MAY/JUNE 2020 VOLUME 4, ISSUE 5
T O P H ’ S TAX RESOLUT ION T I M E S
How to Survive With Zero Cash Flow
The coronavirus is here, and it has impacted all of our lives. Millions of people are suddenly underemployed or unemployed, and countless businesses have been forced to close their doors. And the unfortunate reality is that many of these businesses will never reopen once the pandemic has passed. I know how stressful things have been for my family because we are a small business and Ashley is currently on unpaid maternity leave. Fortunately, our business is considered “essential” in Ohio and is allowed to continue operating. I’ve been able to keep working, but that does not mean it’s been business as usual for us. Imagine if both you and your spouse are self-employed and co-own/co-manage a business that was forced to shut down because of the coronavirus. (For some of my clients, this nightmare has become a reality.) In the blink of an eye, you literally have no income and no cash flow. How are you supposed to survive? And the survival I’m talking about is not about trying to pay your rent/mortgage and bills. I’m literally talking about how you are going to pay for groceries so you can feed your family. The first thing I recommend is applying for the Paycheck Protection Program (PPP) through your local bank. The PPP is the government’s way of providing small- businesses owners and employees with 2 1/2 months of income replacement in the form of a loan. If you meet the requirements of this loan, then your loan can ultimately be forgiven in the form of a nontaxable government grant. I have heard some people refer to this program as “free”money, but if you are self- employed and currently have zero income, then nothing is “free” given the stress and financial hardship you are dealing with. Nonetheless, this would at least be something that could help you get back on your feet. If the PPP doesn’t work out, then you could apply for an Economic Injury Disaster Loan (EIDL) through the Small Business Administration (SBA). As part of this program, you could qualify for a loan advance of up to $10,000 if you are experiencing a temporary loss of revenue. Similar to the PPP program, this loan advance could ultimately be forgiven so you would potentially not be required
to repay it. Keep in mind that if you receive a loan advance through the EIDL program, then you would have to reduce your allowable PPP loan by this amount.
If your business is set up as an S corporation or a C corporation, then another option is to file for unemployment. Many business owners don’t realize they are eligible for unemployment, but if your business has a corporate tax status and you have been drawing a “salary,” then your business has been paying unemployment taxes (on behalf of the business owner) and you would be eligible for unemployment. I think this option would be best for a business owner who doesn’t qualify for much through the PPP or EIDL programs and is unsure whether they will be able (or even want) to reopen their business. Lastly, there is one additional strategy (that under normal circumstances I would not recommend) worth considering. As a result of the coronavirus, the rules for withdrawing and distributing money from a retirement account — an IRA, Roth IRA, 401(k), etc. — have been relaxed considerably. Any taxpayer is now able to withdraw up to $100,000 from their retirement accounts before Dec. 31, 2020, with zero penalties. Additionally, you’d have up to three years to pay the money back before it would become taxable. There are several other new rules related to this, so be sure to have a discussion with your accountant before taking any action to ensure you do it properly.
Please stay safe and healthy and hang in there! We are all in this together!
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