Navigating the federal tax implications of COVID-19 can be a confusing task as changes are made daily and new federal laws and programs are put in place to help small businesses weather the storm and recoup some losses.
Three federal laws were passed last month pertaining to the coronavirus pandemic: including funding for the treatment and spread of the virus, creating expanded sick leave and family leave entitlements, and the CARES Act, or the Coronavirus Aid, Relief and Economic Security Act.
NADA, the National Automobile Dealers Association, hosted its second webinar in its Dealership Lifeline Series April 2 detailing what these new federal tax implications are and how they pertain to auto dealers.
Paul Metrey, NADA’s vice president of regulatory affairs, stressed that everyone should consult their tax practitioner first so they can make appropriate tax planning decisions.
While we won’t get into the minutiae of every federal tax offering available right now, it’s important to know what the tax items are that auto dealers should be looking at first. Jay Goldman, a principal of the Dealership Services Group for Boyer & Ritter, outlined several tax items to look at now.
“It’s pretty safe to say a lot of businesses will not be as profitable as they were in 2019,” Goldman said in the webinar. “We certainly did not expect to have a downturn this fast and this rapid. The name of the game now is liquidity. You have to find ways to generate cash or reduce expenses.”
What should auto dealers consider doing tomorrow?
For non-tax items:
• Contact your bank about the Paycheck Protection Program Application.
• Consider applying for an Economic Injury Disaster Loan.
• Consider staffing needs and understand the federal unemployment subsidy.
• Evaluate whether employees are eligible for new statutory Paid Sick Leave or Paid FMLA, the Family Medical Leave Act.
• Contact your lenders about possible deferrals and/or concessions. It doesn’t hurt to ask. The worse they can say is no.
For tax items:
• If you’re not applying for the Paycheck Protection Program loan, you should be gathering information to calculate the employee retention credit and begin to defer your employer FICA taxes.
• Determine if net operating loss existed in 2018 or 2019 and then consider amending tax returns.
• Determine if losses were limited in 2018 or 2019 and consider amending tax returns.
• Determine if 50% interest limit changes either interest expense deductions or business development eligibility, and then amend 2019 tax returns if already filed.
• Review fixed asset additions for 2018 and 2019 and identify any qualified improvement property upgrades made to take additional deductions.
• Determine if alternative minimum tax credits exist and apply for a refund.
Small businesses can not apply for both the new Paycheck Protection Program loan and the Employee Retention Credit.
This new retention credit benefits auto dealers who have under 100 employees the most because they then can get a credit equal to 50% of wages, up to $10,000, of wages per employee. The maximum credit is $5,000 per employee, said Dan Cheyney, a partner at Moss Adams LLP and the regional director of the Dealer Services Group for the state of Washington.
Auto dealerships with over 100 employees get a credit limited for employee wages who are not working, Cheyney said.
“These are significant dollars, but less if you’re a larger employer,” Cheyney said in the webinar. “It is confusing though since all of these (federal programs) have different criteria and starting dates.”
The best way to keep on top of everything is to consult your trusted CPAs and lenders and try to keep on top of the resources available.
Here are some resources:
State Tax Filing Guidance for Coronavirus Pandemic: https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/coronavirus-state-filing-relief.pdf
IRS Coronavirus Tax Relief: www.irs.gov/coronavirus
IRS Credits for Sick Leave and Family Leave under FFCRA, or Families First Coronavirus Response Act: www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs#how_to_claim
NADA Coronavirus Hub: www.nada.org/coronavirus
Digital Air Strike COVID-19 business updates and info: www.digitalairstrike.com/commitment