By Len Green
Last week, I was listening to the TDN Podcast. The Green Group Guest of the Week was the very successful trainer and four-time Eclipse winner Chad Brown.
One of the panelists asked Chad if he was affected by economically by COVID-19, even though he had relationships with so many significant owners who might be able to weather the storm of uncertainty.
Chad's response was that “all trainers are being affected, especially the smaller to midsize ones.”
That got me thinking.
I have seen hundreds of articles and podcasts on the CARES Act, but not one of them was specific to trainers and what options they had, until now.
Tax Code Changes that Benefit Trainers and the Horse Industry
You start by applying for:
- The PPP Loan Program, which is very advantageous for a number of reasons. Aside from providing liquidity for payroll and other incidental expenses, it has a relatively “streamlined application process.” While it's true that the funds ran out last week, Congress is nearing a deal to re-fund the program.
- Start with the gross payroll (including state tax expenses) based on 2019 payroll data. Payroll is the most important element in the PPP Program because the intent of the Program is for businesses to retain their employees.
- You can calculate the amount of the loan by starting with gross payroll and multiply that times 2.5 to cover the period to June 30, 2020.
- Include in gross wages any group health and retirement benefits. In arriving at that figure, remember to subtract individuals whose salaries are in excess of $100,000.
- Review who you pay by Form 1099 as independent contractors. The interpretation of the law is that you cannot count them as payroll since they may be applying also and the government does not want “double dipping of benefits.”
- My suggestion would be to ask the contractor if they are filling for the PPE Loan and have them sign off that they are not. Then consult with your advisor to decide if they are payroll for your purposes.
- Apply to a bank you are already doing business with to have the best chance of getting the loan.
- Consult with your advisor if you have questions.
- This loan also has a forgiveness provision using the calculation of the average monthly payroll cost (the most important element in the program). We suggest speaking to your bank about this feature.
- Let us assume your loan application is approved.
- The next step would be to keep track for 8 weeks of what you are doing with the loan.
- At least 75% must go to cover payroll during that period, the other 25% can go for rent, utilities, interest on mortgage, leases, group health care and sick leave.
Other Stimulus Programs
- Stimulus checks–if you filed a 2018 tax return, you may be receiving a check from the IRS by as soon as Apr. 15, 2020. This is called the Economic Impact Program. The amount you receive depends on your marital status or if you have children under 17. You should now be able to trace the payment online.
- Tax deferral for the employee portion of FICA taxes. Deferral can go from March 27, 2020 to Jan. 1, 2021. Repayment of the deferral is made 50% by Dec. 31, 2021 and 50% Dec. 31, 2022. Once you receive approval for the PPP Forgiveness Program, then this deferral is no longer applicable.
- Look into using the Employee Retention Credit of up to $5,000 per employee for the period Mar. 3, 2020 to Jan. 1, 2021.
- You can also apply for $10,000 advance from the Economic Injury Disaster Program or even apply for their loan program.
- Go for an SBA Economic Injury Disaster loan of $25,000, no collateral is required.
- Take advantage of changes that were recently made affecting the review of 2018 tax returns and prior tax returns to see if there were any limitations or losses that have now been allowed and can be taken retroactively in 2018. This could cover depreciation, business losses, etc.
- If this is applicable to you, file amended tax returns to receive refunds.
- If you have a Pension Plan, you may now be able to borrow up to $100,000 or 100% of your retirement account from the Plan for the period up to Sept. 23, 2020. You will have one year to repay without penalty.
- If you owe taxes in 2019, you have until July 15, 2020, or Oct. 15, 2020 if the return is extended to make a payment into certain Pension Plans and still be able to take that tax deduction for 2019. You should consult with your tax advisor.
- Credits are available if you paid employees for sick leave.
- The Tax Law changes on a daily basis. As questions are asked Congress should continue to update the interpretation of the law. Like the health rules, the financial regulations remain “fluid.”
- For example, the definition of what constitutes as payroll in the PPP section has already changed a number of times.
- Since these Laws are new, all I can provide is my interpretation as of now.
- Your specific situation should be reviewed by your advisor or send us a specific question, and we will try and answer it for you.
- Our understanding is that the current PPP loan program has been oversubscribed. That should not preclude you from moving forward with the application process, as we fully expect another round of funding to be implemented, especially if the majority of the country is still in “self-quarantine.”
Some Post-COVID discussion topics
The above items will greatly provide liquidity opportunities for smaller trainers. Other future “Post-COVID discussions” should also include running restricted races for trainers who have less than 12 horses stabled at a specific track (maybe even a starter handicap series), establishing a buying co-op for supplies, etc. Anything that would even the playing field a little without forcing larger trainers to give up their client base.
These are some of the ideas many of my clients have talked to me about—many may assist you.
I am sure there are more.
If you have some additional ideas, mail them to me and we will summarize them, research the feasibility of them and hope to publish them in the near future. Feel free to email us at [email protected] or if you would prefer to speak directly to a tax consultant, please call Len Green at (848) 212-4002, Jim Benkoil at (732) 510-1422, Karlene Bauer at (732) 510-1434 or Dianne Sellmeyer at (732) 510-1435.
Most importantly, stay safe.
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