Many small business people regularly engage with their CPA firm to prepare a tax projection for the upcoming year, which requires familiarity with various tax and financial planning measures.
The scope of legitimate tax and financial planning opportunities is greater than ever before this year due to the economic stimulation measures enacted or still to be enacted by Congress in the wake of COVID-19. The most significant stimulation legislation to date is targeted at small businesses. Called the CARES Act for Coronavirus Aid, Relief, and Economic Security Act, the legislation is intended to provide financial relief to a vast number of small businesses that, collectively, represent one of the most major employers in the US.
Loan Programs for Small Businesses
The CARES Act includes a large loan program for small businesses called the Paycheck Protection Program (PPP). The PPP provides for 100% Small Business Administration (SBA) guaranteed loans, including forgiveness of up to the full principal amount of qualifying loans to small businesses, generally and broadly defined as those with 500 employees or less with a primary place of business in the United States.
The maximum loan amount per borrower is $10 million or, alternatively, under a payroll-based formula. Loans can be to cover payroll and related costs, certain mortgage payments, certain lease payments, and certain utility payments, all incurred or paid in an eight week period following the disbursement of loan funds by the lender of those funds.
The amount of qualifying costs paid or incurred during that eight week period will become the basis for the calculation of an amount that will be forgiven from repayment by the borrower. The loans will mature in two years with extension to ten years possible. No payments will be required in the first six months of the loan and interest will be at 0.5%.
Other Tax Planning Opportunities
Virtually every adult in the United States received funds of $1,200 per adult and $500 per child. In addition, there is significant consideration being given to introducing a second round of such funding, perhaps at the level of $1,200 per person in a household up to five household members.
Additional financial and tax help is being provided in the form of a one-year suspension of Required Minimum Distributions from 401k type accounts and also from traditional IRA accounts. Ordinarily, all taxpayers with distributions of these types must make those distributions currently and are taxed on them in as ordinary income.
To alleviate this pressure on hard-working Americans, for 2020 only, no qualifying IRA holders or 401k beneficiaries will be required to make required Minimum Distributions from these applicable plans. Those distributions might be sizeable for many and the untaxed funds that would have been disbursed out of your retirement fund will instead be available for a greater amount of investment value due to the absence of the tax.
The Benefit of Working With a CPA During Covid-19 Tax Planning
It is strongly urged that all taxpayers become familiar with tax-saving opportunities opened up by COVID-19. Your CPA can help you do that. Knowing that those opportunities are available, your CPA can take special care that the comprehensive tax plan they develop for you each year introduces tax matters affected by the Coronavirus.
There are many more financial and tax-saving opportunities which may be applicable to your own special circumstances as well as those applicable to the US population at large. Be sure to include COVID-19 matters in your planning for every year. For help navigating financials during the COVID-19 pandemic, please contact Masler & Associates, Certified Public Accountants.