Practice Owner “To-Do List” Following the Passing of the CARES Act

Now that the CARES Act has been passed into law, now is the time to finalize your planning for this period of time that your office is temporarily closed and also for when the office reopens later this year.

• Submit the paperwork with the SBA to receive the $10k EIDL (Economic Injury Disaster Loan) grant. This grant does NOT need to be repaid.

o Info is available at: https://www.sba.gov/disaster/apply-for-disaster-loan/index.html
o The program is currently funded at $10 billion, and is first come first server, so apply soon.
o Do the best filling out the application. We plan to send out line by line instructions soon.

• If your office is closed, consider furloughing and/or laying off your staff if you haven’t already done so.

o Information, including a great reference guide prepared by Mass Dental Society, is available at: https://www.schwartzaccountants.com/2020/03/practice-payroll-covid-19/
o The CARES Act increases Unemployment benefits by $600 per week for a period of up to 4 months
– Good luck getting your staff to come back to work when you reopen your office since your staff will be earning more from the government to not work than they will earn from you.
o The Act also extends the period someone can collect unemployment by 13 weeks to 39 weeks

• Consider filing for unemployment for yourself.

o The CARES Act expanded unemployment benefits to self-employed individuals and 1099 contractors
o However, instead of filing for unemployment, some practice owners are keeping themselves on a reduced salary to continue to fund their 401k plans during the down market
o To supplement their cash flow at home, practice owners can take S-Corp distributions from their practices while they are collecting since that isn’t considered earned income
o See https://www.schwartzaccountants.com/2020/03/unemployment-faqs/ for more info about practice owners laying themselves off

• Conserve practice cash.

o Contact your lenders to see if they are offering their customers a grace period. Most have reached out to their customers already.
– See what the lenders told us at: https://www.schwartzaccountants.com/2020/03/practice-loans-relief-from-lenders/
o If you don’t own your space, reach out to your landlord about allowing reduced or delayed rent payments
o Pause all advertising since no one is thinking about going to the dentist now anyhow.
o Contact your insurance agent to see if any policies can be put on hold temporarily
o See which other monthly contracts can be paused until you reopen the practice
o Turn off monthly “auto-pay” expenses that aren’t necessary at this time

• Federal student loan payments have been suspended through 9/30.

o Interest accruals are waived as well.
o Please go online with your loan servicer to make sure that they are following through on this valuable break from paying these loans.

• Start working on the “Paycheck Protection Program” SBA 7(a) loan.

– These rules are the most complicated in the Act, so I hope we got this right. If anything isn’t correct please let us know. Thanks
o The loan is equal to 2.5 times your average monthly payroll costs for the 12 months prior to the loan date
– New practices without 12 months of payroll history will base the calculation on the average payroll costs for January 2020 and February 2020
– Payroll costs include salaries and wages (up to $100k in annual salary per individual), PTO, group benefits, retirement plan contributions, and payroll taxes
o This loan will be forgiven if your practice:
– Spends more for payroll costs and certain facility costs over the 8-week period following when the loan was issued than the amount borrowed.
– Maintains your staffing levels to at least 75% of the employee count as of the start of the 8-week period.
– Does not decrease the compensation by 25% per individual staff member during those 8 weeks.
o The rules allow you to re-hire your staff and still qualify for the full loan forgiveness.
– According to the US Chamber of Commerce, “Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.”
– Read the US Chamber of Commerce guide at: https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final_revised.pdf
o A good strategy if you have already furloughed or laid off your staff:
– Work with your bank (or another bank that can help you out) to get everything in order for this loan.
– As soon as you can safely open your office, rehire your staff. The sooner you hire them after 4/26, the better the calculations will work out for you.
– Take advantage of this loan to pay your staff’s salaries for the first two months back at work
– Following the 8-week period, file the paperwork with the bank to get the loan forgiven.
• The amount of the loan to be forgiven will be reduced by the $10k EIDL grant received

• When you rehire your staff, plan to defer your staff’s matching Social Security taxes until 2021 & 2022.

o Currently, your employees have Social Security Taxes withheld from their pay at a rate of 6.2% and your practice matches those taxes.
o Under the CARES Act, employers can defer paying the 6.2% match for the remainder of the year.
o Those deferred taxes will then be paid in equal installments over 2021 and 2022.
o Our firm’s payroll team is familiar with these rules and will help you take full advantage of them.
o This tax break is not available to employers receiving assistance through the Paycheck Protection Program.

• Take advantage of a tax credit of up to $5k per retained employee if your practice is still open and revenue for Q2 2020 decreases by more than 50% from Q2 2019.

o Credit available to employers whose:
– Operations were suspended due to the pandemic
– Or practice revenue decline by more than 50 percent from the same quarter of the prior year.
o You would file for this tax credit on your quarterly payroll tax forms filed.
o Our firm’s payroll team is familiar with these rules and will help you take full advantage of them.
o The credit is not available to employers receiving assistance through the Paycheck Protection Program.

• 4/15 deadline extended to 7/15

o More information is available at: https://www.schwartzaccountants.com/2020/03/filing-info-relief-for-individual-tax-payers/
o The 3 month delay is for filing your tax returns and paying taxes due.
o July 15th deadline also applies to 2020 Q1 and Q2 estimated tax payments.
– If your practice revenue is down you can most likely reduce your 2020 quarterly estimates.
o Also applies to IRAs, SEP IRAs and practice retirement plan contributions.
o Don’t forget you can push back the direct debit withdrawal date to 7/15 by calling 1-888-353-4537 if your tax return was already filed and there was a balance due set up for a 4/15 direct debit.

• As a very last resort, look at your retirement accounts for a potential source of cash.

o Please take money out of your retirement accounts only as an absolute last resort!!!
o You can now take $100k out of your IRA or work retirement accounts Penalty-free (not Income Tax-Free).
– The federal taxes due will be paid over three years.
– You have the opportunity over these three years to replenish your retirement accounts for the amount taken.
o You can also borrow up to $100k from your work 401k or 403b account, or from your Solo 401k.
– This is up from the lesser of 50% of your account balance or $50k.
– Your 401k loan generally needs to repaid over 5 years
– Any outstanding balance upon separation of services becomes taxable plus subject to a 10% early withdrawal penalty if under the age of 55