With the passage of the CARES Act, there are multiple avenues for business owners to seek relief from the economic effects of the coronavirus. Below, Stratus outlines a few areas that we think will be particularly useful for business owners over the next few months.
1. Paycheck Protection Loan Program (PPPL): We believe that this is the first step for any business owner to consider because it combines the ability for loan forgiveness with generous loan terms (2 years at 0.50%). A business owner can take out a maximum loan of 2.5 times their monthly payroll over the 12 months prior to the loan issuance (excluding compensation over $100,000). The loan can then be used for the following expenses: payroll costs (including benefits), rent, mortgage interest and/or utilities.
In order for the loan to be completely forgiven, you must spend the entire loan amount during the eight-week period following receipt of the loan on one or a combination of the following expenses: payroll costs (except for compensation over $100,000), rent, utilities and/or mortgage interest. Further, your full-time headcount must be the same on June 30 as it was on February 15 and no employee with compensation under $100,000 can have their compensation cut by more than 25% when compared to the most recent quarter.
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The application is posted on the Treasury’s website. To file the application please contact your local banker. We expect that banks will begin accepting applications on April 3 for businesses and sole proprietorships and on April 10 for independent contractors and self-employed individuals.
2. Employee Retention Credit: Businesses qualify for this credit if they have been partially or fully shut down due to a government mandate or if their revenue during a quarter of 2020 is less than 50% of what it was in the same quarter in 2019. The credit itself is 50% of an employee’s wages up to $10,000. However, make sure you consult with a qualified professional because the rules for whose wages count toward the credit depend on the number of employees in your business.
3. Payroll Tax Deferral: Business owners can elect to defer their payroll taxes from the enactment of the CARES Act until the end of 2020. They can further defer payment of the first 50% until December 31, 2021 and the second 50% until December 31, 2022. However, we suggest business owners who receive relief from the PPPL wait to defer payroll taxes until after the eight-week period following the receipt of the loan because we have not received any guidance that these two relief programs can be operated simultaneously.
4. Amendments to Net Operating Loss (NOL) and Excess Business Loss (EBL) Rules: Business owners can now offset 100% of their taxable income for 2018, 2019 and 2020 with NOL’s incurred in those years. If you are not a C Corporation, any Excess Business Losses for 2018, 2019 and 2020 that would previously have been disallowed are now permitted. Therefore, we suggest business owners talk to their accountant because you may be able to reduce or eliminate your tax liability in a prior year(s), which could lead to a refund. While the refund would not be available until you file your 2020 return, the prospect of additional liquidity is worth pursuing.
Going forward, Stratus continues to offer any small business owner the following tools:
- Free 30-minute phone consultation about any topics that are on your mind; and
- Free operational assessment survey through our site. The assessment takes about 10-15 minutes, a small investment of your time that could yield significant benefits.
You have until June 30 to restore your full-time headcount and any salary reductions made between February 15 and April 26 so if you did have layoffs or you had to reduce compensation, the loan can be used to help you to meet these requirements.
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