Neilley & Co. CPA Blog

Questions are already pouring into our office about the Senate stimulus bill that was passed last night.  Be assured we will send updates about details as we are able, but two points we would like to make very quickly:

• First, the House has not yet voted on this bill. They are going to try to hold a vote tomorrow (Friday), so we’ll see then whether it passes as is, or whether there will be further changes or negotiations.
• Second, the bill is over 880 pages long. Our personal opinion is that Congress excels at making simple things complicated under the best of circumstances.  When they’re in a hurry, things get even more, shall we say, interesting.  It’s going to take a while to really digest the details and figure out the best way to navigate the various options.

What you are hearing in the news media are the high level summaries, but details matter.  For example, as it currently stands, there are credits available for keeping idled workers on the payroll.  That sounds great, but if you opt for this credit, you are disqualified from getting an SBA Economic Injury disaster loan.  Which one is going to be better in the long run to keep your business going when recovery gets underway?  That takes some thought and planning, don’t settle for a knee-jerk reaction that may not serve you well.

I liken this pandemic to a wildfire burning its way through several years’ worth of undergrowth.  Sadly, there is going to be destruction, tragedy and heartbreak.  Some businesses will close and never reopen.  Miraculously, some will come through unscathed.  Some will survive scorched, and take years to get back to where they were before.  But after a fire, there is also new growth, an opportunity for new plants to emerge and develop that never would have had a chance otherwise.

As hard as this situation is, I encourage all business owners to treat it as a time out.  It’s a forced pause from the day to day status quo, always doing the same thing, in the same way, as you did the day before and the year before.  It’s an opportunity to step back and look a good hard look at your business.  Ask yourself questions.  For example, when this is over, do you even want your business to be the same as it was before?  If so, what can and should you be doing now not only to survive the short term, but to thrive in the long term?  Are there opportunities to expand into new areas?  Or prune out certain lines you really should have exited long ago?  Should you shutter the old business and launch into something entirely different?  Will you be ready to handle increased business when things start moving again, either from pent up demand, or because fewer competitors survived?  Is this challenge revealing weaknesses or opportunities you didn’t see before?

We are here to help you chart a course through these uncharted waters and not only survive, but come out stronger and healthier.  Please get it touch if you would like to talk.

The April 15^th filing deadline for most returns has been postponed to July 15^th.  This means the deadline to make any IRA contributions for tax year 2019 is also postponed to July 15^th, at least as far as IRS is concerned.  Wherever you may have your IRA, it may take some time for them to update their systems to accommodate contributions made after April 15^th for 2019 rather than 2020, but that’s a programming problem we expect they’ll be able to figure out by the time reporting forms are due next year.

 

If you get a stimulus check and by July 15^th find you don’t really need the cash, an IRA could be a good place to put it!  You do need to have earned income to be eligible, which means wages from an employer, self-employment income (net of expenses), or certain types of partnership income.  If married, only one spouse needs to have income for both spouses to be eligible.

 

If you file your return and then decide to make a 2019 contribution (or a larger one) by July 15^th, you may or may not need to file something with IRS, depending on what type of contribution you made:

Traditional IRA deductible contribution: amend returns to get a federal and state refund.

Traditional IRA non-deductible contribution: File Form 8606 with IRS, no need to amend any returns.

Roth contribution: no additional filing needed.

 

This is general information for your planning consideration.  You should consult your financial or tax advisor for more information before making a decision.

 

Here are a few things we’ve recently learned about the Small Business Administration Economic Injury Disaster Loan Program.  We will lay out very brief bullet points about some of the particulars below.  But the bottom line is, the SBA wants to get money into the hands of small businesses, and they are bending over backwards to get it to you.  Requirements have been relaxed, processes have been streamlined.  Their advice is, if you’re not sure if you qualify, apply and a loan officer will work it out with you.

At the same time, Congress is still working on additional forms of assistance and/or expansion of the existing loan program.  Better options might become available as time goes on.  Consider holding off if you can, so you can evaluate which form of assistance will best meet your needs.  If you do apply now however, you are not obligated to accept the loan as soon as it’s approved, so you can get the process going and make a final decision when more information becomes available.

 

Selected quick points for your reference:

• No application fees
• These are working capital loans of up to $2 million.
• Proceeds are intended to pay fixed debts, payroll, accounts payable and other bills that can’t be paid; they are not intended to replace lost profit/revenue per se, nor for fixed asset purchases in most cases.
• Eligibility requirements are very loose. You must be able to demonstrate economic injury, either current or reasonably anticipated (who can’t?!)
• On the surface there is a requirement is that credit is not available elsewhere, but that is much more lenient than it appears; if you have an existing line of credit or might possibly get a commercial loan, that doesn’t make you ineligible. SBA will consider your current resources available in house.
• Interest rate is 3.75%, repayment terms may be as long as 30 years, the first payment is automatically deferred for one year (but interest will accrue); no early payoff penalties.
• Collateral is generally not required for loans of $25,000 or less; over that they usually require real estate as collateral, but in this situation they will only file a general security interest lien to speed the process.
• When you apply, ignore any questions related to physical damages or loss, submit the application as an economic injury only.
• Businesses which began in 2019 are eligible and can apply, but will probably have to provide additional information, such as current personal and business financials.
• Franchise businesses are eligible
• There are technical standards within each NAICS industry code as to what constitutes a “small business,” but for this emergency SBA is accepting self-certification.
• This is still a LOAN program. However, Congress is considering various possibilities which might include converting it to a grant program, forgiving loans used to cover payroll, reducing interest rates to as low as zero, or other possibilities.  Stay tuned!

 

We will continue to send updates and details on this program, the Family First act Congress passed last week, and new developments as information becomes available.