To our Valued MHA Clients and Friends:
Good morning and happy Monday to all of you! As you know Congress has approved the $2 trillion stimulus package called the CARES Act, and it has been signed into law by the President. My goal with this email is to provide you the framework of this new Act and give you some pointers for next steps. Remember this is all very new and details are unfolding every day. As of today, Monday the 30th, this is my understanding.
One of the main topics which applies to many of you, outside of the stimulus check, is the Payment Protection Loan which is a new type of 7a SBA loan with wider availability and special provisions for potential forgiveness. It is a form of Economic Injury Disaster Loan (EIDL) from the US Small Business Administration. In addition, there is an Emergency Economic Injury Grant which could provide a $10,000 advance that does not require repayment.
My understanding is that the $10,000 grant qualification is automatically evaluated as part of the EIDL application. Here is a brief summary from the SBA website:
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid. [according to the website]
To apply for a COVID-19 Economic Injury Disaster Loan, go to the SBA website: https://www.sba.gov/funding-programs/disaster-assistance
The other provisions in the CARES Act are a bit more specific and may only apply to a select few of you. Please take a minute to read through these and/or any other source you are using and let us know if you have questions:
- 10% penalty for qualified retirement plan distributions does not apply to distributions up to $100,000 used for coronavirus-related purposes if you or your spouse have been diagnosed with the virus or you have experienced adverse financial consequences associated with the virus. Not only do you avoid the penalty, you can also include it in your taxable income over 3 years.
- Minimum distributions are not required this year! The CARES Act provides that RMD requirements do not apply for calendar year 2020. If you have already taken out your RMD for 2020 then I would talk to your investment adviser as I do not believe these can be returned.
- New $300 above the line deduction for charitable contributions. We already have this in the Colorado law but they put it in as a Federal deduction for 2020. This allows you a benefit for donations, even if you do not itemized this year.
- Refundable payroll tax credit for 50% of wages to certain employees. This primarily applies to businesses and organizations whose businesses have been fully or partially suspended as a result of government order or have experienced a greater than 50% reduction in quarterly receipts.
- Delayed payment of the employer portion of certain payroll taxes until the end of 2020. This does not apply to taxes that have been withheld from your employee paychecks.
- The CARES Act changed rules for Net Operating Losses and this one is big for any C-Corporations that may have experienced a loss in 2019. Under the current tax law, these losses would carry forward indefinitely but, under the CARES Act, we can now carry the losses back 5 years.
- One last provision I wanted to mention was that the CARES Act slipped in a technical correction that was missed in the prior tax bills. This technical correction applies to qualified improvement property which is now qualified for bonus depreciation. This correction applies retroactively to 2018 and 2019 which could mean that we will be reaching out to a few of you to see if we should amend prior year tax returns to capture this bonus depreciation which was formerly disallowed.
There are many additional provisions but I don’t want to put you all to sleep so I will pause here and leave the rest for a later time.
On a side note, I want to remind everyone that current conditions could cause a substantial delay in mail and/or shipping. To ensure timely payroll, please be sure you are utilizing direct deposit for your employees for yourself.
Please continue to reach out with questions. I am happy to talk through some of the issues that we are facing as we move forward and through this crisis.
Kim Hitchcock, CPA
McNurlin, Hitchcock & Associates, P.C.