement today and increase cash flow immediately.
Federal and State R&D Tax Credits
Value: 10% – 15% of your qualified R&D Spend
For many companies, 2019 was a banner year with the strongest US economy in decades. This has resulted in substantial tax liabilities and executives scrambling for ideas to reduce that cost. The Federal R&D tax credit program is one of the most overlooked credits available to companies in many, many industries. Long thought of as a credit that only applied to pharmaceutical and research companies, the R&D tax credits can apply to many industries such as software, manufacturing, architecture, and engineering as well as the traditional sectors of high-tech, biotech, and pharma. In addition to the Federal credit, many states have a companion credit. For start-ups with no tax liability in 2019, you may qualify for the refundable payroll tax credit, which can be converted to cash within 60 – 90 days. Credits should be documented and filed for on a contemporaneous basis. However, if you qualify, you may be able to amend prior-year tax returns for up to three years.
Cost Segregation Study
Value: Accelerate $50K of deductions for every $1M in Depreciable Property
A cost segregation study allows companies to classify real and personal property from longer lives depreciated over a straight-line method to short lives that qualify for 100% bonus deprecation – resulting in an immediate deduction. Many companies assume that their CPA has appropriately classified their property. However, CPAs are limited to the information provided to them to make these determinations. In many cases, the IRS requires a study to classify property from a 39-year straight-line method to 5-year accelerated depreciation. For properties that have been held for a period of 3 – 5 years, companies can recognize a ‘catch-up’ of the accelerated depreciation and generate large deductions for the 2019 tax year. A cost segregation study can also be done on many 1031-exchange properties. Applying a cost segregation study to your assets will have an immediate reduction in your 2019 taxable income.
Sales Tax Recovery
Value: $100K in refunds for every $100M in purchases
Sales tax rules are a complicated web of regulations that vary from state to state. Thousands of exemptions exist for businesses to apply against their purchases that most companies are not aware of. This is not a refund of the sales tax you collect from your customers, but refunds of sales tax overpaid on your purchases. Many factors in recent years have caused most companies to overpay sales & use tax on their purchases. A proper analysis of all a company’s purchases can result in substantial refunds. These refunds are secured from the vendors or the individual states. These projects are completed on a contingent basis with minimal resources required from your company. In some instances, credits or refunds can be recovered from vendors within 30 days. For large companies with sophisticated tax departments, don’t assume this is being completed by your team. A typical sales tax recovery project combines large sets of data, with years of business intelligence to review over 90% of your companies spend. Internal tax departments do not have access to such technology or resources.
For more information please reach out to us – we look forward to hearing from you.
Are You Getting Every Tax Benefit For Your Business That You Can?
The CARES Act provides modifications for net operating losses (NOLs) by temporarily repealing the 80 percent of taxable income limitation enacted by the Tax Cuts and Jobs Act. This allows full use of NOLs for both corporations and individual taxpayers for 2018 through 2020. Further, for NOLs arising in a tax year beginning after December 31, 2017 and before January 1, 2021, both corporate and individual taxpayers may carryback NOLs to the preceding five tax years. The new law also suspends the limitation on excess business losses for non-corporate taxpayers for tax years after 2017 and before 2021. The Tax Cuts and Jobs Act imposed a limitation on deduction of losses for non-corporate taxpayers in excess of $500,000 for married joint filers ($250,000 for non-married filers) for tax years beginning after 2017. Further, the new law modifies the interest expense limitation rules imposed by the Tax Cuts and Jobs Act after 2017 by increasing the limitation from 30 percent to 50 percent of adjusted taxable income for the 2019 and 2020 tax years. In applying the modified limitation, taxpayers may elect to use 2019 adjusted taxable income for purposes of determining their 2020 tax year limitation. Certain small business taxpayers and real estate businesses (real estate businesses can elect out of the limitation rules with a corresponding modification to their depreciation of real property) are not subject to the interest expense limitation. In addition, the Act provides a technical correction allowing bonus depreciation or special straight-line MACRS depreciation over 15 years instead of 39 years for “qualified improvement property” (i.e., an improvement to the interior portion of nonresidential real property, but does not include enlargements to the building or internal structural framework). This technical correction may create opportunities to amend 2018 tax returns and make refund claims.
What You Can Do To Prepare To Get Back In The Game If You Have Been Terminated – from PM Human Capital Solutions
While many people are in the unfamiliar situation of being laid-off, Part of a successful strategy is to prepare for successful re-entry. If you were laid off there are steps you can take to put yourself in the best possible position when the economy reopens.
- Update Your Resume – Take the time to evaluate your resume. Make any changes you feel could be advantageous and appropriate. Try to keep to a traditional 1-2-page document.
- Social Media Analysis – Update your LinkedIn and make sure your personal social media is appropriate. LinkedIn has become a powerful tool for job seekers. Include on your profile that you are actively seeking opportunities. Profiles with photos get greater responses.
- Target Industries – Take the time to think about industries that will be in critical need of talent coming out of the crisis. For example – medical device companies, Pharma, technology.
- Be Prepared for a Shift – When the economy reengages contract and interim opportunities may be more abundant. Even if you have never explored these types of positions, it may be wise to target interim roles.
- Network – Now is the time to look back on past connections. Former colleagues, associates, business partners, recruiters, accountants, attorneys. You can check in on them and their family, let them know of your situation.
- Stay Positive – Keep yourself engaged professionally as best you can. Focus on self-development, reading, CPE catch-up, and any other activity that keeps you productive. Keep a positive outlook.
PM Human Capital Solutions are here to help. We are offering free resume writing suggestions, as well as, search strategies and guidance on interview tips and techniques. We will look at your resume structure and content, evaluate your LinkedIn profile, and advise you of networking steps. If you were affected, please do not hesitate to reach out and schedule a call.
If You Have a Life Insurance Policy – Even Term Insurance – But Don’t Think You Need Any Longer and Can Use the Cash – from PM Risk Management
During this uneasy time, many seniors are conscious about their retirement and their retirement savings. Life insurance is often a senior’s largest asset and one they can use to alleviate retirement challenges — but they rarely realize it belongs to them, not the insurance company, and can be sold if they believe there is a better use for the equity they have built. Life Settlements are a great alternative for clients looking to liquidate their retirement assets. PM Risk Management is here as your advocate and your advisor. We are available for a conversation 7 days a week, and here to help navigate this “new norm”. Feel free to reach out to us, and we look forward to speaking with you soon.
Drawing Down On The Cash In Your Retirement Account – from PM Wealth Management1
In response to the coronavirus pandemic, the US government has taken several measures to help ease the financial burden on individuals.
The Required Minimum Distribution rules for retirement and inherited retirement accounts are waived for 2020. This is a form of tax relief, since the purpose of the required distribution is to generate income tax.
The passage of the CARES Act allows for individuals to make “coronavirus-related distributions” and/or loans from retirement plans up to $100,000 during calendar year 2020.
For employer-sponsored plans, such as 401(k) and 403(b), individuals can take in-service distributions with no 10% early withdrawal penalty and no mandatory 20% Federal tax withholding. The individual then has the option of paying the income tax on these withdrawals over 3 years (2020, 2021, 2022) or recontributing the money back to the plan within 3 years with no tax due.
The Act also allows for these plans to increase the loan limit from ‘50% of plan balance up to $50,000’ to ‘100% of plan balance up to $100,000’ for traditional plan loans (typically payable over 5 years). This change applies for loans initiated during the 180 days following March 27, 2020.
*Employers must add these provisions to the retirement plan documents before they can be utilized.
Similar provisions apply to Individual Retirement Accounts (IRAs). Individuals can withdraw up to $100,000 with no penalty and choose to pay the income tax over 3 years or repay the money back to the IRA within 3 years.
Per the Act:
(A) CORONAVIRUS-RELATED DISTRIBUTION —Except as provided in paragraph (2), the term “coronavirus-related distribution” means any distribution from an eligible retirement plan made—
(i) on or after January 1, 2020, and before December 31, 2020
(ii) to an individual—
(I) who is diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention,
(II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or
(III) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).
(B) EMPLOYEE CERTIFICATION —The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions of subparagraph (A)
(ii) in determining whether any distribution is a coronavirus-related distribution.
1 Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through PM Wealth Management, a registered investment adviser and separate entity from LPL Financial.
While I have tried to cover a lot of information, there are never one-size-fits-all solutions in times like these. If you have any questions about anything mentioned in this article, please submit them to us at crisismanagement@pragermetis.com.
