Attuning your social media strategy to the pandemic

Social media for business: Your time has come. That’s not to say
it wasn’t important before but, during the novel coronavirus (COVID-19)
pandemic, connecting with customers and prospects via a popular platform is
essential to maintaining visibility, building goodwill and perhaps even
generating a bit of revenue.

What’s challenging is that the social media strategy you
deployed before the crisis may no longer be effective or appropriate. Now that
businesses have had a couple of months to adjust, some best practices are

Review your approach. Assuming
your company already has an active social media presence, take a measured,
objective look at what you do and how you do it. Gather feedback from managers
and key employees. If feasible, ask trusted customers if they feel your posts
have been in tune with the times. While you recalibrate, don’t hesitate to slow
down or even pause your social media efforts.

Look to help, not sell. The
drastic economic slowdown has ratcheted up the pressure on everyone. When
revenue starts falling off, it’s only natural to want to market aggressively
and push sales as hard as possible.

But, on social media, this tactic generally doesn’t play well.
Many people are dealing with job losses and financial hardship. They may view hard-sell
tactics as insensitive or, worse yet, exploitive of the crisis. Create posts
that offer positive messages of empathy and encouragement while also letting
friends and followers know that you’re open for business.

Deliver consistency. Although
you may need to tweak the content of your posts to avoid appearing out of
touch, a national crisis probably isn’t the time to drastically change the look
and style of your posts. Customers value brand consistency and may even draw
comfort from seeing your business soldier on in a familiar fashion.

Engage with customers. Unlike
traditional marketing, social media is designed to be interactive. So, seek out
viable opportunities to increase engagement with those who follow your
accounts. Many people are feeling isolated and would welcome conversation
starters, coping tips, authentic replies to questions and gratitude for

As always, however, interaction with the public on social media
can be fraught with danger. Choose discussion topics carefully, exercise
restraint in dealing with criticism, and be on guard for “trolling” or
conversations that could get into politics, religion or other sensitive topics.

Social media was once a brave new world for businesses to
navigate. For the time being, it may be the only
world in which many companies can interact directly with a large number of
customers and prospects. Manage your message carefully. We can help you assess
the costs and results of your marketing efforts, including on social media, and
devise sensible strategies.

© 2020

Fortunate enough to get a PPP loan? Forgiven expenses aren’t deductible

The IRS has issued guidance clarifying that certain deductions
aren’t allowed if a business has received a Paycheck Protection Program (PPP)
loan. Specifically, an expense isn’t deductible if both:

  • The payment of the expense results in forgiveness of a
    loan made under the PPP, and
  • The income associated with the forgiveness is excluded
    from gross income under the Coronavirus Aid, Relief, and Economic Security
    (CARES) Act.

PPP basics

The CARES Act allows a recipient of a PPP loan to use the
proceeds to pay payroll costs, certain employee healthcare benefits, mortgage
interest, rent, utilities and interest on other existing debt obligations.

A recipient of a covered loan can receive forgiveness of the
loan in an amount equal to the sum of payments made for the following expenses
during the 8-week “covered period” beginning on the loan’s origination date: 1)
payroll costs, 2) interest on any covered mortgage obligation, 3) payment on any
covered rent, and 4) covered utility payments.

The law provides that any forgiven loan amount “shall be
excluded from gross income.”

Deductible expenses

So the question arises: If you pay for the above expenses with
PPP funds, can you then deduct the expenses on your tax return?

The tax code generally provides for a deduction for all ordinary
and necessary expenses paid or incurred during the taxable year in carrying on
a trade or business. Covered rent obligations, covered utility payments, and
payroll costs consisting of wages and benefits paid to employees comprise
typical trade or business expenses for which a deduction generally is
appropriate. The tax code also provides a deduction for certain interest paid
or accrued during the taxable year on indebtedness, including interest paid or
incurred on a mortgage obligation of a trade or business.

No double tax benefit

In IRS Notice 2020-32, the
IRS clarifies that no deduction is allowed for an expense that
is otherwise deductible if payment of the expense results in forgiveness of a
covered loan pursuant to the CARES Act and the income associated with the
forgiveness is excluded from gross income under the law. The Notice states that
“this treatment prevents a double tax benefit.”

More possibly to come

Two members of Congress say they’re opposed to the IRS stand on
this issue. Senate Finance Committee Chair Chuck Grassley (R-IA) and his
counterpart in the House, Ways and Means Committee Chair Richard E. Neal
(D-MA), oppose the tax treatment. Neal said it doesn’t follow congressional
intent and that he’ll seek legislation to make certain expenses deductible.
Stay tuned.

© 2020

Subchapter V: A silver lining for small businesses mulling bankruptcy

Many small businesses continue to struggle in the wake of the
coronavirus (COVID-19) pandemic. Some have already closed their doors and are
liquidating assets. Others, however, may have a relatively less onerous option:

Although bankruptcy obviously isn’t an optimal outcome for any
small company, there may be a silver lining: A new bankruptcy law — coupled
with an under-the-radar provision of the Coronavirus Aid, Relief, and Economic
Security (CARES) Act — has made the process quicker and easier. It may even
allow you to retain your business.

New law made better

The law in question is the Small Business Reorganization Act of
2019. That’s right, it was passed just last year and took effect on February
19, 2020, about a month before the pandemic hit the country full force.

The Small Business Reorganization Act added a new subchapter to
the U.S. bankruptcy code: Subchapter V. Its purpose is to streamline the
reorganization process for smaller companies and, in some cases, improve their
odds of recovery.

When signed into law, Subchapter V applied only to companies or
proprietors with less than about $2.7 million in debt. However, under the
CARES Act, this amount has been temporarily increased to $7.5 million in
debt. (Additional details apply; contact a bankruptcy attorney for a full

Potential improvements

For small-business owners, Subchapter V could improve the
bankruptcy process in several ways:

You may be able to keep your company. Under a
Chapter 11 reorganization, business owners typically don’t receive an equity
stake in the reorganized company until all debts are repaid. Subchapter V
creates a pathway for owners to retain their equity if their disposable income
is distributed to creditors over a certain period (generally three to five
years) in a “fair and equitable” manner.

You may not need creditors’ approval to
Small-business bankruptcies have long been stymied when one
group of creditors object to the reorganization plan. Under Subchapter V, once
a bankruptcy court approves the plan, the reorganization may proceed without
creditors’ approval.

You may incur fewer costs and get it done
more quickly.
Subchapter V offers the opportunity to reduce the documentation
and level of detail required under a traditional Chapter 11 proceeding. In
turn, this can make the process less costly and more expeditious.

Prudent path

Given the extreme and sudden nature of this year’s economic
downturn, bankruptcy has unfortunately become an option that many embattled
small businesses will need to consider. Our firm can help you assess your
company’s financial position and choose the most prudent path forward.

© 2020

The CARES Act liberalizes net operating losses

The Coronavirus Aid, Relief, and Economic Security (CARES) Act
eliminates some of the tax-revenue-generating provisions included in a previous
tax law. Here’s a look at how the rules for claiming certain tax losses have
been modified to provide businesses with relief from the novel coronavirus
(COVID-19) crisis.

NOL deductions

Basically, you may be able to benefit by carrying a net
operating loss (NOL) into a different year — a year in which you have taxable
income — and taking a deduction for it against that year’s income. The CARES
Act includes favorable changes to the rules for deducting NOLs. First, it
permanently eases the taxable income limitation on deductions.

Under an unfavorable provision included in the Tax Cuts and Jobs
Act (TCJA), an NOL arising in a tax year beginning in 2018 and later and
carried over to a later tax year couldn’t offset more than 80% of the taxable
income for the carryover year (the later tax year), calculated before the NOL
deduction. As explained below, under the TCJA, most NOLs arising in tax years
ending after 2017 also couldn’t be carried back to earlier years and used to
offset taxable income in those earlier years. These unfavorable changes to the
NOL deduction rules were permanent — until now.

For tax years beginning before
2021, the CARES Act removes the TCJA taxable income limitation on deductions
for prior-year NOLs carried over into those years. So NOL carryovers into tax
years beginning before 2021 can be used to fully offset taxable income for
those years.
For tax years beginning after
2020, the CARES Act allows NOL deductions equal to the sum of:

  • 100% of NOL carryovers from pre-2018 tax years, plus
  • The lesser of 100% of NOL carryovers from post-2017 tax
    years, or 80% of remaining taxable income (if any) after deducting NOL
    carryovers from pre-2018 tax years.

As you can see, this is a complex rule. But it’s more favorable
than what the TCJA allowed and the change is permanent.  

Carrybacks allowed for certain losses

Under another unfavorable TCJA provision, NOLs arising in tax
years ending after 2017 generally couldn’t be carried back to earlier years and
used to offset taxable income in those years. Instead, NOLs arising in tax
years ending after 2017 could only be carried forward to later years. But they
could be carried forward for an unlimited number of years. (There were
exceptions to the general no-carryback rule for losses by farmers and
property/casualty insurance companies).

Under the CARES Act, NOLs that arise in tax years beginning in
2018 through 2020 can be carried back for five years.

Important: If it’s
beneficial, you can elect to waive the carryback privilege for an NOL and,
instead, carry the NOL forward
to future tax years. In addition, barring a further tax-law change, the
no-carryback rule will come back for NOLs that arise in tax years beginning
after 2020.

Past year opportunities

These favorable CARES Act changes
may affect prior tax years for which you’ve already filed tax returns. To
benefit from the changes, you may need to file an amended tax return. Contact
us to learn more.

© 2020