14 Apr 5 Resources Available To Small Business Beyond SBA Loans
By: Andy Medici
Senior Staff Reporter Washington Business Journal published on Apr 3, 2020, 1:29pm EDT
Congress is trying to keep the economy on ice. At least that is the purpose of the multitrillion-dollar Coronavirus Aid, Relief,
and Economic Security Act signed March 27 by President Donald Trump, experts say. The massive stimulus package, complete with various Small Business Administration loans, tax fixes and other aid to companies of all sizes, is merely to buy time in the hopes that the economic damage caused by the spread of the novel coronavirus can be reversed quickly when it ends. This aid package is designed to help small businesses struggling to survive the coronavirus crisis.
“The hope is that we can tide businesses over so that there isn’t a wave of
permanent closures and bankruptcies that make it harder to recover from,” said Garrett Watson, a senior policy analyst at nonpartisan D.C. think tank Tax Foundation. “The hope is that by providing this additional cash flow and liquidity, we can keep these firms in an ‘ice age,’ and you can melt them when the crisis is over.”
Already, poll results released Friday by the U.S. Chamber of Commerce and MetLife found that 24% of small-businesses respondents were within two months shy of a permanent shutdown and 11% said they were less than a month away from such an end. Many are looking toward the CARES Act, they said, to save them from that fate.
Much of the focus so far has been on the hundreds of billions of dollars set aside for the SBA’s disaster loans and its Paycheck Protection Program, which aim to prevent companies from laying off more workers. But there are also a number of other tax changes and programs that small businesses can benefit from in the landmark legislation. They just need to determine which make the most sense for them and will have the biggest effect — tax advisers say the key is to consider what the worst-case scenario would be for their business and plan against it.
“You want to be draconian” in calculating that worst-case scenario, said Lexy Kessler, partner in the government contract services group at tax consultant Aronson LLC. “That way if you see (your numbers)
drop that far you can say, ‘Here’s what we need to do.’”
Ultimately, the message from experts is clear: Try to get to the other side.
“In some ways, it’s almost like trying to put our economy on pause, to the extent that’s possible,” Kessler said. “They’re just trying to stop everything for a little bit and get people healthy and moving again and deal with it on the other side.”
While some of the CARES Act’s tax provisions may seem small, that shouldn’t stop businesses from taking advantage of the ones that could apply to them, Watson said.
“Individually, they might be marginal for certain firms. But when you add them together,” he said, “this can create more leeway for companies that experience losses and take on more debt.”
So what are the provisions that go beyond SBA lending? Here are five to consider:
Refundable payroll tax credit
Businesses can claim a 50% refundable tax credit on up to $10,000 in wages paid during the coronavirus crisis. That means a company can get $5,000 per employee if its business was disrupted due to the coronavirus — as long as they saw a decrease in gross receipts by 50% or more from the same time last year.
This credit is also available for companies that employ more than 100 and kept those employees on their rosters even if they’re not currently working — perhaps through a furlough, for instance. This funding could help cover staff health insurance costs, while saving on the expense and economic damage associated with permanent layoffs and then finding new hires later, Watson said.
Don’t expect the refundable tax credits in just one lump sum after Tax Day, Watson said. They are expected to be delivered on a quarterly basis to help periodically boost cash flow.
The caveat? If you use the SBA’s Paycheck Protection Program, you cannot use this credit.
Delayed Social Security payroll tax payments
Cashflow is king for this portion of the CARES Act, which allows businesses to delay paying Social Security payroll taxes until the end of the year. If they opt to do this, businesses must pay half of those delayed taxes at the end of 2021, and the other half at the end of 2022.
That could free up the 6.2% tax on salaries that traditionally goes straight to the government, instead allowing companies to hold onto it as needed extra cash, Watson said.
Net operating loss tax change
This one is a bit more complex. Companies that lost money in 2018, 2019 or 2020 can take those losses for each of those years and carry them back up to five years to reduce their taxable income in a previous year. They would amend their tax returns for that year and get a refund check from the IRS a few weeks later.
For example, if a company had a net loss in 2019, it could take that and apply it to their profitable 2015 year, reducing the amount it had otherwise owed in taxes for that period, thus getting a refund now. Once again, this is meant to put more cash back into the hands of businesses.
Furthermore, the CARES Act suspends a previous rule that limited the amount of net operating losses companies can offset to 80% of a company’s taxable income. It now allows companies to apply losses to the entire taxable income of a previous year.
Another provision allows companies to take net losses and carry them forward into future taxable years, but that provision is less valuable, Watson said — it would not push cash into a business’ hands quickly and it’s difficult to gauge now what the future holds financially.
Net interest deduction limitation
The law also raises the limit on the amount of loan interest companies can deduct on their tax returns. That amount will rise to 50% from 30% of earnings before interest, tax, depreciation and amortization, commonly known as EBITDA and meant to signify cash flow.
Kessler said companies with larger amounts of debt, such as real estate businesses or companies that drew down sizable loans to make an acquisition, will benefit in particular from the higher deduction, lightening a significant burden on their bottom lines.
It should also provide relief to companies that have had to take on more debt during the crisis — which many, big and small, are doing to help build a financial cushion amid the uncertainty.
Small Business Development Centers
While this is not specific to individual businesses, Congress made $275 million available in grants to Small Business Development Centers, Women’s Business Centers and Minority Business Development Agency’s Business Centers to hire staff and bulk up resources to provide mentorship, guidance and expertise to small, women-owned and minority-owned businesses and help them manage their way through the pandemic.
The funding also provides for these organizations to create a larger, single national umbrella to serve as a resource for small businesses nationwide.
“They are fully empowered to guide small businesses on getting through this,” said Tom Sullivan, vice president of small business policy at the U.S. Chamber. “And that is a part, I think, that has not been reported on.”
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