Most of us are aware that CPAs are important advisors. But at a time when the country is dealing with economic changes and hardships, they play a particularly critical role. In the past, such as in the Great Recession, CPAs helped small businesses navigate vast uncertainty. And after the Tax Cuts and Jobs Act passed, they helped people and businesses alike understand how they were impacted by the new laws. Now faced with the economic uncertainty and tax implications of COVID-19, CPAs yet again are in a position to help their clients navigate a difficult and changing year.
Chief among the assets in a CPA toolkit is the ability to offer an independent and thoughtful analysis of a business’s situation, as well as the best strategies to navigate issues that arise. In a crisis such as COVID-19 in which the government responds with tax legislation, CPAs are also able to assist clients in making sure that they are compliant with the tax code. Here are three ways that CPAs have stepped in to help clients during the pandemic.
Understanding Cash Flow
As the market continues to be volatile, clients have put a renewed emphasis on liquidity and how it will affect their short- and long-term plans. CPAs have the unique ability to focus helping clients weather the crisis and planning for the future should things get worse. By analyzing the KPIs of cash flow including inventory, collection, and payment, accountants create plans which identify areas for reduced spending.
For companies under particular stress, the solution might lie in calling due outstanding invoices and prolonging payment on others. By accelerating receivables and reconciling balances, small businesses can tap into much needed liquidity that was not previously accessible. CPAs bring a third-party perspective to spending practices and offer an informed second opinion on expenditures that are overly taxing to a company’s bottom line, from inventory reduction to staffing changes.
Navigating Changing PPP Guidelines
Passed as part of the CARES Act, the Paycheck Protection Program (PPP) was patched together by the Small Business Administration (SBA) as an immediate solution, and what it achieved in expedience, it lacked in detail. That’s where CPAs step in.
As the IRS has submitted a flurry of interim rules, definitions and deadlines continue to shift. Clients that are seeking to submit forgiveness applications must have detailed record-keeping to account for expenditures that the loan was used for, including those related to owner-employees and employee wage deductions. Furthermore, although the SBA did not attach a deadline for forgiveness applications, the compensation rate is lower for borrowers that apply before the coverage concludes in comparison to those that apply after the term.
Rather than manage the intricacies of the PPP themselves, CPAs are in a strong position to help clients navigate the changing situation.
Tax Implications of PPP
If a business is one of the 5.2 million that took advantage of a PPP loan, CPAs can offer their support by helping you understand the impact it will have on your taxes.
The biggest pressure point that has come from the SBA program has been that the legislation passed by Congress did not allow for expenditures that used PPP funds to be written off as they would be in a normal year. That includes everything that businesses were eligible to use the money for: payroll, mortgage interest, rent payment, and utility payments. The implication of this is that companies that took the loan will likely owe more in federal taxes than they have in the past because of expenditures that they cannot write off, and it is imperative that they plan accordingly.
Not only can CPAs help companies with that planning, but they can also help with the inevitable follow-ups from the SBA that will most certainly come. Earlier this year, the administration signaled that it would scrutinize every loan taken over $2 million and many under that number as well, but at their discretion. Looking towards 2021, regulators may also become stricter should power change hands in Washington, as well. Maintaining close contact with an accountant can help you mitigate some risks of an audit and be prepared to respond quickly and accurately if one happens to come your way.
If you need assistance navigating the challenges of COVID-19, Clayton & McKervey can help. Visit our COVID-19 Resource Center for articles, tools, and solutions to help you get through this challenging time. For additional information, call us at 248-208-8860 or click here to contact us. We look forward to speaking with you soon.