COVID-19 Updates for Small Businesses and Non-Profits

I am sure you have been bombarded with updates related to the COVID-19 public health emergency. I am getting multiple emails and social media updates on a daily, or even hourly basis. Below are some crisis-related hot topics that are applicable to small businesses and small business owners. If I can help you navigate this in any way, please let me know. I truly want to help small businesses during this crazy time.

Tax Update

The 2019 tax filing deadline has been extended automatically from April 15 to July 15. No formal extension application is needed. This extended federal deadline applies to all taxpayers automatically. States have also been coming out with guidance on this. Missouri has extended their deadline to comply with the July 15 federal extended deadline.

What does this mean?

Families First Coronavirus Response Act (HR 6201)

This act was signed into law on March 18, 2020. Part of the Families First Coronavirus Response Act (FFCRA) aims to provide relief to individuals by way of providing leave to eligible employees that have been impacted by COVID-19. Provisions of this act are set to become effective April 1 and expire December 31, 2020. Generally, employers with fewer than 500 employees will be subject to the provisions. Eligible employers must post the notice of FFCRA requirements. See sample poster at:

https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf

Below is a breakdown of some of the major points of the act. Additional guidance will be forthcoming.

Emergency Family Medical Leave Expansion – Longer Term

The existing Family Medical Leave Act (FMLA) was expanded to include the current COVID-19 pandemic. Under the expansion, paid leave is included for employees who are unable to work (or telework) due to a school or childcare closure, or if the individual is unavailable as a result of COVID-19 precautions.

To be eligible, an employee must have been employed for at least 30 days. Eligible employers shall provide paid leave for each day that the eligible employee takes after an initial period of 10 days.

Generally, the amount to be paid is the lesser of:

The total amount is capped at $10,000. This assumes an eligible employee receives the maximum $200 per day for 50 days (10 weeks).

Note that the first two weeks under FMLA may be unpaid, or the employee may elect to use paid time off. Similar to other FMLA leave events, the employer must restore the employee to their position after the leave has ended.

There may be an exemption for employers that have less than 50 employees. However, the U.S. Secretary of Labor must determine that complying with the act would jeopardize the business’ ability to continue as a going concern. Additional regulations on this will be forthcoming.

There may also be an exemption for employers that have less than 25 employees with regards to restoring the employee to their position after leave. Employers may qualify only if the position no longer exists due to the economic conditions caused by the COVID-19 emergency; the employer reasonably tries to restore the employee to a similar position with equivalent pay and benefits; or if that is not possible, the employer makes reasonable efforts in the following year to let the employee know when an equivalent position exists again.

Emergency Paid Sick Leave – Short Term

Unlike FMLA, which is for unemployment for a longer time frame, the FFCRA also added an Emergency Paid Sick Leave act. Under this act, the employer shall provide paid sick time if the employee is unable to work (or telework) due to any of the below needs to leave:

Emergency Paid Sick Leave is to be provided for up to 2 weeks (80 hours) for full-time employees. Part-time employees are eligible for the average number of hours worked over a two-week period.

Unlike the FMLA provision, the emergency paid sick leave provision does not have an employment length requirement.

Employers cannot require employees to use other paid leave first (before paying the emergency paid sick leave). So, the employee can elect to use emergency paid leave before their regular accrued paid sick time.

The amount that shall be paid is dependent on the reason for the leave.

If the employee is caring for a child due to school or childcare facility closure, the amount to be paid is:

For all other reasons, the amount to be paid is the full regular rate of pay, up to $511 per day.

Employees who are health care workers or emergency responders are exempt.

Note that the Emergency Paid Sick Leave provision will not carry to future years, as the provision expires on December 31, 2020.

The FMLA expansion and Emergency Paid Sick Leave will result in payments to qualified individual employees that are affected. Additionally, the FFCRA includes provisions to reimburse employers for these payments.

Tax Credits for Employers

Part of the act provides for some relief for employers in the form of tax credits. While these tax credits will help reimburse payments the employer made to employees, the employers may still bear a bit of the burden. Since the payments are paid up front by the employer, they would bear the burden up front. The reimbursement will take place in the form of a credit on payroll tax forms filed at a later date. This could cause cash flow issues to businesses that are already struggling in the current economic environment.

The amounts to be claimed as a credit against payroll taxes include 100% of the qualified emergency family medical leave and emergency paid sick leave. These will be capped based on the calculation amounts mentioned in the sections above.

But what about individuals who are not employees, but self-employed?

Tax Credits for Self-Employed Individuals

To provide a similar relief for self-employed individuals, there will be a credit available against self-employment tax. These are calculated as if the individual was an employee qualifying for the leave but are claimed as a credit on the income tax return (as a reduction to self-employment tax).  It is anticipated that these tax credits can be used to offset estimated tax payments.

The amount of the credit is dependent on the reason for the leave.

If the self-employed individual is caring for a child due to school or childcare facility closure, the amount to be paid is

2/3 of the average daily self-employment income of the individual for the tax year, up to $200 per day.

The average daily self-employment income is calculated as:

For all other reasons, the amount of the credit is the full average daily self-employment income, up to $511 per day.

*All of the above will be covered via payroll tax credits for employers or tax credits for self-employed individuals, as discussed in the above sections.

Employees & Employers:

OR

 COVID-19 Testing & Treatment

One other item to note under the FFCRA is in regard to COVID-19 testing and treatment.  The act instructs that all health insurance plans are required to cover testing and any related health-care visits (office, urgent care, ER, or telehealth) free of charge related to COVID-19.  No copays or deductibles should apply.

SBA Disaster Loans

Under SBA Disaster Loan relief, small businesses and private non-profit organizations may be eligible for up to $2 million in assistance loans.

Funds may be used to pay debts, payroll, accounts payable, and other bills. Unlike the tax credits, these are loans that must be repaid.  However, the cash influx may be necessary for some small businesses to stay afloat.  The interest rate on these loans is 3.75% for small businesses and 2.75% for non-profits.

Conclusion

Stay tuned for more relief efforts and guidance in the upcoming days (or even hours).  Part II will focus on the recently passed Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed last week.

In closing, know my thoughts and prayers are with all of the small businesses and non-profit organizations out there.  This truly is a trying and unprecedented time for all.  I will continue to support local as much as I can with the restrictions, and also help you all in any way I can.  If you need any assistance or guidance with any of the above, let me know.

January 31st Deadline

Don't forget! Tomorrow is the deadline for filing W-2 and W-3 forms, as well as 1099 forms, and providing them to workers and contractors.

 

1099 and W-2 Forms Deadline is January 31st!

Quick Year-End Tax Tips

As we near the end of the year, that also means it’s almost tax time! Soon the tax forms will be rolling in. Here are a few year-end tips that may come in handy as the fiscal year comes to a close and new year’s resolutions are made.

Track Mileage

Remember to keep track of both your business miles and total miles. There are several different options for deducting vehicle expenses (including using the standard mileage rate of 58 cents per mile, or actual expenses). However, all methods require some tracking of mileage. There are several mileage tracking apps available. I use Mileage IQ, which is included with some versions of Microsoft Office 365 and is very simple to use. It will automatically pick up the mileage driven, and prompt the user to classify the drive as personal or business.

 Organize Receipts

Receipts should be kept for deductible items, including business expenses. The credit card statement itself will not suffice for proof in the event of an audit. Actual receipts are needed as documentation. Many people use the “shoe box method” of throwing receipts in one box. As you start a new year, it may be a good time to become more organized with your receipt tracking – whether that’s using file folders or implementing a paperless storage system.

Estimate tax payments & consider donations

If you have any purchase or investment decisions to make, there are still a few days left in the year. It can be very helpful to have a projection done of your estimated balance due. This can be used for items such as charitable donation planning, donating required minimum distributions from IRAs to charities, as well as determining what the final estimated tax payment due on Jan. 15, 2020 should be.

Determine next year’s budget

Year-end is always a great time to develop budgets for the following year. Spending time to develop an accurate, realistic budget that can be closely followed can not only help guide your spending but also help plan for saving. Budgets can be done for any organization, and also for individual households. Generally, starting with actual numbers for the current year, and projecting any anticipated changes for the next year, is a great method to follow.

Collect tax forms

Finally, be on the lookout for tax forms that will be headed your way. Generally, these forms should be received by individuals by Jan. 31. However, some investment companies get extensions to issue the investment forms.

Real World vs. Computer Realm

 

I recently read the book Ready Player One by Ernest Cline.  The book drew me in from its concept of escaping the real world with a computer, or virtual realm.  In the book there is a virtual realty system where humans can escape from their dreadful existence in a future world that has become poverty-stricken and depressing.  The lines between real world and the virtual world blur, especially as the main character races against the clock to win a competition.

We are in the midst of the Fourth Industrial Revolution, also known as the Digital Revolution.  One day, the accounting software program that your company uses may be fully entwined with the outside sources.  This may easily enable the tie-out of the balance sheet to occur automatically.  However, we aren’t quite there yet.  Therefore, one must still look at the flow of items in the accounting system, both in the real world and in the computer realm.

In other words, your accounting system should include processes for not only the physical flow of documents and resources, but also the technological flow of inputs and calculations in the accounting software system.  The goal is to mirror these as close as possible. Computerized accounting processes must be examined in coordination with real-world flows.

An easy way to look at this is to take the checking account of the business.  If the real-world process involves the collection, storage, and deposit of multiple checks, the software input and output should mirror this.  Same with outstanding items.  If there are checks that have been written and mailed, but not yet cashed by the payee; the software input and output should reflect these outstanding items.  The closer we can get to mirroring the real-world inputs and outputs in the accounting software system, the more up-to-date and accurate output we will have.

Let me know if I can help in evaluating your own system to ensure the real world and computer realm flows are in alignment.

Do You Need a Budget?

Are you a living, growing business? 

Are you starting with a tied-out balance sheet and clean financials?

If you answered both questions yes, then my response would be that you do need a budget.

All too often, businesses don’t develop budgeting practices.  This can be ok if the business is established, stable, and doesn’t anticipate a lot of volatile changes in income or expenses. 

However, it can be important for businesses that don’t meet these criteria to have a budget set up, and then monitor against it, to determine if the goals are being met. 

 

Budgets aren't just for adding pennies to the piggybank!  They are a sophisticated tool to help plan for your business!

 

 

Common Budget Situations

  1. New start up business – must budget in order to even cash flow and know if the business is feasible
  2. Growing business – must budget in order to ensure pricing of product and associated growth can cover rising costs and expenses
  3. Expanding fixed assets, such as equipment or building additions – must budget in order to ensure the expenditures on fixed asset additions can be covered
  4. Struggling business – must budget to ensure cash flow and try to avoid landmines that could ultimately sink the business
  5. Businesses adding managers or decision makers in the process – should budget so these individuals know goals to hit and the available resources and constraints

I have served on the Boys & Girls Clubs of Columbia board for many years.  It is a fast-growing non-profit, that has continued to expand sites and the number of kids served every year.  Rarely have we had a year where we can just assume “same as last year”.  Even though it can be a rough process, every year we develop a budget.  Every month, we evaluate our budget with the actual numbers, questioning major differences (positive or negative). 

Many nonprofits must have budgets and evaluate against them, mainly because there is a governing board ensuring the organization is functioning properly.  I think it is time that more for-profit entities follow their lead and start a formal budgeting process. 

Many software programs, including QuickBooks, can generate budgets and run budget vs. actual reports.  Let me know if I can help you get a formal budget process established.

Efficient vs. Effective

You have probably heard both words before.  But what do they really mean? 

Dictionary.com defines efficient as “performing or functioning in the best possible manner with the least waste of time and effort; having and using requisite knowledge, skill, and industry; competent; capable”.

Many times, efficiency is touted as something to strive for.  When I think of being efficient, I think of doing something quickly, with little waste of resources.  That all sounds like a good thing, right?

What efficiency doesn’t do is pave the way for innovation.  It doesn’t leave room for self-development, growth, new ideas, or changes.  If someone is so busy being efficient, they don’t have the capacity to focus on being effective.

I would argue that a better goal would be to instead focus on effectiveness.  Note that I am not saying we should throw efficiency out the window, but instead our primary focus should be on effectiveness, first, then efficiency. 

Dictionary.com defines effective as “adequate to accomplish a purpose; producing the intended or expected result”. 

If we strive to be effective, as opposed to efficient, we are still getting the project, job, or work done.  But we aren’t just looking at whether we had wasted time and effort.  Sometimes, in fact I would argue a lot of times, some of the best developments may arise out of effectiveness, not workers just trying to be the most efficient. 

As I started my new venture, I knew that I wanted to focus on effectiveness rather than efficiency.  I wasn’t going to chase down the next billable hour and try to hit time budgets.  Instead, I wanted to invest true time into being effective.  No, this is not time that is billable, but it is useful time that will enable me to learn, grow, and serve my clients in a more effective way. 

Efficient or effective?  What adjective describes your approach to work and why?     

Note: For more insights into efficiency vs. effectiveness, check out Episode #1 of the Soul of Enterprise podcast.