The CARES Act removed some of the limitations around how far back recent tax years’ net operating losses could be applied to prior years. If your company had profitable years that were followed by years of loss, talk to your tax accountant to see if you have any remaining net operating losses that can now be applied to earlier years to receive a tax refund.
EXECUTIVE TEAM: THE EMPLOYER’S PLAYBOOK TO NAVIGATE THE COVID-19 ECONOMY
by Noah Hopton, CEO of Finvisor, on March 30, 2020
The Coronavirus Aid, Relief, & Economic Security Act (CARES Act) passed on Friday, and we want to share the key takeaways for your business.
KEY TAKEAWAYS:
-
Forgivable Loans for Payroll-
Receive up to 250% of your average monthly payroll cost from the government. -
Delayed Tax Filing & Payments -
The IRS and California have extended the deadline to file and pay with no interest until July 15th. -
SBA Economic Disaster Loan -
You can get a suggested 6 months of OpEx loan from the Small Business Association. -
Employer’s Social Security Tax Deferment -
You can delay the employer’s side of social security tax (6.2%). -
Reimbursed Payroll For the Sick, Quarantined or Caring For-
The IRS will reimburse employers a portion of an employee’s pay who is affected by COVID-19.. -
Leasehold, retail, and restaurant property improvements -
You can now amortize some capital expenses faster, in 15 years instead of 29. -
Leasehold, retail, and restaurant property improvements -
You can now amortize some capital expenses faster, in 15 years instead of 29. -
Net Operating Losses (NOLs) -
If you had NOLs in recent years the carry backwards restrictions have been eased. You may now apply those losses from two to five years prior. -
SF Business Registration and Quarterly Tax Payments Deferred -
San Francisco waived the April 30th prepayment and pushed back the annual registration due date.
DETAILED EXPLANATIONS
Forgivable Loans for Payroll: The SBA Paycheck Protection Program (PPP)
Part of the CARES Act for small businesses is a loan of 250% your average monthly payroll. You can get the loan from a bank that is 100% guaranteed from the government. Your business must be operating before February 15, 2020 to be eligible. As long as you use the loan towards qualified expenses, maintain your company’s headcount and salary levels, it can be forgiven (you don’t have to pay it back!). This is an amazing option for all companies. This is particularly useful for venture backed companies because it does not require a personal guarantee. It is important to note that you cannot have both a PPP and EIDL loan for the same purpose. We cover the PPP loan option in detail HERE and review the EIDL loan below.
We are waiting for guidance from the SBA on how the SBA affiliation test of ownership will impact startups with venture-backed owners. These startups may be grouped with the other VC’s holdings, giving them an aggregate size too large to qualify for the SBA funding. The current best breakdown of guidance is HERE.
Delayed Tax Filings & Payments
SBA Economic Injury Disaster Loan (EIDL)
It is important to note that you cannot have both a PPP loan and an EIDL loan for the same purpose. Employers are eligible for a larger amount through an EIDL loan but there is no loan forgiveness for the EIDL loan. If you are impacted at all by COVID-19, the SBA is recommending that every small business (under 500 employees) apply for an estimated 6 months of OpEx loan directly through from the SBA. Link HERE to the landing page with instructions for application. Due to volume, the site has been overloaded at times. If you are able to get an application number, but aren’t able to submit, you can go back to the application page and submit additional documents through Box. Additionally if you need assistance in filling out Form 5, the SBDC has an instruction video HERE with details on filling out the form. Due to high demand, it is estimated to take at least 30-45 days from applying to receive this loan.
Employers Social Security Tax Deferment
Employers can defer the employer side of their 2020 social security tax (6.2% of payroll). Fifty percent of the 2020 deferred amount is due by 12/31/21 with the remaining fifty percent by 12/31/2022. You still need to pay medicare on time, and you must charge and remit the employees portion of social security.
Reimbursed Payroll For the Sick, Quarantined or Caring For
The CARES Act Expanded the Family and Medical Leave Act benefits. The IRS will reimburse employers but employers must provide the following to employees (except for certain circumstances of employers with less than 50 employees where doing so would jeopardize it):
- Two weeks (up to 80 hours) of paid sick leave where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a healthcare provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis
- Two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s salary because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine (pursuant to Federal, State, or local government order or advice of a healthcare provider), or care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19
The payroll tax credit (reimbursement) can be claimed quarterly. For self-employed people, there will be a tax credit equal to the sick leave amount. Details can be found HERE.
Leasehold, Retail, and Restaurant Property Improvements
The CARES Act made certain capital expenses that were recognized over 39 years to now be amortized over 15 years. Employers should check with their tax accountant to know if they qualify and amend their tax returns to receive a tax refund if applicable for 2018 and 2019.
Prior Year Net Operating Loss Adjustments
San Francisco Tax Payments and Registration Delayed
For businesses in San Francisco, your quarterly tax prepayment that is due April 30th are now to be paid when you file your annual return in 2021. Also, your annual business registration, which was due March 31st is now due June 30, 2020. There are some restrictions on size for the prepayment, the details can be found HERE
How do I do all of this? Where can I get help?
Finvisor is here to support small businesses and startups during these unprecedented times. We are ready to be your remote back-office team and support you with monthly accounting, payroll and CFO guidance. If you need help navigating any of these options, please reach out by submitting the form below.
- Last Modified
- March 28, 2023
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