Sax FOCUS on Recovery Newsletter

#togetherwestand

#togetherwestand COVID-19 Resource Center On your road to recovery, lean on Sax for up-to-date information relevant to your state and business.

Now is the time to prepare for the road to recovery.

With changes constant and released guidance on-going, lean on Sax to stay in the know with the most recent updates so you can best position your business to regain strength.

VISIT OUR COVID-19 RESOURCE CENTER HERE:

LOAN PROGRAMS

TAX ALERTS

BUSINESS RESOURCES

STATE UPDATES

WEBINARS

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SAX FOCUS ON RECOVERY NEWSLETTER

IN THIS ISSUE 04

06

TAX CORNER

BUSINESS DISRUPTION CORNER

COVID-19 Relief for Businesses & Individuals Through Tax Incentives & Provisions

Managing Cash Flow During Business Disruption Written by: Kathleen Alexander, CPA, MST, CFE

08

12

WEALTH MANAGEMENT CORNER

REAL ESTATE CORNER

COVID-19 Health & Wealth Scare: A Moment to Take Stock Instead of Shedding Stock and Financial Plans Written by: Greg Duffy

Accelerating Cash Flow for Real Estate Owners and Operators Written by: Michael Benguigui, CPA

16

18

MANUFACTURING & DISTRIBUTION CORNER

NOT-FOR-PROFIT CORNER

04

08

12

Crisis Management Considerations for Manufacturers Written by: Al Traverso, CPA

How Not-For-Profits Can Get On the Road to COVID-19 Recovery Written by: Harper Garrett, CPA, CGMA

20 TECHNOLOGY CORNER Keeping Data Safe & Secure While We Work Remotely 18

The information contained within this newsletter is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax or financial advice from a professional.

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TAX CORNER

Selecting & Implementing the Right Software for COVID-19 Relief For Your Construction Business Businesses & Individuals Through Tax Incentives & Provisions A

t the onset of the COVID-19 pandemic, as businesses were shutting their doors and individuals were beginning to hunker down at home, the “Coronavirus Aid Relief, and Economic Security Act” (CARES Act) was signed into law, allocating $2.2 trillion in spending and tax breaks to increase liquidity in the economy and provide relief for those most harmed by the pandemic.

Here you will find a summary of the key tax provisions aimed at providing COVID-19 relief to businesses and individuals:

BUSINESSES Payroll Tax Delay Employers and self-employed individuals can defer payment of the 6.2% employer share of Social Security taxes on employee wages from 3/27/2020 to 12/31/2020, with 50% deferral required to be paid by the end of 2021 and the remaining 50% by the end of 2022.

Employers, who have indebtedness forgiven under the Paycheck Protection Program, will not qualify for this deferral.

During the payroll tax deferral period, all employment tax payments made by the applicable dates above will be treated as having been timely made.

Employee Retention Credit Eligible employers can receive a 50% payroll tax credit on qualified wages each quarter to encourage the retention of employees who cannot work due to a COVID-19 related circumstance. If the requirements of qualified wages, qualified employees and qualified employers are met, the credit would be for wages paid or incurred from 3/13/2020 to 12/31/2020.

• Who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

Eligible wages: • For employers who had an average of 100 or fewer full-time employees in 2019, all employee wages are eligible, regardless of whether the employee is furloughed.

• For employers who had more than 100 full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers' closure or reduced gross receipts are eligible for the credit.

Wages are capped at the first $10,000 and includes health benefits. Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act, nor for wages taken into account for the employer credit for paid family and medical leave.

The credit is not available to employers receiving Small Business Interruption Loans. No credit is also available with respect to an employee for any period for which the employer is allowed a Work Opportunity Credit.

Net Operating Losses (NOLs) The new law temporarily suspends the 80% taxable income limitation on utilizing NOLs through taxable years beginning before January 1, 2021.

Additionally, the law also allows for a 5-year carryback of NOLs arising in years 2018, 2019 and 2020. These provisions apply to individuals, estates and trusts as well.

Eligible employers including non-profits are employers: • Whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings; or Sax Focus • www.saxllp.com Page 4

RELIEF FOR BUSINESSES & INDIVIDUALS Limitation on Business Interest 163(j) The new law relaxes the limitation on the deduction of business interest from 30% of adjusted taxable income (ATI) to 50% ATI, for taxable years beginning in 2019 or 2020.

In anticipation that the 2020 income will be lower than 2019, the CARES Act also provides for an election whereby the taxpayer can use their 2019 ATI to calculate the 2020 limitation. In the case of a taxpayer who had 2019 as a short year, income should be annualized to 12 months.

Considering that most partnership returns for 2019 have already been filed, the law provides for a special rule for them. The increase in the ATI limitation to 50% will apply to the 2020 tax year.

For partners that don't elect out, any excess business interest disallowed in 2019 will be treated as follows: 1. 50% of the excess business interest will be treated as paid or accrued by the partner in the partner's first tax year beginning in 2020 and will not be subject to Section 163(j) limitation.

2. The balance of 50% of the excess business interest will be subject to the limitations of Section 163(j). In other words, it will remain suspended until the partnership allocates excess taxable income or excess interest income to the partner.

Taxpayers may elect out of the increase, for any tax year. Once made, the election can be revoked only with IRS consent. For partnerships, the election must be made by the partnership and can be made only for tax years beginning in 2020.

Qualified Improvement Property (QIP) A correction to a drafting error in the Tax Cuts & Jobs Act (TCJA) now allows Qualified Improvement Property (QIP) to be treated as 15-year property. This will allow taxpayers to apply 100% bonus depreciation to eligible QIP retroactively for assets acquired and placed in service after 12/31/17.

Qualified Improvement Property includes any improvement made by the taxpayer, to a building’s interior, provided such improvement was placed in service after the building itself was placed in service.

However, improvements do not qualify if they are attributable to:

joint filers). The rebate was increased by $500 for each qualifying child and started phasing out in 5% increments at $75,000 ($150,000 for joint filers) and capped at $99,000 for an individual ($198,000 for joint filers).

Premature Distribution Penalty Relief New law waived the 10% penalty on early withdrawals up to $100,000 for coronavirus related distributions from qualified retirement accounts, qualified plans (e.g. a 401(k) plan), and 403(b) plans.

Repayment of Distributions Taxpayers that receive a coronavirus-related distribution have 3 years (instead of the normal 60 days) to repay the distribution to an IRA or other eligible retirement plan. If the taxpayer chooses not to repay it, an election can be made to treat it as income ratably over the next 3 years beginning the year of distribution.

Retirement Plans Normally an employee cannot borrow more than the lesser of 50% of their vested account balance or $50,000 from their employer sponsored retirement plan. The new law opened a 180-day window from date of enactment, that raises the dollar limit to $100,000 and eliminates the 50% of the account balance limit.

Charitable Contributions A modification to charitable deductions allows up to a $300 “abovethe-line” deduction for non-itemizing individuals. In addition, for itemizing individuals, the adjusted gross income limitation has been removed for “qualifying charitable contributions”(QCC) made in 2020. QCC are contributions made in the form of cash and not made to donor advisor funds or non-operating private foundations.

Excess Business Loss Limitation The limitation on the deduction for noncorporate taxpayers in claiming losses in excess of $250,000 for single/$500,000 for joint filers is suspended for years 2018, 2019 and 2020.

Required Minimum Distributions (RMD)

• any elevator or escalator; or

Formerly, individuals generally at age 72 were required to take a required minimum distribution from their 401(k), 403(b), 457(b) and IRA plans. The new law waived this requirement for 2020. This does not apply to Defined Benefit Pension Plans.

• the internal structural framework of the building.

Other Items Benefiting Individuals

• the enlargement of the building;

Charitable Contributions The law increases the limitation of qualifying charitable contributions (QCC) made in 2020 from 10% to 25% of corporation’s taxable income. QCC are contributions made in the form of cash and not made to donor advisor funds or non-operating private foundations.

Other Items Benefiting Businesses • The taxable income limitation on the deduction for food inventory has been increased from 15% to 25%.

INDIVIDUALS

• Exclusion of up to $5,250 of certain employer payments of employee education loans for payments made from 3/27/2020 before 1/1/2021.

• Student Debt Relief: Exclusion of up to $5,250 of certain employer payments of employee education loans for payments made from 3/27/2020 before 1/1/2021.

• Health Savings Accounts: Telehealth and other remote healthcare services can be covered pre-deductible, without violating rules for high deductible health plans paired with an HSA. For more information on the tax provisions and incentives provided to individuals and businesses for COVID-19 relief, feel free to reach out to Sax’s Tax Department. 

Recovery Rebates The new law provided for individual taxpayers to receive a rebate check from the IRS in the amount of $1,200 ($2,400 in the case of

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BUSINESS DISRUPTION CORNER

Managing Cash Flow During Business Disruption Written by:

Kathleen Alexander, CPA, MST, CFE Partner kalexander@saxllp.com

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he focus for most business owners during this massive disruption is protecting employees and accelerating cash flow.

The full impact on our businesses is still not foreseen, but through creative tactics and cash flow conservation strategies, we can alleviate some of the pain now and get on a path to recovery.

As many businesses are trying to navigate managing operations during this stay at home period, there are so many questions left unanswered. When will customers and vendors resume normal business activities, and at what capacity? What are the ramifications to our businesses in the longer-term because of this pandemic? What will our workplaces look like, and what type of investments will be called for?

Right now, it is important to stop and address the foundation for your current and future cash flow so your business can stay as strong as possible through this challenging time. Since it is not business as usual, you need to take a fresh look at your daily, weekly and monthly cash flow analysis.

Here are some areas to consider to potentially increase your business’s cash flow today: • Seek aid. Loan programs like the Paycheck Protection Program have been provided from the federal level, and state agencies have offered vehicles of relief as well. Visit Sax’s COVID-19 Resource Center to reference options.

• Get your tax refund, if you haven’t already. The IRS has extended the filing deadline for 2019 income tax returns for individuals and C corporations from the usual April 15 date to July 15, 2020. If you’re owed a refund, file your return now for some extra cash.

• If you had a net operating loss (NOL) for 2018 or 2019, you can carry it back to offset taxable income in the previous 5 years. This can generate a relatively quick tax refund to

use for your business. NOLs arising in 2020 will also have a 5-year carryback.

• If you acquired and placed in service any qualified improvement property (QIP) after December 31, 2017, you may be eligible for a tax refund. The CARES Act made a technical correction to the TCJA allowing this property to be eligible for 100% bonus depreciation. However, you need to file an amended return to claim the refund.

• Under a safe harbor rule, business owners are allowed to reduce or eliminate 401(k) contributions if you give supplemental notice to employees explaining the action.

• Business owners can delay certain payroll tax deposits.

You can delay the 6.2% payroll tax (the employer’s Social Security tax portion of FICA) for 2020 and then pay 50%

by December 31, 2021, and the other 50% by December 31, 2022. However, other payroll taxes must be deposited per your usual deposit schedule. A similar break applies to selfemployment tax paid by self-employed individuals.

• Get creative and make your dollars go farther. Barter for the things you need. You’ll get the goods and services without using your cash. Also, instead of scrapping your typical in-person events, virtual events are becoming widely accepted with little or no overhead costs.

• Evaluate expenditures and weigh priorities. Now may not be the time to purchase those promotional items or advertise at full capacity. Also, there may not be a way to get around fixed expenses like rent, but some landlords are deferring payments. It is in your best interest to have an open conversation and see what options are available to you.

• Communicate with your customers and vendors and evaluate their needs. How have they been impacted by the shutdown, and when will the demand for services most likely continue?

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MANAGING CASH FLOW • Proactively manage collections by staying on top of outstanding receivables and monitoring the timing of your future cash collections. To get paid faster, consider offering customers/clients electronic payment options. Also, make sure your collection policies allow you to collect as soon as possible (i.e. adjusting your 30-day payment period to payment upon receipt of invoice).

• Evaluate your monthly services and equipment to determine what you are not using during your limited operations/shutdown. Be sure to notify vendors that services should be halted or modify the service schedule.

• Reevaluate inventory levels and modify your purchasing process based on the slow down in sales or the demand for certain products or services. Delay purchases and inventory shipments based on cash flow availability.

• Review your next 12-month schedule of business travel, trade shows, sponsorships, etc. and look to obtain refunds or credits for events canceled or postponed.

• Evaluate gross profit margins by client. Focus on increasing sales with more profitable clients and perhaps discontinuing services to slow or no paying clients. Also, consider offering discounts or promotions to encourage sales during the shutdown.

• Evaluate your vendors based on standability and availability during and after the shutdown. It may be time to consider multiple or back up vendors for key products and services.

• Identify new vendors for supplies needed to address the new workplace requirements and the reconfiguring of workspaces needed to comply with the social distancing and gathering protocols.

These are just a number of areas that require analysis to strengthen your cash flow, but speak to your advisor as each business is different. Although the future is uncertain, doing our best to project our future is paramount to give us the leg up. By being proactive in evaluating gaps or negative potential outcomes, we are putting our business in the best position possible during these tough times. After all, in tough times come new opportunities.

Will you be ready?  Kathleen Alexander, CPA, MST, CFE is a Partner at Sax and provides accounting, tax planning and business advisory solutions to clients across a wide range of industries. She focuses on establishing good strategies to minimize business and personal taxes for increased cash flow. She can be reached at kalexander@saxllp.com.

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WEALTH MANAGEMENT CORNER

COVID-19 Health & Wealth Scare: A Moment to Take Stock Instead of Shedding Stock and Financial Plans Written by:

Greg Duffy Wealth Advisor

Sax Wealth Advisors gduffy@saxwa.com

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COVID-19 HEALTH & WEALTH SCARE

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The COVID-19 pandemic is, by all accounts, a global crisis whose effects so far have been sudden and severely disruptive, while the longer-term impacts are slowly emerging. Whether or not the oft cited Chinese proverb equating crisis with opportunity applies to COVID-19 as a moment of opportunity remains an open question.

On a personal level, COVID-19 has been, at the very least, a moment of reckoning and re-evaluation, particularly in relation to our own physical and financial well-being, and that of our families and loved ones.

At Sax Wealth Advisors, we believe a comprehensive financial planning process during a moment of reassessment can temper the urgency to react with a greater sense of agency in times like these.

The following areas and associated questions provide the basis for reviewing a financial plan, for those who have one, and may prompt those without one to consider how they might benefit from devising and following one.

Personality, Behavior and Biases When it comes to financial planning and the underlying disciplines (savings/budgeting, investing, tax filing and planning), the most critical factors are self-knowledge and awareness, which can be ascertained in an individual’s response to the following questions: • What is your need, ability, and willingness to take risk (especially now that financial markets have become more volatile)?

• Are you overly focused on performance or exhibit FOMO (fear of missing out) tendencies or behaviors?

• Do you have “grit” (persistence, perseverance, and patience)?

• Are you aware of or inclined to behavioral biases (recency, confirmation, home team, myopic/short term loss aversion)?

The answers to these questions speak to how well an individual will confront and accept necessary modifications to their financial plan to reorient the outcome trajectory on a more sustainable path to still attainable goals.

Goals, Underlying Aspirations and Assumptions • Are they still realistic and achievable?

• Has COVID-19 changed your aspirations and goals?

• Are employment, income and career expectations and assumptions still plausible?

Gaps in Needs, Wishes and Priorities • Has your recent experience during this crisis revealed any significant gaps in your plan, i.e. cash reserves, insufficient insurance coverages (life, health & disability), business interruption?

• If immediate needs are pressing, are you willing to make trade-offs in longer term goals (travel, tuitions and legacies)?

• Do your estate plans, related POAs and health care directives need to be reviewed and/or amended?

Worst Case Scenarios and Contingencies • Can your current plan sustain and survive an adverse sequence of returns?

• Is part-time employment a possibility or an option?

• Would re-location, downsizing a residence or tapping into home equity via a reverse mortgage either reduce living expenses or provide additional funds?

• Might whole life insurance cash values and death benefits be accessed through borrowing or viatical settlements?

• Are community-based resources available at low cost to supplement basic needs such as food, social and recreational activities, and elder care?

Engaging with your Advisor(s) For investors, and especially those whose investment expectations are anchored to the market returns since the Great Recession, the COVID-19 pandemic has been both a wake-up call and a gut check. The scope of cascading effects and their impacts have engulfed everyone in a rising tide of uncertainty.

COVID-19 has been and continues to be a health and a wealth scare, and therefore medical and financial professionals have a similar mission: acknowledge the reality and the anxiety of the crisis; bring perspective and context to the situation based on evidence and histories from similar events; and, most importantly, communicate clearly and confidently to reassure their respective constituents they can weather the crisis best by staying calm, taking positive steps, and avoiding mistakes.

Meeting with an advisor and reviewing an existing financial plan or creating one for the first time, aided by financial planning software, shifts investor focus from dread over further loss to finding a viable path forward, thereby restoring confidence and resolve.

Leveraging the analytical power of planning tools, a skilled and trusted wealth advisor can comprehensively address the major parameters and factors in determining a financial plan’s probability of success or failure for an investor. These include: • Determining investor risk preferences Accurately setting portfolio exposure to risk factors is a significant determinant of plan outcomes, and requires triangulation among each investor’s unique need, ability, and willingness to bear investment risk.

Using planning software helps in evaluating risk posture in relation to underlying spending goals. For instance, Sax Wealth Advisors run Monte Carlo simulations of random portfolio returns based on projected return, volatility and asset class correlations (which may or may not be representative in hindsight).

Running the simulations with a conservative portfolio allocation may indicate the projected performance may not support spending goals. Alternatively, a simulation with an aggressive allocation, may show a higher probability of success in sustaining spending goals but greater volatility than the investor can tolerate. This is the kind of gut check investors with portfolios heavily weighted to equities are encountering for the first time since 2008 – 2009.

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COVID-19 HEALTH & WEALTH SCARE • Identifying risk exposures and mitigants COVID-19 has underscored the importance of adequate health insurance coverage. Those who have opted for high deductible plans may find their reliance on the health care system to be greater than anticipated amid a pandemic.

If you opened an HSA (health savings account) because your high deductible plan qualified for HSA eligibility, then you have set aside at least some funds to cover your deductible and maximum out-of-pocket expenses. Otherwise, you may need to reconsider if a lower deductible plan, despite the higher associated premium is a better alternative.

• Examining household spending levels and estimated nondiscretionary retirement budgets One of the enduring effects of COVID-19 may be changes in spending levels, categories and frequency as the magnitude and extent of the deviations from pre COVID-19 periods are reflected in the economic data.

Having been forced to get by with less, many households may become inured to doing without or with less of the discretionary and non-essential spending categories in their budget. For those within 5 years of their planned retirement date, this is an opportunity to test estimates and move closer to living within their retirement budget.

• Optimizing use of federal, state, and local tax codes to reduce taxes While the negative impacts of COVID-19 on income and portfolio values are likely to persist even past the worst phases of the pandemic, one silver lining is the opportunity to use this period to minimize present and future taxes. Conversion of eligible retirement account balances to Roth IRAs and tax loss harvesting are two ways to take advantage of losses and lower account values, while hedging against the possibility of higher tax rates in the future.

• Reconsidering time frames retirement and longevity

related

to

more motivated to stick to their plans and portfolio allocations by investing in ESG funds. In this case the acronym ESG might stand for “Extra Sticky Glue”.

Identifying contingencies and options to trim living expenses, reset expectations, or augment resources.

Reframing the approach to dealing with the magnitude of recent investment losses by focusing on future impacts may reveal comparatively smaller adjustments are needed to compensate for the decline in portfolio values.

Other options to either pare spending or augment resources include downsizing and/or relocating to more affordable parts of the country, applying for a reverse mortgage, and looking for part-time or temporary employment.

Finally, putting recent investment returns into historical context will rein in expectations for sustainable spending levels.

While equity returns (using the S&P 500 index) have returned more than 13% over the 10-year period ending 05/31/2020, the returns over the last 5 years have returned about 9.9%, and are negative 5% for the first 5 months of 2020. The prior 10-year period for the S&P 500 was a negative decade; so, over the past 20 years, the S&P 500 compound average return is about 6.0% (5.94% for the period 06/01/2000 – 05/31/2020).

Fixed Income investments will continue to offer lower returns for short duration, low credit risk assets (between 1% – 2%), while achieving higher returns will entail greater exposure to risk factors (term and credit). Negative interest rates remain a possibility.

Readers interested in learning how the U.S. equity markets fared subsequent to historic declines, can watch a recording of a webinar presentation given jointly by Sax Wealth Advisors, LLC and Dimensional Fund Advisors, including a Q & A session addressing top-of-mind questions of investors and market observers related to current market conditions. 

employment,

While legislative and policy responses to COVID-19 aim to protect employment related income and benefits, their adequacy and timeliness remain uncertain.

Greg Duffy is a seasoned financial professional with over 40 years of experience in the financial services industry including banking, insurance, investment advisory and wealth management. He can be reached at gduffy@saxwa.com.

As employment and retirement timelines are key parameters in determining outcomes, individuals need to reassess how their target dates for retirement may change as their employment horizons either lengthen or shorten. Financial planning software can quantify the impact of changes to these horizons.

• Reinforcing plan commitment by aligning goals with values Beyond the immediate impacts of the COVID-19 crisis, many institutional investors have voiced their concerns over environmental issues, social welfare and corporate governance (ESG). In response, investment managers have addressed these concerns by creating ESG portfolios screened for companies whose business practices and polices meet emerging standards.

Individual investors who share these concerns and are committed to advancing the goals underlying such portfolios, may also be

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REAL ESTATE CORNER

Selecting & Implementing Accelerating Cash Flow the Right Software for for Real Estate Owners Your Construction Business and Operators Written by:

Michael Benguigui, CPA Senior Manager

Tax and Real Estate Practices mbenguigui@saxllp.com

T

he COVID-19 pandemic has led to significant changes to tax law, creating opportunities for real estate owners and operators to increase their much-needed cash flow infusion through tax relief.

In terms of commercial real estate, the retail-real estate sector is experiencing a significant decline in rental income because of “declining mall traffic due to social distancing and in certain cases, mandatory closings, placing pressure on already weak tenants and potentially cause bankruptcies faster than previously thought. In addition, if there is a prolonged disruption to retailers' operations from store closings, there could be risk for rent cuts to mitigate drops in occupancy.”

By April 11, 2020, President Trump approved major disaster declarations for all 50 states, the District of Columbia, and U.S. territories regarding the COVID-19 pandemic for the first time in history. In response to a weakening economy, federal, state and local governments are employing various tax relief measures to aid business and individual taxpayers during this uncertain time.

Postponement of Certain Tax Filings and Payments: On April 9, 2020, the Treasury published Notice 2020-23 “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7508A(a).” Section 7508A of the Code provides the Treasury with authority to postpone the time for performing or filing certain acts under the Internal Revenue Code.

Under this Notice, the filing and payment of certain tax items which were originally due by April 15, 2020 have been postponed to July 15, 2020 (partial list): • Filing and payment of Individual Income Tax Returns; • Fiscal and calendar Corporation Income Tax Returns; • Filing and payment of Estates and Trusts Filings; • Filing and payment of 2020 tax year first and second quarter estimates.

What is not covered are the March 16, 2020 deadlines for partnership and S-corporation filings. However, partnership or S-corporation fiscal filings in which the due date is on or after April 1, 2020 and before July 15, 2020 have been postponed to July 15, 2020.

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ACCELERATING CASH FLOW

All states with a 2019 personal income tax have extended their original April 15, 2020 due dates — mostly to July 15. Here is how the Tri-State responded: • New York - personal income tax and corporation tax returns and fiduciaries (estates and trusts) extended to July 15.

• New York City - Unincorporated Business Tax, General Corporation Tax filing and payment extended to July 15.

However, interest is due from April 15, 2020 until filed.

• New Jersey - extends filing and payment for Individual Gross Income Tax, Partnership, and Corporation Business Tax to July 15, 2020 - 1st quarter payment.

• Connecticut - extends filing and payment for Individual Partnership and Corporation to July 15, 2020 - 1st & 2nd quarter payments.

Postponement of Performing Certain “Time-Sensitive Actions”: Notice 2020-23 provides the following “time-sensitive actions” which were originally due between April 1 and July 15, 2020, but have been postponed to July 15, 2020 (partial list):

• Like Kind Exchanges: Î Section 1031, Like Kind Exchange deadline for the 45-day identification period and 180-day exchange which are due between April 1 and July 15 have been extended to July 15. Î Section 1033 - involuntary conversion of property: If the deadline falls between April 1 and July 15, the deadline is now July 15.

• Investing in a Qualified Opportunity Fund: Î The Tax Cuts and Jobs Act (“TCJA”) enacted a new investment opportunity in designating certain distressed communities as Qualified Opportunity Zones (“QOZ”). An investor with eligible 2019 or 2020 capital gain or business gains (i.e. Section 1231 gains) can defer the recognition of these gains by rolling them over in a Qualified Opportunity Fund (QOF). Generally, the rollover of the capital gains in a QOF must be done within 180 days after the gain is recognized. If the 180-day rollover expires on or after April 1, 2020 and before July 15, 2020, it has been postponed to July 15, 2020.

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Î Properly structured QOFs utilizing "working capital safe harbor" can claim an additional 24 months to deploy working capital on top of its 31-months. Î Should a QOF fail to meet the 90% investment standard (i.e. a QOF must maintain 90% of its assets in QOZ property, measured on specified semiannual testing dates), QOF is imposed a nondeductible penalty for each month until it is cured. If QOF can document execution delay due to COVID-19 then QOF should consider applying reasonable cause exception. A legal advisor should be involved with this analysis and proper planning.

Partnership subject to CPAR: The Bipartisan Budget Act of 2015 fundamentally changed how tax adjustments resulting from partnership audits are assessed and collected, effectively creating a Centralized Partnership Audit Regime (CPAR). As a result, if a partnership is subject to CPAR and is assessed a tax underpayment, the partnership itself will need to make the payment as an Administrative Adjustment Request, and no longer do the partners with respect to whom the adjustment relates are directly liable to the tax. Under Notice 2020-23 (April 8, 2020) a partnership which is subject to CPAR has the option to file an amended return on or before September 30, 2020 instead of an Administrative Adjustment Request for 2018 and 2019 taxable years.

Net Operating Losses (NOLs) – Individuals (including Estate and Trusts) & Corporations: The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) allows individuals and corporations that incur an NOL during a taxable year after December 31, 2017 and before December 31, 2020 (i.e. tax years 2018, 2019, & 2020) to carry each of the five taxable years preceding the year of the loss.

Further, the CARES Act suspends the 80% of taxable income limitation for NOL carryovers arising in taxable years 2018, 2019, or 2020. However, the elimination of the NOL carryback and 80% NOL limitation on carryovers are reinstated for taxable years beginning after December 31, 2020.

Qualified Improvement Property Retail Glitch Fix: As originally intended in the TCJA, Qualified Improvement Property (QIP) would be 15-year property improvements placed in service in a nonresidential building beginning in 2018 and eligible for 100% “bonus depreciation” deduction. This incentive was seen as a particularly meaningful boon to the retail, restaurant and hospitality industries because of the rate at which these businesses open and renovate locations. However, due to a drafting error, QIP was not explicitly included in the definition of 15-year property in Section 168(e)(3)(E), nor was it specifically included as “qualified property” in Section 168(k)(2)(A) when the TCJA was enacted.

To the frustration of taxpayers, the Treasury and the IRS consistently held that they had no authority to correct these omissions, and until a legislative fix was made, QIP would remain 39-year property and thus ineligible for bonus depreciation.

Prior Law - TCJA

CARES Act

Losses arising in tax years beginnning after 12/31/2017:

Losses arising in tax years 2018, 2019, 2020:

- No carryback - Indefinite carryforward - Limited to 80% of taxable income

- Can carryback 5 tax years - Indefinite carryforward - 2021 and years after - can only carryforward - Allowed up to 100% of taxable income - 2021 and years after - limited to 80% of taxable income

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ACCELERATING CASH FLOW With the passage of the CARES Act, this fix has been made retroactively to January 1, 2018. QIP is classified as 15-year recovery property and eligible for bonus depreciation. However, in order for the improvement to qualify as a QIP, the taxpayer must be the one to “make the improvements.” While there is no formal guidance from the Treasury as the exact meaning of this rule, Congressional intention is to disallow a portion of the purchase price of a newly acquired commercial property to be classified as QIP in the hands of the new purchasing party.

Below are examples of building improvements considered to be a QIP:

disallowed interest expense will carry forward these amounts to succeeding taxable years until the partnership is no longer subject to this limitation or the partnership is able to generate excess income which can “release” prior years disallowed interest expense.

Under the CARES Act, the 30% ATI limitation is increased to 50% for 2019 & 2020 tax years. However, this increase does not apply to partnerships. The interest limitation rules are applied differently for partnerships: 2019 Tax Year

• Interior walls - Drywall, insulation, acoustical, interior doors and hardware, ceramic tile and painting.

• Partnership continues to use 30% of ATI limitation and Excess of Business Interest Expense (EBIE) is passed to the partners;

• Partitions - Permanent but not load-bearing walls, i.e. cubical offices, restroom partitions, exit signs.

• Individual Partner level - no changes in terms of 30% of ATI limitation.

• Flooring - Plywood or particleboard layer under the finish flooring.

2020 Tax Year • Partnership – use 50% of ATI limitation;

• Heating Ventilation & Air Conditioning (HVAC) systems Rooftop or exterior/ outside HVAC units are not included as QIP. Only energy management systems are included.

• Partnership can elect 30% of ATI limitation instead of 50%; • Partnership may elect to substitute tax year 2019 ATI on its 2020 Partnership return.

• Interior Plumbing - Excludes exterior roof drains.

• Electrical Systems & Lighting Fixtures - Excludes exterior lighting, transformers or utility lines.

The following building improvements are not QIP: • Enlargement of the building; • Elevators or escalators; or • Internal structural framework of the building.

Examples: Relocating a structural wall, windows, exterior doors, or staircase.

Caveat: Most states do not allow 100% bonus depreciation, therefore most of these states will allow QIP to be depreciated over 15 years instead of 39 years.

Reference Examples Here Business Interest Limitation: Introduced as part of TCJA, all taxpayers' business interest deduction is capped at 30% of their “Adjusted Taxable Income” (ATI) for that specific year. Since real estate is mostly held by partnerships, ATI of a partnership equals earnings before interest, taxes, and amortization (EBITA). Further, partners' allocated

At the Individual Partner 2020 Federal tax filing, it can treat 50% of 2019 carried over disallowed interest expense as automatically paid or accrued on the partner's 2020 tax year. The remaining 50% of 2019 disallowed interest expense is carried over by the individual partner.

In summary, these are a few tax planning ideas that may assist businesses operating in the real estate industry to mitigate the adverse economic effects due to this health crisis. Tax planning at this time is essential to mitigate the adverse economic effects and getting cash into the hands of taxpayers sooner, when it is really needed.

For more information on accelerating your cash flow through new tax provisions, feel free to reach out to Sax’s Real Estate Practice.  Michael Benguigui, CPA is a Senior Manager at Sax LLP and a member of the firm's Tax and Real Estate Practices. He specializes in tax and accounting services for property owners, developers and private equity investors. Michael can be reached at mbenguigui@saxllp.com.

S&P Global Ratings - REITrends: COVID-19 Could Threaten Rating Stability For North American REITs, March 17, 2020. ii All references are to 1986 Internal Revenue Code unless otherwise specified. i

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M&D CORNER

Crisis Management Considerations for Manufacturers Due to the COVID-19 Pandemic

Written by:

Al Traverso, CPA Partner

Manufacturing & Distribution Practice atraverso@saxllp.com

Sax Focus • www.saxllp.com Page 16

CRISIS MANAGEMENT CONSIDERATIONS Whether

your manufacturing firm is getting ready for a reopening from a complete or partial shutdown, owners and managers are under extreme pressure to develop and enact plans for the road to recovery. Running a manufacturing firm before the COVID-19 pandemic was challenging enough; the ongoing pandemic and the uncertainty which it brings only heightens those difficulties.

Firms need a playbook that addresses not only the pre-existing operational issues but also encompasses mitigation of COVID-19 risks. This needs to be done all while protecting the workforce and balancing those initiatives with operating effectiveness in a way that makes sense for the business economically.

Now more than ever, companies must have the appropriate tools and plans in place to provide a foundation for operational readiness to face the challenges as they emerge from the COVID-19 pandemic into recovery.

Unfortunately, not all companies were at the same starting point in terms of being prepared for this unforeseen crisis. We have identified a few areas that companies should consider enhancing for operational management and readiness now and for the future.

Contingency Plans Existing contingency plans may have provided for one or two “what ifs”. Unfortunately, the current situation has brought disruption to multiple areas throughout an organization from customers to suppliers to production to logistics to the workforce.

Similar to the “in case of emergency” contact list, a contingency plan provides owners and management with an outline of what to do when a crisis hits. Companies that did not have a contingency plan must develop one, and companies that did have one should assess how effective the plan is and what “lessons learned“ should be incorporated into updated plans.

Customer Communication Manufacturing firms should engage in direct contact with your customer base and advise them on your firm’s readiness and ability to meet their demand. Knowing what your customers’ expectations are for delivery will provide valuable information needed to properly plan your production and/or procurement schedule.

Supplier Contact Your firm’s ability to meet production demand is dependent upon your suppliers and other partners within your supply chain (i.e. logistics and trucking partners). Understanding where your suppliers are in terms of current inventory levels, ability to procure and/or produce product, as well as preparedness to re-open and ship product to you is important to understand.

Workforce Safety A great amount of care and planning must go into how to safely and effectively bring workers into your facility to work together.

Companies must establish social distancing procedures and disinfection protocols to ensure a safe work environment. Guidelines for the wearing of personal protection equipment and frequent cleaning of common areas must be established. The installation of sanitizing dispensers, managing shift changes and staggering breaks are just a few other ideas that should be considered as part of the overall workforce re-entry plan. Other protocols for monitoring employee symptoms and absences, as well as plans in the event of an employee testing positive for COVID-19 should be implemented.

Just as with customers and suppliers, manufacturing firms must communicate to their employees the steps that they are taking to make the work environment as safe as possible.

Cash Flow Management Your company‘s ability to survive the downturn will depend greatly upon its ability to effectively manage cash flow. The erratic inflows and outflows caused by the disruption of the COVID-19 pandemic makes cash flow forecasting a critical component to your company‘s success to make it through to recovery.

It’s crucial to understand what cash the company expects to receive in the near term. Since customers and vendors are also facing similar uncertainties, a company needs to communicate and work with those parties to understand what a reasonable expectation is for cash flow.

When developing a cash flow model, a company should make sure the projected receipts and disbursements are realistic and achievable.

If the assumptions are not realistic the projection will be of little use.

A conservative approach is recommended. Manufacturing firms with outstanding balances on credit facilities will want to also use the cash flow model to project balances, test covenant requirements and monitor borrowing capacity.

A common time horizon for cash management planning is 13 weeks with weekly increments. Once a working cash flow model has been developed, the next step is to continually reevaluate the results and adjust the underlying assumptions for inflows and outflows accordingly. The importance of reevaluating the model on a continual basis cannot be overstated.

Other benefits that come out of cash flow modeling include: the ability to enact stricter controls over cash usage and cost controls; closer monitoring of purchasing and production activities; and the ability to develop a plan to deal with anticipated cash shortfalls.

In Conclusion In conclusion, collaboration with key customers and suppliers, careful planning for a re-opening or expansion of operations and implementation of cash flow modeling will improve a company’s ability to make it through to recovery. At Sax, our advisors stand ready to assist you with all of the above.  For more information on the manufacturing and distribution industry, feel free to reach out to Al Traverso, CPA, a Partner at Sax and a member of the firm’s Manufacturing & Distribution Practice. His technical expertise and industry-specific experience help clients navigate audits and compliance issues, inventory management, internal controls, cash flow analyses, risk management and tax challenges. Al can be reached at atraverso@saxllp.com.

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NOT-FOR-PROFIT CORNER

How Not-For-Profits Can Get On the Road to COVID-19 Recovery

Written by:

Harper Garrett, CPA, CGMA Senior Manager

Not-for-Profit Practice hgarrett@saxllp.com

T

he COVID-19 pandemic and the accompanying lockdown has had, and is still having, a profound impact on the economy, individuals, and society as a whole. Things will likely never be the same after this, and not-for-profits, like all businesses, will need to adapt to the new normal in order to survive.

It’s looking like not-for-profits will be some of the hardest hit organizations as a result of the pandemic. Many are already experiencing a large increase in the demand for services coupled with a decrease in available funds. Social service organizations that provide food, shelter, and services to underprivileged populations are already seeing more demand than they can handle, while miles long lines form at food pantries. With 26 million people currently out of work, donations from individuals are likely to decrease in the coming months.

Congress recently passed the “CARES” Act and “CARES 2”, which provides some relief to not-for-profits in the following ways: Payroll Protection Program (PPP) One of the most widely reported on sections of the CARES Act

allows businesses and not-for-profits to apply for PPP loans to cover payroll, utilities, rent, and selected other expenses. If used for approved expenses within the covered period, these loans are generally forgivable, subject to requirements of maintaining employment and wage levels of employees during the covered period. We encourage all not-for-profits to consider applying for one of these loans.

Please note: Sax is holding complimentary “road to recovery” webinars every Thursday at 10 a.m. to keep you in the know on all the new developments to loan programs and forgiveness strategies.

You can register for upcoming webinars and view past recordings on our COVID-19 Resource Center.

Payroll Tax Deferment The CARES Act allows certain employers to defer the payment of the employer portion of Social Security payroll taxes incurred from the enactment of the Act through the end of 2020. The total taxes deferred are required to be repaid over the subsequent twoyear period. This deferral is not available to employers receiving loans under the CARES Act. Sax Focus • www.saxllp.com Page 18

ON THE ROAD TO COVID-19 RECOVERY

$300 Charitable Donation Deduction for Filers Taking the Standard Deduction Usually, only those who itemize their deductions are able to take a deduction for their charitable contributions. However, the CARES Act allows for a tax deduction of up to $300 in charitable donations on 2020 individual tax returns for those taking the standard deduction. This could be a good selling point to encourage smaller donors to continue to give. Taxpayers who itemize should continue to claim all their charitable donations as deductions on Schedule A. Thinking Outside the Box There are also other things not-for-profits can do to make the best of the situation, such as virtual fundraisers like silent auctions or walking challenges, and other activities that encourage participation from your donors by allowing them to engage with your organization while remaining safe. Organizations can also use this as an opportunity to review how they engage with donors and consumers in order to better reach them in the newer, more virtual world. Skype, Zoom, Microsoft Teams, and other

applications make face-to-face connections with your network possible at any time, and the not-for-profits that can utilize those to their advantage will be the best positioned to thrive going forward.

Not-for-profits should move quickly to take advantage of these benefits while they are available. The advisors in Sax’s Not-forProfit Practice are always available to help you with questions and to guide you through these tough times, so please don’t hesitate to reach out to us. And most of all, stay safe and healthy!  Harper Garrett, CPA, CGMA is a Senior Manager in the firm’s Notfor-Profit Practice and specializes in helping to navigate the oftencomplex terrain of the not-for-profit industry so nonprofits can achieve sustainability for their organization and mission. Harper can be reached at hgarrett@saxllp.com.

Sax Focus • www.saxllp.com Page 19

TECHNOLOGY CORNER

Keeping Data Safe & Secure While We Work Remotely Written by:

Carl Van Dusen President

S2 Technology Solutions info@s2solutions.tech

Millions of employees are now working remotely as the COVID-19 pandemic continues to interrupt our everyday personal lives and business operations. Technology can be thanked for carrying many businesses through this pandemic by allowing employees to work remotely and operations to continue. However, this dynamic also poses challenges on a variety of levels. With our new work-fromhome “normal”, cybersecurity has become a top concern for every organization in 2020.

At S2 Technology Solutions, we understand the security challenges a work-from-home model can create. With data breaches, hijacking, ransomware, and other threats reported in the news daily, it is more important than ever to ensure data is secure during this chaotic time. We’ve seen attempts in the form of phishing emails impersonating trusted sources of information, such as the World Health Organization and/or the Centers for Disease Control and Prevention, to trick recipients into opening corrupt links and files.

We’ve also seen hackers go so far as to launch websites that host information about our health crisis to seem legitimate, but these sites are facades and commonly lead to ransomware, theft of personal credentials and forced access into employees’ remote workstations.

Since our employees are on the front lines when it comes to keeping our data and information safe, it is important to increase their awareness of current attacker activities and provide tips and

best practices to secure workstations appropriately when working remotely. Here is some guidance we have put together to help you ensure your employees’ new work environments are secure when accessing company systems and networks: Raising Security Awareness for Employees • Train employees on security threats so they remain vigilant while reading emails, messages, web browsing, and are aware of common phishing techniques.

• Remind employees to practice safe email use and avoid opening attachments or clicking on links from untrusted senders. Additionally, advise them not to provide sensitive information via email.

• Emphasize the need to protect personal accounts with twofactor authentication, create strong passwords and leverage a Password Manager.

• Emphasize the need to exercise heightened caution while engaging with health-based content and to only access known and reputable sources.

• Provide your employees with a clear channel to report any adverse events or suspicious activity.

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SAFE & SECURE DATA

Keeping Your Employees’ Workstations Secure • Provide remote workers with a company-managed workstation or personal device, with access to a secure Virtual Private Network (VPN) connection.

• Keep up to date with system upgrades and patches for workstations.

Who is S2 Technology Solutions?

• Install antivirus software on every workstation, even if an employee is using a personal computer for work.

S2 Technology Solutions is the result of a joint venture between Sax LLP, a Top 100 accounting, tax and advisory firm, and Safari Solutions, a long-standing strategic technology partner with the combined mission to protect businesses while enhancing technology capabilities and increasing productivity.

• Work on documents within company-provided cloud applications to make sure data is safe and being backed up.

• Create long passwords and include numbers, symbols, and uppercase and lowercase letters.

Should you have any issues or questions with regards to protecting your employees and business, please do not hesitate to reach out to Sax’s technology arm by visiting s2technologysolutions.com. 

S2 Technology Solutions provides critical technology services such as cloud migrations and operations, disaster recovery, managed services, business continuity, cybersecurity, enterprise architecture, technology strategy development and project and vendor management. Learn more here.

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CONTACT

Clifton, NJ 973.472.6250 Pennington, NJ 609.737.6600 New York, NY 212.661.8640 New York, NY 212.268.9888 www.saxllp.com

CONTACT

Riverdale, NJ 973-554-6050 s2solutions.tech