Reopening Concepts: What Business Owners Should Consider

A widely circulated article about the COVID-19 pandemic, written by author Tomas Pueyo in March, described efforts to cope with the crisis as “the hammer and the dance.” The hammer was the abrupt shutdown of most businesses and institutions; the dance is the slow reopening of them — figuratively tiptoeing out to see whether day-to-day life can return to some semblance of normality without a dangerous uptick in infections.

Many business owners are now engaged in the dance. “Reopening” a company, even if it was never completely closed, involves grappling with a variety of concepts. This is a new kind of strategic planning that will test your patience and savvy but may also lead to a safer, leaner and better-informed business.

When to move forward

The first question, of course, is when. That is, what are the circumstances and criteria that will determine when you can safely reopen or further reopen your business. Most professionals agree that you should base this decision on scientific data and official guidance from agencies such as the U.S. Department of Health and Human Services and Centers for Disease Control and Prevention (CDC).

But don’t stop there. Although the pandemic is, by definition, a worldwide issue, the specific situation on the ground in your locality should drive your decision-making. Keep tabs on state, county and municipal news, rules and guidance. Plug into your industry’s professionals as well. Establish strategies for expanding operations or, if necessary, contracting them, based on the latest information.

Testing and working safely

Running a company in today’s environment entails refocusing on people. If employees are unsafe, your business will likely suffer at some point soon. Every company that must or chooses to have workers on-site (as opposed to working remotely) needs to consider the concept of COVID-19 testing.

Employers are generally allowed to test employees, but there are dangers in violating privacy laws or inadvertently exposing the company to discrimination claims. The CDC has said that routine testing will likely pass muster “if these goals are consistent with employer-based occupational medical surveillance programs” and “have a reasonable likelihood of benefitting workers.” Consult your attorney, however, before implementing any testing initiative.

There’s also the matter of working safely. If you haven’t already, look closely at the layout of your offices or facilities to determine the feasibility of social distancing. Re-evaluate sanitation procedures and ventilation infrastructure, too. You may need to invest, or continue investing, in additional personal protective equipment and items such as plastic screens to separate workers from customers or each other. It might also be necessary or advisable to procure or upgrade the technology that enables employees to work remotely.

Move forward cautiously

No one wanted to do this dance, but business owners must continue moving forward as cautiously and prudently as possible. While you do so, don’t overlook the opportunity to identify long-term strategies to run your company more efficiently and profitably. We can help you make well-informed decisions based on sound financial analyses and realistic projections.

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Technical jargon is fun for the .005% that care about it, but what about for the rest of us? These terms can trip up the most savvy business owner, and cloud phone features are no exception. If you’re looking to switch from your on-premises phone system to a new cloud business phone, our business glossary simplifies these tech terms.

You’ll learn:

• The difference between a “digital receptionist” and “auto-attendant”
• Why you’ll want to pay attention to your presence indicator
• How “call flip” and “call park” compare

Download “The Business Owner’s Phone System Features Cheat Sheet” today and ease your transition to cloud phones.

We want your business to continue operating effectively during these uncertain times and believe these tools and resources can help. Contact us to get started today at 989.797.4075.

The State of Michigan allocated $100 million of CARES Act funding to implement the Michigan Small Business Restart Program to support the needs of businesses directly impacted by COVID-19.

The funds will be administered by 15 local economic development organizations to support small businesses in all Michigan counties. At least 30% of the funds will be awarded to eligible women-owned, minority-owned or veteran-owned businesses.

The program will provide grants to eligible small businesses that need working capital to support payroll expenses, rent, mortgage payments, utility expenses or other similar expenses.

• Businesses and nonprofits with 50 or fewer employees (not FTEs) are eligible.
• Grants must be used for expenditures made between March 1, 2020, and December 30, 2020.
• Applications are due August 5, 2020. Applicants can apply for up to $20,000 in grant funds.

Refer to the Michigan Small Business Restart Program on the MEDC website for eligibility requirements, program guidelines, the application questions, a grant application, and Frequently Asked Questions.

If you have any questions about the grants, contact the MEDC Customer Care Center at (888) 522-0103 or send an email to medceconomic@michigan.org. Contact your Yeo & Yeo professional if you need assistance.

During the COVID-19 pandemic, many small businesses are strapped for cash. They may find it beneficial to barter for goods and services instead of paying cash for them. If your business gets involved in bartering, remember that the fair market value of goods that you receive in bartering is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties.

For example, if a computer consultant agrees to exchange services with an advertising agency, both parties are taxed on the fair market value of the services received. This is the amount they would normally charge for the same services. If the parties agree to the value of the services in advance, that will be considered the fair market value unless there is contrary evidence.

In addition, if services are exchanged for property, income is realized. For example, if a construction firm does work for a retail business in exchange for unsold inventory, it will have income equal to the fair market value of the inventory. Another example: If an architectural firm does work for a corporation in exchange for shares of the corporation’s stock, it will have income equal to the fair market value of the stock. 

Joining a club

Many businesses join barter clubs that facilitate barter exchanges. In general, these clubs use a system of “credit units” that are awarded to members who provide goods and services. The credits can be redeemed for goods and services from other members.

Bartering is generally taxable in the year it occurs. But if you participate in a barter club, you may be taxed on the value of credit units at the time they’re added to your account, even if you don’t redeem them for actual goods and services until a later year. For example, let’s say that you earn 2,000 credit units one year, and that each unit is redeemable for $1 in goods and services. In that year, you’ll have $2,000 of income. You won’t pay additional tax if you redeem the units the next year, since you’ve already been taxed once on that income.

If you join a barter club, you’ll be asked to provide your Social Security number or employer identification number. You’ll also be asked to certify that you aren’t subject to backup withholding. Unless you make this certification, the club will withhold tax from your bartering income at a 24% rate.

Forms to file

By January 31 of each year, a barter club will send participants a Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” which shows the value of cash, property, services and credits that you received from exchanges during the previous year. This information will also be reported to the IRS.

Many benefits

By bartering, you can trade away excess inventory or provide services during slow times, all while hanging onto your cash. You may also find yourself bartering when a customer doesn’t have the money on hand to complete a transaction. As long as you’re aware of the federal and state tax consequences, these transactions can benefit all parties. Contact us if you need assistance or would like more information.

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The school year ended with many districts experiencing changes to their food service distribution programs. The following are a few impacts those changes may have on your 2020 audit and the 2021 school year.

• We encourage districts to make sure they have all the documentation in place to have successful administrative reviews. All new Summer Food Service Program sponsors will be subject to a review. The focus of the administrative reviews will be on menu, production records, daily meal count sheets, and monthly claims.
• Keep in mind that the Unanticipated School Closure Summer Food Service Program (USCSFSP) meals ended June 30, 2020. After that, claims will be related to the Summer Food Service Program.
• The USCSFSP caused many districts to have an increase in Child Nutrition revenue. Estimate and evaluate your federal revenue as early as possible to determine any impact an increase may have had on your need for a single audit and which major programs may need to be tested for your June 30, 2020, audit. Conversely, if your district saw a significant decline in Child Nutrition revenue, consider any impact on your major programs.

We have seen many other changes related to federal programs for the 2021 school year, and we are here to help you navigate those changes any way we can. Please reach out to your Yeo & Yeo professionals for assistance.

Ideally, your organization should have standard procedures to remove employee access to the organization’s virtual environment upon termination, including banking, remote access to software and files, debit or credit card information, and various websites. However, there may be other changes at the organization that would necessitate removing or reducing access, such as demotions, transfers to different offices or departments, changes in how information is stored, etc.

A good control to help manage IT access – secondary to the standard procedures – would be to periodically view the access rights for this information and make any changes as necessary. This could be accomplished with a recurring calendar reminder and documented with a simple memo.

One of the great advantages of being a nonprofit organization (NPO) is that the organization avoids paying income taxes in many situations. However, tax can apply at certain times in the form of unrelated business income tax (UBIT). If you are not familiar with the UBIT regulations, the time to evaluate your NPO’s activities is now!

An important concept to understand is that the evaluation of applying UBIT is focused on how the income is earned, not how it is ultimately used. Therefore, the idea that the income is being used solely to support your mission is not a legitimate way to avoid paying UBIT.

In general, UBIT applies when all three of the following criteria are met:

1. The income is from a trade or business. Generally, this means an activity conducted for the production of income with the intent to profit.
2. The trade or business is regularly conducted.
3. The trade or business is not substantially related to the performance of the NPO’s exempt function or purpose. It is noteworthy that ‘substantially related’ isn’t clearly defined by the IRS and an evaluation will need to be performed to arrive at a supportable conclusion.

As is the case with many laws and regulations, exceptions to rules and less common situational elements always apply. Further research or consultation with your CPA will be essential to ensure compliance. Several common exceptions to the three criteria above are:

1. The activity is carried out by substantially all volunteer labor.
2. The activity is for the convenience of an organization’s members.
3. The goods sold were donated merchandise.
4. The operation of certain bingo games are allowed under certain circumstances.

Other forms of income are specifically excluded as being passive, such as interest and dividends, royalties, rental income from real property that is not debt-financed, and gains on the sale of investment assets. Again, there are also exceptions to these exclusions.

Some income streams that are more common to nonprofit organizations that are subject to UBIT are debt-financed rental income, income received for placing advertisements in publications or at special events, income from partnerships or S-corporations, and administrative or business services provided to others. Many other activities must be considered as well.
Recently, the IRS released new regulations concerning UBIT. Under the old rules, organizations could take the gross income of all unrelated trades or businesses and offset it with allowable deductions from all unrelated trades or businesses, whereas the new rules require organizations to ‘silo’ the revenue and expenses for each trade or business separately. This new methodology will directly affect the amount of any UBIT that may be due each year.

We encourage you to evaluate your NPO’s activities and evaluate whether any may be subject to UBIT, even if the activity may seem insignificant. Yeo & Yeo’s Nonprofit Services Group would be happy to help you reach a conclusion regarding compliance with UBIT regulations.

The words “external audit” are often met with dread. However, it doesn’t have to be that way! Selecting the right auditor for your government entity can seem like a long road; however, the benefits of researching and selecting the external auditor that meets your needs while being cost-effective heavily outweigh the time it takes to review the options thoroughly.

Typically, government entities rely on their external auditors for much more than just the actual audit at year-end. Non-attest services performed by external auditors, such as maintaining capital asset depreciation schedules, often require communication and interaction throughout the year. This interaction puts a lot of pressure on a government to select the right external auditor that will not only deliver a quality audit that complies with all laws and regulations but also one that works well with the government’s finance and treasury departments.

Consider several key areas when selecting an external auditor that will help to ensure a smooth and stress-free audit: industry knowledge, use of technology, and the reputation of the audit firm while balancing fees.

Industry knowledge
Industry-specific knowledge is critical, especially in accounting and finance. Governments have many external compliance requirements that are unique and therefore require special procedures. Examples include the submission of several reports, including the annual audit, to the State by the deadlines, and various policies that must be approved by the government’s governing board. All of these are items that external auditors who are well-versed in the governmental accounting field will specifically verify. Non-compliance with laws and regulations can result in findings that must be reported to the Department of Treasury with the annual audit. Avoiding non-compliance is imperative as the Department of Treasury, depending on the degree of the non-compliance, can withhold funding, which has the potential to be detrimental to the government’s operations as cash flows are often tight.

Use of technology
The use of technology by a prospective external auditor is another critical item to think about. The ability to work efficiently and effectively remotely has become a necessity as the COVID-19 pandemic continues. Governments need to consider an external audit firm’s use and extent of technology to ensure that information is shared and communicated securely and efficiently. The use of internet-based portals and the safety measures a prospective audit firm has in place to protect the government’s information should be a priority during the selection process.

Reputation and price
Finally, a government should research external audit firms thoroughly before signing a contract to ensure they are reputable and within the government entity’s financial means. Just like governments, external audit firms vary significantly in size, which can affect the cost of services. Balancing quality and price are important considerations; however, more expensive does not necessarily mean better in the realm of auditing. Reviewing current client testimonials on an audit firm’s website is an excellent way to gauge a firm’s reputation. For example, if a firm has no client testimonials, this could potentially be a red flag that they are not reputable.

While external audits are a necessity at year-end, a good business relationship with your external auditor can offer a variety of additional guidance and support on various accounting issues as they arise throughout the year. External auditors have resources that they share with clients that may otherwise be out of reach, especially for small governments, such as guidance on new accounting standards. Consistent communication with your external auditor on pain points as they arise will help to set up your government for a worry-free, smooth annual audit.

Soon you will receive, or you may have already received, a letter from the Michigan Department of Treasury titled “ESA – Statement/Payment Reminder.” This letter is related to your organization’s personal property tax return that was filed with the State in January or February 2020. Please be aware that this letter is legitimate and the taxes assessed will be accurate given that a personal property tax return was, in fact, timely filed on your behalf. The taxes have been assessed by your local assessor based on the cost of personal property held at your organization’s address.

When you receive the letter, please follow the steps within to log in to your MTO account and pay the amount due by August 15, 2020. If you have any questions, please contact us.

Yeo & Yeo CPAs & Business Consultants was selected by the readers of Great Lakes Bay Magazine as Greatest of the Great Lakes Bay in Accounting for the second consecutive year.

Each year, Great Lakes Bay Magazine invites its readers to select the best of the best in the Great Lakes Bay Region. Readers can vote for their favorite business in categories including restaurants, home improvement, shopping, health, and services. 2019 is the first year that readers could vote for local businesses in the accounting category.

“We are always humbled by the recognition we receive for being passionate about giving exceptional client service and helping our clients to thrive, ”said Tom Hollerback, President & CEO. “All of the credit goes to our employees who share a common culture of exceeding client expectations.”

For 97 years, individuals in the Great Lakes Bay Region have trusted Yeo & Yeo with their business. It is the community’s continued support that allows the firm to provide outstanding business solutions. In addition to accounting services, Yeo & Yeo and its companies have created a strong network of professionals who are a complete resource for their clients.

Many business owners — particularly those who own smaller companies — spend so much time trying to eliminate weaknesses that they never fully capitalize on their strengths. One way to do so is to identify and explicate your unique selling proposition (USP).

Give it some thought

In a nutshell, a USP states why customers should buy your product or service rather than a similar one offered by a competitor. A USP might be rather obvious if you offer a type of state-of-the-art technology or specialize in a certain kind of service that’s not widely available. Many businesses, however, will need to dedicate some serious thought and discussion to identifying their USP — and they may need to do so every year or two to adapt to market changes.

Ask the right questions

Involve employees from every level of your company in brainstorming sessions to develop your USP. During these meetings, consider the answers to questions such as:

• What makes our products or services distinctive?
• What aspect of our business is most important to its growth?
• Which elements of what we do are the most difficult for competitors to copy?
• Why should customers buy from us instead of the competition?

As you might have noticed, knowledge of your competitors is critical to developing a strong USP. You can’t differentiate your business from theirs unless you’re familiar with what competitors are selling, how they sell their products or services, and how they support those sales in terms of customer service. To this end, you may need to undertake some “competitive intelligence” efforts to gather needed information.

Integrate it into the sales process

Your USP should be a powerful, concise statement that customers and prospects will immediately understand and recognize as fulfilling their wants or needs. Among the most commonly cited examples is package delivery giant FedEx’s “When it absolutely, positively has to be there overnight.” Although the company doesn’t use this slogan anymore, it remains a perfect example of a USP that’s clear and memorable.

Of course, your USP must be more than just words. Once established, it should serve as a sort of “mantra” for your sales team. That is, after identifying your customers’ needs during the sales process, they should use the USP (or an iteration of it) to explain to customers why your product or service is the right choice. Just be careful not to overuse your USP in sales and marketing materials, including on your website.

Now may be the time

Given the monumental changes that have occurred in the U.S. economy and in many industries because of the COVID-19 pandemic, now may be an imperative time to reconsider and relaunch your USP. We can help you evaluate your sales numbers, as well as return on investment in marketing efforts, to carefully craft the right approach.

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There’s a new IRS form for business taxpayers that pay or receive nonemployee compensation.

Beginning with tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation, to report any payment of $600 or more to a payee.

Why the new form?

Prior to 2020, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.

Form 1099-NEC was reintroduced to alleviate the confusion caused by separate deadlines for Form 1099-MISC that report NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers. The IRS announced in July 2019 that, for 2020 and thereafter, it will reintroduce the previously retired Form 1099-NEC, which was last used in the 1980s.

What businesses will file?

Payers of nonemployee compensation will now use Form 1099-NEC to report those payments.

Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, the due date will be February 1, 2021, because January 31, 2021, is on a Sunday. There’s no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.

Can a business get an extension?

Form 8809 is used to file for an extension for all types of Forms 1099, as well as for other forms. The IRS recently released a draft of Form 8809. The instructions note that there are no automatic extension requests for Form 1099-NEC. Instead, the IRS will grant only one 30-day extension, and only for certain reasons.

Requests must be submitted on paper. Line 7 lists reasons for requesting an extension. The reasons that an extension to file a Form 1099-NEC (and also a Form W-2, Wage and Tax Statement) will be granted are:

• The filer suffered a catastrophic event in a federally declared disaster area that made the filer unable to resume operations or made necessary records unavailable.
• A filer’s operation was affected by the death, serious illness or unavoidable absence of the individual responsible for filing information returns.
• The operation of the filer was affected by fire, casualty or natural disaster.
• The filer was “in the first year of establishment.”
• The filer didn’t receive data on a payee statement such as Schedule K-1, Form 1042-S, or the statement of sick pay required under IRS regulations in time to prepare an accurate information return.

Need help?

If you have questions about filing Form 1099-NEC or any tax forms, contact us. We can assist you in staying in compliance with all rules.

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Yeo & Yeo CPAs & Business Consultants is pleased to announce the promotion of three associates.

Daniel Beard, CPA, has been promoted to Manager. Beard, a graduate of Eastern Michigan University, holds a Master of Science in Accounting and a Bachelor of Business Administration. He joined Yeo & Yeo in 2014 and specializes in audit and assurance services, with an emphasis on government, education, and nonprofit clients. He is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. In the community, Beard is enrolled in the Leadership A2Y program.

Brian Essenmacher, CPA, has been promoted to Manager. Essenmacher joined Yeo & Yeo in 2017 and specializes in audit and assurance services with an emphasis on government, education, and nonprofit clients. He holds a Bachelor of Professional Accountancy from Northwood University and is a member of the Michigan Association of Certified Public Accountants and the American Institute of Certified Public Accountants. In the community, Essenmacher serves on the finance committee at St. Mark Church and volunteers with several nonprofits across Genesee County.

Mike Rolka, CPA, CGFM, has been promoted to Senior Manager and transferred to the firm’s Auburn Hills office effective July 1. Rolka brings experience in audit services for government and education clients to southeast Michigan. He is a Certified Government Financial Manager and a member of the firm’s Government Services Group. He holds a Bachelor of Professional Accountancy from Saginaw Valley State University and is a member of the Michigan Association of Certified Public Accountants and the American Institute of Certified Public Accountants. In the community, Rolka is a member of the Saginaw Valley Young Professionals Network.

The tax filing deadline for 2019 tax returns has been extended until July 15 this year, due to the COVID-19 pandemic. After your 2019 tax return has been successfully filed with the IRS, there may still be some issues to bear in mind. Here are three considerations.

1. Some tax records can now be thrown away

You should keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. In general, the statute of limitations is three years after you file your return. So you can generally get rid of most records related to tax returns for 2016 and earlier years. (If you filed an extension for your 2016 return, hold on to your records until at least three years from when you filed the extended return.)

However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%.

You’ll need to hang on to certain tax-related records longer. For example, keep the actual tax returns indefinitely, so you can prove to the IRS that you filed a legitimate return. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)

When it comes to retirement accounts, keep records associated with them until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return. (You can keep these records for six years if you want to be extra safe.)

2. You can check up on your refund

The IRS has an online tool that can tell you the status of your refund. Go to irs.gov and click on “Get Your Refund Status” to find out about yours. You’ll need your Social Security number, filing status and the exact refund amount.

3. You can file an amended return if you forgot to report something

In general, you can file an amended tax return and claim a refund within three years after the date you filed your original return or within two years of the date you paid the tax, whichever is later. So for a 2019 tax return that you file on July 15, 2020, you can generally file an amended return until July 15, 2023.

However, there are a few opportunities when you have longer to file an amended return. For example, the statute of limitations for bad debts is longer than the usual three-year time limit for most items on your tax return. In general, you can amend your tax return to claim a bad debt for seven years from the due date of the tax return for the year that the debt became worthless.

We can help

Contact us if you have questions about tax record retention, your refund or filing an amended return. We’re not just available at tax filing time — we’re here all year!

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If you own or manage a business with employees, you may be at risk for a severe tax penalty. It’s called the “Trust Fund Recovery Penalty” because it applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages.

Because the taxes are considered property of the government, the employer holds them in “trust” on the government’s behalf until they’re paid over. The penalty is also sometimes called the “100% penalty” because the person liable and responsible for the taxes will be penalized 100% of the taxes due. Accordingly, the amounts IRS seeks when the penalty is applied are usually substantial, and IRS is very aggressive in enforcing the penalty.

Far-reaching penalty

The Trust Fund Recovery Penalty is among the more dangerous tax penalties because it applies to a broad range of actions and to a wide range of people involved in a business.

Here are some answers to questions about the penalty so you can safely stay clear of it.

Which actions are penalized? The Trust Fund Recovery Penalty applies to any willful failure to collect, or truthfully account for, and pay over Social Security and income taxes required to be withheld from employees’ wages.

Who is at risk? The penalty can be imposed on anyone “responsible” for collection and payment of the tax. This has been broadly defined to include a corporation’s officers, directors and shareholders under a duty to collect and pay the tax as well as a partnership’s partners, or any employee of the business with such a duty. Even voluntary board members of tax-exempt organizations, who are generally excepted from responsibility, can be subject to this penalty under certain circumstances. In addition, in some cases, responsibility has been extended to family members close to the business, and to attorneys and accountants.

IRS says responsibility is a matter of status, duty and authority. Anyone with the power to see that the taxes are (or aren’t) paid may be responsible. There’s often more than one responsible person in a business, but each is at risk for the entire penalty. Although a taxpayer held liable can sue other responsible people for contribution, this is an action he or she must take entirely on his or her own after he or she pays the penalty. It isn’t part of the IRS collection process.

Here’s how broadly the net can be cast: You may not be directly involved with the payroll tax withholding process in your business. But if you learn of a failure to pay over withheld taxes and have the power to pay them but instead make payments to creditors and others, you become a responsible person.

What’s considered “willful?” For actions to be willful, they don’t have to include an overt intent to evade taxes. Simply bending to business pressures and paying bills or obtaining supplies instead of paying over withheld taxes that are due the government is willful behavior. And just because you delegate responsibilities to someone else doesn’t necessarily mean you’re off the hook. Your failure to take care of the job yourself can be treated as the willful element.

Avoiding the penalty

You should never allow any failure to withhold and any “borrowing” from withheld amounts — regardless of the circumstances. All funds withheld must also be paid over to the government. Contact us for information about the penalty and making tax payments.

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The COVID-19 crisis is affecting not only the way many businesses operate, but also how they assess productivity. How can you tell whether you’re getting enough done when so much has changed? There’s no easy, one-size-fits-all answer, but business owners should ask the question so you can adjust expectations and objectives accordingly.

Impact of remote work

Heading into the crisis, concerns about productivity were certainly on the minds of many in leadership positions. In March, research firm Gartner conducted a snap poll that found 76% of HR leaders reported their organizations’ managers were concerned about “productivity or engagement of their teams when remote.”

Many of these fears may well have been alleviated after a month or two. News provider USA Today collaborated with researchers YouGov and social media platform LinkedIn to conduct a poll in April that found 54% of respondents (professionals ages 18-74) said that working remotely has positively affected their productivity. They cited factors such as time saved by not having to commute and fewer distractions from co-workers.

The bottom line is that allowing — or, in recent months, requiring — employees to work remotely shouldn’t drastically alter your expectations of their productivity. Every employee must continue to fulfill his or her job duties and meet annual performance management objectives (as perhaps adjusted in light of the pandemic and altered economy).

However, it’s unrealistic to expect anyone to accomplish markedly more just because he or she is no longer subject to a long commute and regular office hours. In fact, when assessing productivity, business owners should bear in mind the dual challenge of work-life balance while working remotely (childcare obligations, etc.) and the mental health component of living through a pandemic.

Solid metrics

If remote work isn’t a major concern for your company — either because your employees were already doing it, adapted to it readily or simply cannot work from home — there remain some tried-and-true ways to evaluate productivity. Metrics can be useful.

For example, one broad measurement of productivity is revenue per employee. To calculate it, you’ll need to check your financial statements to see how much revenue your business brought in during a defined period. Then, you divide that dollar figure by your total number of employees. The idea is that every worker should generally bring in enough revenue to rationalize his or her paycheck.

It’s not a “be all, end all” metric by any means, but revenue per employee can help accurately shape your understanding of productivity and cash flow. And, as mentioned, you’ll need to think about how this year’s economic conditions have altered your productivity needs and what employees can reasonably accomplish.

Careful calibration

When the subject of productivity arises, many business owners’ instinctive answer is “more, more, more!” Carefully calibrating your expectations and goals, however, can lead to more sustainable results. We can help you choose and calculate the right metrics and set realistic productivity objectives.

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The CARES Act was enacted in an attempt to mitigate the economic effects of the COVID-19 pandemic. Among other things, it extends favorable tax treatment to qualified individuals who take so-called “coronavirus-related distributions” (CRDs) from IRAs, 401(k) plans and certain other retirement plans.

Specifically, the CARES Act waives the 10% early distribution penalty for CRDs taken between January 1, 2020, and December 31, 2020. Under the law, the waiver applies to CRDs made to an individual:

• Who’s diagnosed with COVID-19,
• Whose spouse or dependent is diagnosed with COVID-19, or
• Who experiences adverse financial consequences as a result of COVID-19. These include being quarantined, furloughed or laid off; having work hours reduced; being unable to work due to lack of child care; closing (or reducing the hours of) a business owned by the individual; or other factors determined by the Treasury Secretary.

IRS Notice 2020-50 expands the definition of qualified individuals for purposes of CRDs and plan loans to take into account additional factors, such as a reduction in pay or self-employment income, the rescission of a job offer and the delay of a start date for a job. In addition, the definition now also considers adverse financial consequences arising for the impact of COVID-19 suffered by an individual’s spouse or household member.

Eligible individuals can withdraw up to $100,000. They can repay withdrawn funds within three years of the day after the CRD without regard to the applicable cap on annual contributions. To the extent such early distributions aren’t repaid within three years or eligible for tax-free rollover treatment, the related income tax can be prorated over three years.

The CARES Act also allows plans to implement certain relaxed rules for qualified individuals on plan loan amounts and repayment terms. For example, plans can suspend loan repayments due from March 27, 2020, through December 31, 2020 (delaying each payment up to one year), and the limit on loans made on or after March 27, 2020, and before September 23, 2020, is increased from $50,000 to $100,000. The limit on the aggregate amount of loans in that period is increased from 50% of the employee’s vested accrued benefit to 100%.

Notice 2020-50 makes clear, too, that the $100,000 limit on CRDs applies to a qualified individual’s aggregate CRDs from all eligible retirement plans — the limit doesn’t apply on a per-plan basis. It explains that CRDs can be used for purposes not related to COVID-19 and that repayments to an IRA don’t count against the one-rollover-per-12 months limit on IRA rollovers. And it warns that qualified individuals who elect to include the entire amount of a CRD in their 2020 income, rather than prorating it over three years, will be held to that choice after they file their 2020 income tax returns; they can’t subsequently revoke the election.

As for loans, the notice provides a safe harbor to help employers avoid complicated calculations related to the stacking of individually reamortized payments on top of regularly scheduled payments due after December 31, 2020. The safe harbor permits reamortized payments to begin after the period of payment suspension and continue for up to one year after the loan was originally scheduled to be repaid. The guidance notes, though, that other reasonable methods of administering the loan relief exist.

Notice 2020-50 further clarifies that it’s up to employers to decide whether — and to what extent — their plans will provide the CRD and loan relief allowed by the CARES Act. (Qualified individuals can claim the tax benefits even if plan provisions aren’t changed.) We can help you determine which aspects of the relief to offer and how best to implement them.

Rollover of RMDs

The CARES Act waives the RMD rules for certain defined contribution plans and IRAs for calendar year 2020. The waiver applies to both 2019 RMDs required to be taken by April 1, 2020, and RMDs required for 2020. It applies for calendar years beginning after December 31, 2019.

But, because the law wasn’t enacted until late March 2020, some individuals had already taken RMDs for the year. If they wanted to roll over those now non-RMD distributions to an eligible retirement account, they needed to satisfy the rule that generally requires tax-free rollovers to be made within 60 days of distribution. Moreover, IRAs generally are subject to a “one-rollover-per-12 month” restriction.

The IRS previously extended the 60-day rollover period to the later of 60 days after receipt or July 15, 2020, for 2020 RMDs taken as early as February 1, 2020, but that left out individuals who took their 2020 RMDs in January. Notice 2020-51 extends that period to the later of 60 days after receipt or August 31, 2020, for all distributions that, but for the CARES Act, would have been RMDs (even if the distribution normally would be treated as part of a series of substantially equal periodic payments).

Notice 2020-51 also permits an IRA owner or beneficiary who has already received a distribution that would’ve been an RMD for 2020 to repay it to the IRA by the later of 60 days after receipt or August 31, 2020 (non-spouse beneficiaries generally are prohibited from doing rollovers of distributions). The repayment is exempt from the one-rollover-per-12 month limit on IRAs.

The notice includes a sample plan amendment employers can adopt to give plan participants and beneficiaries whose RMDs are waived the option to receive the waived RMD. The sample will have no effect on other distribution provisions.

Stay tuned

As the number the COVID-19 cases continues to spike across the country, it’s possible that Congress, the Department of Treasury and the IRS may provide additional tax and financial relief. We’ll let you know about the latest developments that could affect your finances.

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The extended federal income tax deadline is coming up fast. As you know, the IRS postponed until July 15 the payment and filing deadlines that otherwise would have fallen on or after April 1, 2020, and before July 15.

Retroactive COVID-19 business relief

The Coronavirus Aid, Relief and Economic Security (CARES) Act, which passed earlier in 2020, includes some retroactive tax relief for business taxpayers. The following four provisions may affect a still-unfiled tax return — or you may be able to take advantage of them on an amended return if you already filed.

Liberalized net operating losses (NOLs). The CARES Act allows a five-year carryback for a business NOL that arises in a tax year beginning in 2018 through 2020. Claiming 100% first-year bonus depreciation on an affected year’s return can potentially create or increase an NOL for that year. If so, the NOL can be carried back, and you can recover some or all of the income tax paid for the carryback year. This factor could cause you to favor claiming 100% first-year bonus depreciation on an unfiled return.

Since NOLs that arise in tax years beginning in 2018 through 2020 can be carried back five years, an NOL that’s reported on a still-unfiled return can be carried back to an earlier tax year and allow you to recover income tax paid in the carry-back year. Because federal income tax rates were generally higher in years before the Tax Cuts and Jobs Act (TCJA) took effect, NOLs carried back to those years can be especially beneficial.

Qualified improvement property (QIP) technical corrections. QIP is generally defined as an improvement to an interior portion of a nonresidential building that’s placed in service after the date the building was first placed in service. The CARES Act includes a retroactive correction to the TCJA. The correction allows much faster depreciation for real estate QIP that’s placed in service after the TCJA became law.

Specifically, the correction allows 100% first-year bonus depreciation for QIP that’s placed in service in 2018 through 2022. Alternatively, you can depreciate QIP placed in service in 2018 and beyond over 15 years using the straight-line method.

Suspension of excess business loss disallowance. An “excess business loss” is a loss that exceeds $250,000 or $500,000 for a married couple filing a joint tax return. An unfavorable TCJA provision disallowed current deductions for excess business losses incurred by individuals in tax years beginning in 2018 through 2025. The CARES Act suspends the excess business loss disallowance rule for losses that arise in tax years beginning in 2018 through 2020.

Liberalized business interest deductions. Another unfavorable TCJA provision generally limited a taxpayer’s deduction for business interest expense to 30% of adjusted taxable income (ATI) for tax years beginning in 2018 and later. Business interest expense that’s disallowed under this limitation is carried over to the following tax year.

In general, the CARES Act temporarily and retroactively increases the limitation from 30% to 50% of ATI for tax years beginning in 2019 and 2020. (Special rules apply to partnerships and LLCs that are treated as partnerships for tax purposes.)  

Assessing the opportunities

These are just some of the possible tax opportunities that may be available if you haven’t yet filed your 2019 tax return. Other rules and limitations may apply. Contact us for help determining how to proceed in your situation.

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Just last week, the Small Business Administration (SBA) announced that it has reopened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program to eligible applicants still struggling with the economic impact of the COVID-19 pandemic.

The EIDL program offers long-term, low-interest loans to small businesses and nonprofits. If your company hasn’t been able to procure financing through the Paycheck Protection Program (PPP) — or even if it has — an EIDL may provide another avenue to relief.

Program overview

Applicants must be businesses with 500 or fewer employees, sole proprietors, independent contractors or certain other small entities. EIDL funds come directly from the SBA and provide working capital up to certain limits.

The loans have terms of up to 30 years and interest rates of 3.75% for businesses and 2.75% for nonprofits. The first payment is deferred for one year. Plus, the Coronavirus Aid, Relief and Economic Security (CARES) Act has temporarily waived requirements that applicants must have been in business for one year before the crisis and be unable to obtain credit elsewhere. A borrower of $200,000 or less doesn’t need to provide a personal guarantee.

Recipients must use EIDL proceeds for working capital necessary to carry a business until resumption of normal operations and for expenditures needed to alleviate specific economic hardships related to the pandemic. These may include fixed debts (such as rent or mortgage), payroll, accounts payable and other bills that could’ve been paid had the disaster not occurred and aren’t already covered by a PPP loan.

EIDL proceeds may not be used to refinance indebtedness incurred before the COVID-19 crisis or to pay down loans owned by the SBA or other federal agencies. Loan funds also cannot be used to pay federal, state or local tax penalties, or any criminal or civil fine or penalty. (Other limitations apply.)

Emergency grants

Under the CARES Act, EIDL applicants may request an Emergency Economic Injury Grant, also referred to as an “EIDL advance,” of up to $10,000. The grant is to be paid within three days and must be used to:

• Provide paid sick leave to employees unable to work because of COVID-19,
• Retain employees during business disruptions or substantial shutdowns,
• Meet increased costs to obtain materials unavailable because of supply chain disruptions,
• Make rent or mortgage payments, or
• Repay other obligations that cannot be met because of revenue losses.

Recipients of an emergency grant don’t have to repay it — even if the business is eventually denied an EIDL. However, in April, the SBA announced that it has implemented a $1,000 cap per employee on EIDL advances up to the $10,000 maximum. Thus, an applicant with three employees would receive an advance of only $3,000.

Equally valuable

The EIDL program may not have received as much attention as the PPP, but it’s equally valuable to small businesses and nonprofits striving to remain operational during the ongoing public health and economic crisis. We can help you determine whether you’re eligible and, if so, complete the application process.

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