Business Planning During COVID-19
May 15, 2020
This episode of “The Bottom Line” covers how business owners can work with their trusted advisors to properly leverage the COVID-19 government stimulus programs, navigate the tax issues within these programs, and plan for the future when some semblance of normalcy returns.
DP: So, 2020 is turning into quite the year to remember, is it not?
TS: Yeah, Dave. I mean, major world events have been put on hold, in some instances, already through the end of the year, many stimulus bills have been passed and will continue to pass during this pandemic. And another notable addition and business needs is honestly just the way to rethink some aspects of how business will be conducted now and in the future.
DP:Well, let's flush that out a little bit. So, I mean, I can't think of many businesses that haven't been impacted by this global pandemic. And a lot of businesses are really trying to adjust on the fly. What have you been seeing? What have you been hearing from your clients?
TS: This is honestly, truly historic times, that's for sure. And unfortunately there's an element of Darwinism with this. Recently, under the Cares Act, there was a program called the Paychecks Protection Program that was passed. And this is used to help businesses cover the cost of payroll expenses during a designated time period. I personally have been involved in multiple conversations with businesses and all different industries. And there's been a common theme, "What should I be thinking about as a business owner? What does my business look like in the future?" And there are so many additional questions that we are fielding, that honestly, I think, with the tournament is a separate podcast.
DP: Okay, well you are a well-skilled business advisor and you're also a tax expert. So what are some of the tax changes that a business should look to right now?
TS: Exactly. So first step should be to check in with your advisors to help navigate this changing environment. If you do not have an accountant that you work with directly, please find one as soon as possible, and you will need to help with the changes that have occurred. I've mentioned the Paychecks Protection Program before, and spoke about the economic Injury Disaster Loan in a prior podcast, but there are other provisions that your accountant can help you with. So some of the ones that come to mind are new tax provisions that require a change in the minimum distribution for individuals. Net operating losses have new characteristics, post-tax reform. What's notable about this is the suspension of the 80% limitation. And now there's a five-year carryback claim.
Limitation on interest expense was increased from 50% of EBITDA rather than 30%, and a technical correction, which we've been waiting for, any accelerated depreciation of qualified improvement property was fixed. These changes are to help mitigate income taxes, and in some instances with net operating losses and depreciation on qualified improvement property, able to get cash in the business's hands right now.
DP: Okay. Now, let's talk a minute about payroll, because there's a lot of questions around payroll provisions in the Cares Act, and it's somewhat of a quickly moving target. Why don't you tell us about that?
TS: Yes. I spoke about the Families first Coronavirus Act in a prior podcast. Employers and employees could qualify for the expansion of family leave and or the emergency sick leave. These credits are filed through your payroll provider and can help with cash management. Employers also could qualify for retention credit, however, you cannot double dip with the Paychecks Protection Program. Also, to help with cash management, employers can defer employ yours portion of social security. That can add up fast if you have numerous employees. Employers will have to pay those deferrals back 50% of it by the year 2021, and 50% of it by the end of 2022. Some businesses I work with are already receiving their credits on payroll taxes with employees that are on the expanded Family Medical Leave Program. Every little bit can help.
DP:Okay. Now, one day we're going to get out of this tunnel and we'll get back some semblance of normalcy. In looking ahead, what should business owners start to think about now looking forward?
TS: Exactly. So this is where you as an owner need to leverage your accountant and, or your trusted advisor. Now is a great time to revisit your business plan. I was speaking with a client recently about how to transition into online sales, even leveraging virtual reality technology with the products that they sell. If you are not taking the time to rethink how your business will operate with your trusted advisor, you are missing out on the inevitable changes.
I spent a lot of time with different businesses, rethinking plans, which can vary by industry. And for the entrepreneur listener, this is, and will be a lot of opportunities out there. For the here and now, a business really needs to think about cash flow and leverage the programs in effect currently. There will be another phase of federal programs, it's just a matter of what it is. And during this whole process, there will be businesses that fail, and new markets and industries reform. You can help mitigate the former with your advisors. We are on the front lines in a business sense with what's going on in the world.
And honestly, just before we wrap up this podcast, I just want to take and add some final words. Please take time to check in on family, friends and loved ones during this time of dynamic changes. A call or a text message can go a long way, and thank you to the medical professionals on the frontline.
DP:Well, Tim, thank you as always for being an Island of calm in the middle of this storm.
TS: It's my pleasure.
DP:And thank you for listening to The Bottom Line as part of the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.