SOME TIPS FOR SMALL BUSINESS OWNERS DURING COVID-19 QUARANTINE:
Protecting your cash reserve is important during a temporary shutdown. Fortunately, there are many ways to immediately reduce your outgoing cashflow. Shown below are our recommendations for immediate savings that will not adversely impact your practice or your potential eligibility for future possible tax relief:
1) Turn off owner salary, spouse salary and any salary for the kids. Completely cancel it for now and this will save BOTH the income tax withholding amounts AND over 15% in payroll tax expense. It is early in the year and there is ample time to readjust owner salary this summer and fall. Continue to take draws as needed.
2) Keep all tax money in your bank account. The new deadline for 2019 tax payments is July 15, 2020, so if you owe money for 2019, that is your cash for the time being. The tax filing deadline has also been extended to July 15, 2020. Our team continues to service our clients and are available Monday through Friday.
3) Do not make a Q1 2020 estimated tax payment. It is neither possible nor necessary to estimate your current 2020 taxes this early in the year with so many significant variables affecting revenue. Keep this money for now and we will make adjustments later in the year as needed.
4) Stop all purchases of supplies except those you may need in the coming weeks. Make sure and cancel any recurring orders on your credit card that may result in items purchased that you don’t require.
5) Consider pausing the funding to your retirement plan. Although there may be a case for continuing with your contributions during a downturn, this should not happen at the expense of maintaining a comfortable operating cash reserve. There is plenty of time to make further contributions later in the year.
6) If these suggestions do not provide the immediate cash flow relief you need, contact your bank and ask for interest-only or deferred payments on your loans. The banks are well capitalized and they should be willing to work with you. I have today that some doctors have already received principal and interest deferred for 90 days.
Most states have provided for temporary Unemployment Insurance (UI) benefits in the wake of this pandemic. Each state is different, but I’m seeing a common trend: If wages paid out via compensation, PTO or sick pay exceed a UI benefit amount, then the employee may not be eligible for UI benefits. The employee will most likely need to go a period of time (either by week or pay period) without pay to be eligible for the UI benefit.
This leads to a question of which is best for you and the employee? If you pay an employee what you can for work performed during emergency cases, does this pay disqualify the employee from UI benefits?
This is determined at the state level. Most every state Department of Labor website I have visited has information clearly listed which describes the emergency benefits. If the state lists a maximum benefit of perhaps $500 per week, then you can determine if wages paid for reduced working hours would exceed that threshold. Ultimately, this decision is up to you as a business leader after you have reviewed your state UI policy and assessed your staffing requirements.
Key Staff Member-
If there is an employee you can’t live without, you may not want to lay them off permanently. Perhaps extended PTO is wise investment to keep this employee in the office when you need them for emergencies and to ensure they are not lost to another office when this crisis passes, and other practices are scrambling to re-hire staff.
Essential Staff Member
If an employee is essential but you cannot pay them during a 3-week closure, most states have a temporary UI benefit for reduced hours at no fault of the employee as opposed to being fully laid-off. You may consider a temporary furlough to make the employee eligible for a UI benefit with a guarantee of employment when the crisis abates.
Non-Essential Staff Member If an employee is non-essential and you lay them off permanently, you should consider the possibility of them finding employment elsewhere and not being available at a later date.
-Finally, small business owners can expect some form of tax relief from congress this year. It is likely you will need to quantify any business losses caused by the pandemic to qualify for potential tax relief. Our team will make sure you have the financial statements and possible period-to-period comparisons to assist you when and if this becomes necessary.