With the COVID-19 pandemic upon us, businesses everywhere are facing serious challenges. Some are creating contingency plans from scratch, while others are modifying their existing plans to handle this outbreak.
The government is acting quickly to help and has already passed three coronavirus relief packages. The recently enacted CARES Act, the third economic measure the government has passed, is full of programs and initiatives intended to assist businesses around the country with whatever needs they may have right now. There are many moving pieces to this sweeping legislation, and we are committed to providing you with the information you need to help you navigate your options and eligibility.
Here we've put together a quick planning summary, highlighting four areas of focus for you and your business during this time. These are areas where you can take control to disrupt the disruption.
1. Paycheck Protection Program
There are several different loan programs involved in the CARES Act, and this is the one we have found to be the most advantageous-sounding. It is available for most businesses with 500 or fewer people. We recently put together a summary of the program and the frequently asked questions we’ve been getting about it. Click below to view that.
The gist of the program is to keep small businesses afloat, ultimately allowing them to get back up and running after the COVID-19 pandemic subsides.
The program launched on Friday, April 3, 2020, but it’s still full of uncertainty. Many banks are yet to be actively accepting applications. We are here to help our clients through this process and will continue to offer timely information on the program.
2. Temporary Suspension of “Excess Business Loss” Rules
The Tax Cuts and Jobs Act (TCJA) passed in 2017 placed limitations on the use of losses, which impacted both corporations and an individual’s use of pass-through losses. The CARES Act repeals the limitations for years beginning before January 1, 2021. Therefore, if you had a business loss that was limited in 2018 and/or 2019, you may be able to obtain a refund by filing an amended tax return.
This also applies to corporate losses incurred before January 1, 2021, granting taxpayers a five-year carryback period for NOLs arising in 2018, 2019, and 2020. This change allows taxpayers to carry back losses incurred when the corporate tax rate was 21% to years when the rate was 35%, generating a current refund and favorable rate differential.
3. Estate Planning Opportunities
It can be challenging to think about the future when faced with the day-to-day uncertainties of this pandemic. However, now is a good time to review the assets of your estate.
As a result of the recent economic decline, asset values are depressed. Now would be an excellent time to consider using your gift tax exemption to transfer assets out of your estate and lock in significant transfer tax savings.
Also, in 2020, an individual can transfer $11.58 million free from federal gift tax. While this opportunity has been in place and was not affected by the CARES Act, it’s an important area to note during these times. These exemptions could decrease soon, especially in light of this year being an election year. Click below to learn more.
4. Plan for Best/Worst Case Scenarios with Cash Flow Forecast
Now is the time to create cash flow projections and detailed budgets to work through the best and worst-case scenarios of this economic crisis. No one knows how this pandemic will last. It’s essential to make sure you have a plan in place for your business, no matter what turn this may take.
We recommend setting up a 13-week cash flow projection to start. The 13-week cash flow model is a fundamental tool for business leaders, as it offers the most detailed view of the money flowing in and out of your organization. Follow the link below for more cash management tactics.
MGA Is Here to Help You Confidently Navigate through the Disruption
As always, the MGA team is here to help you make the complex simple, especially now during this uncertain and rapidly evolving crisis. If you have any questions about the above areas, please don’t hesitate to reach out.