The COVID-19 pandemic required swift and drastic intervention by the federal government to save jobs and prevent the economy from collapsing. But the legislative process was swift and dirty, with all the inevitable errors, omissions and unintended consequences.
You know this to be true when the Los Angeles Lakers and Ruth’s Chris Steak House chain qualified for potentially forgivable “emergency loans” under the Small Protection Administration (PPP) program. The Lakers received $ 4.6 million for their “emergency” and Chris de Ruth received $ 20 million. While Ruth’s Lakers and Chris Steak House paid off their PPP loans, it was only after media attention. Caramba. We can certainly do better with the next COVID-19 rescue towers.
“The Lakers have qualified and received a loan under the pay protection program,” the Lakers said in a statement last month. “Once we found out that the program funds had been used up, we repaid the loan so that the financial assistance was directed to those who needed it most. The Lakers remain fully committed to supporting both our employees and our community. “
“We intended to repay this loan according to government guidelines, but as we learned more about the funding limits and the unintended impact of the program, we decided to accelerate this repayment,” Cheryl Henry , President and CEO of Ruth’s Hospitality Group, owner of Ruth’s Chris Steak House, said in a statement.
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More than 230 have received more than $ 1 billion in PPP loans, according to an analysis of public filings through April 27, the Wall Street Journal reported. At least 30 public companies with market capitalizations between $ 4.5 million and $ 560 million reported holding more than $ 100 million in total, the newspaper reported
Since I am only a tax specialist, let’s focus on the federal tax changes that will allow us to improve. Here are some suggestions.
Tax breaks for businesses
Small and large businesses need more financial relief, including more tax relief. But let’s direct any new tax breaks where they are most beneficial. For example:
Extend the family business payroll tax exemption to hire your children
Under our current federal payroll system, business owners who are treated as sole proprietorships and matrimonial partnerships for tax purposes can hire their children under the age of 18, and children’s wages are exempt from the social security, health insurance and federal unemployment taxes (FUTA). For more details, refer to this previous Tax Guy section.
Excellent. Right now, hiring your kids and keeping money with your family could be a financial lifeline. The exemption from non-federal payroll taxes is an additional and valuable bonus. And we are looking for other ways to help family businesses. Right? So let’s temporarily extend the non-federal payroll tax agreement to cover children under the age of 25. This could help more family business owners and their children stay upright.
Increase the rebate by 100% for the depreciation of the first year for real estate expenses
Under our current federal tax system, businesses that spend money on so-called Qualified Improvement Goods (QAP) can pay the full amount in the first year. Indeed, PAQ expenses are eligible for a 100% depreciation of the first-year bond until the end of 2022. Excellent. However, the Tax Code currently defines the PAQ as the cost of an improvement to an interior part of a non-residential building, excluding the costs of expansion or the internal structural framework of the building. It is a very limiting definition. Many buildings will need to be redesigned in response to COVID-19, and many things will need to be done outside.
• Consider converting the square footage previously occupied by a large retail store into a large food court with several family restaurants and adequate space to overcome the COVID-19 disaster and next steps. You may need to expand the building and you may need to make structural changes to complete the project. Let us include these expenses in the definition of the QAP so that the owners and tenants of said buildings can claim 100% depreciation in the first year for their expenses.
• Consider converting the square feet previously occupied by a large company that has moved into individual hotel-style offices and meeting rooms that can be reserved by employees who now work primarily at home. Sufficient space would be a very good idea. You may need to enlarge the building and you may need to make structural changes. Let us include these expenses in the definition of the QAP so that the owners and tenants of said buildings can claim 100% depreciation in the first year for their expenses.
• The creation and expansion of outdoor sites with adequate space will probably be a big trend. Think of the dining rooms of outdoor restaurants, outdoor bars, outdoor music rooms, outdoor wedding halls and perhaps the resurgence of shortened cinemas. And further. As currently read in the Tax Code, expenses for these projects do not count as QIP, so a depreciation of 100% in the first year cannot be claimed. Let’s fix that.
Key point: many companies will have the chance to reach break even this year. Many will lose money. Duh For these companies, being able to claim a 100% bonus depreciation in the first year for real estate QIP expenses can potentially create or increase a net operating loss (NOL) which can then be carried over to previous years. You can then claim the reimbursement of taxes paid during these previous years. Anything that creates or increases a NOL can be a commercial lifeline, because taxes paid earlier can be recovered.
PPP loan grant: expand the list of eligible expenses and allow tax deductions for these expenses
The current rules for PPP (Paycheck Protection Program) loans state that they can only be canceled if at least 75% of the loan proceeds are used to cover eligible personnel expenses. It’s wrong. Continuing to pay employees does not help a company that does not need workers until its business model can be recalibrated to survive COVID-19 and what could follow. The PPP loan scheme needs to be renamed and reoriented to allow eligible businesses to spend the loan proceeds on what is needed to survive.
For example, a family restaurant may need to reconfigure its interior space, add an outdoor bar and food hall, and replace all of its food inventory. Until these things are done, you don’t need hosts, cooks, servers, and buses.
Finally, the IRS recently found that expenses funded by a canceled P3 loan cannot be deducted for federal income tax purposes. Apparently Congress had decided otherwise, but an amendment to the law may be necessary to resolve this technical problem. We are going to do it.
Tax relief for individuals
In the COVID-19 era, people also need financial relief, including better targeted tax relief. Here are two suggestions.
Resurrect tax-free moving expense allowances for employee relocation
Prior to the Tax and Employment Reduction Act (TCJA), employers could provide employees with deductions or reimbursements for moving expenses tax-free (within certain limits). The TCJA has suspended this precious break for 2018-2025. Under current rules, if your employer covers relocation costs, it is treated as additional salary income subject to federal income and salary taxes. Ugh We will surely see a lot of employee relocations in response to COVID-19. Again, allow employers to cover their employees’ moving expenses with non-taxable dollars.
Authorize home deductions for employees
For 2018-2025, another provision of the TCJA has suspended federal tax deductions for an employee’s home office used for business matters. Even before the TCJA, employees’ home office expenses were subject to restrictions that guaranteed little or no tax benefits in most cases. In light of current realities, allow employees to claim head office deductions, whether detailed or not.
The last word (for now)
These are my thoughts so far. More to come later. In the meantime, make your contribution by commenting on this column. There are good ideas that I am not smart enough to imagine. Let’s listen to them.
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