Cincinnati Tax Resolutions - May 2020

Cincinnati Tax Resolutions - May 2020

MAY/JUNE 2020 VOLUME 4, ISSUE 5

T O P H ’ S TAX RESOLUT ION T I M E S

513-342-4000 513TAX.COM

How to Survive With Zero Cash Flow

The coronavirus is here, and it has impacted all of our lives. Millions of people are suddenly underemployed or unemployed, and countless businesses have been forced to close their doors. And the unfortunate reality is that many of these businesses will never reopen once the pandemic has passed. I know how stressful things have been for my family because we are a small business and Ashley is currently on unpaid maternity leave. Fortunately, our business is considered “essential” in Ohio and is allowed to continue operating. I’ve been able to keep working, but that does not mean it’s been business as usual for us. Imagine if both you and your spouse are self-employed and co-own/co-manage a business that was forced to shut down because of the coronavirus. (For some of my clients, this nightmare has become a reality.) In the blink of an eye, you literally have no income and no cash flow. How are you supposed to survive? And the survival I’m talking about is not about trying to pay your rent/mortgage and bills. I’m literally talking about how you are going to pay for groceries so you can feed your family. The first thing I recommend is applying for the Paycheck Protection Program (PPP) through your local bank. The PPP is the government’s way of providing small- businesses owners and employees with 2 1/2 months of income replacement in the form of a loan. If you meet the requirements of this loan, then your loan can ultimately be forgiven in the form of a nontaxable government grant. I have heard some people refer to this program as “free”money, but if you are self- employed and currently have zero income, then nothing is “free” given the stress and financial hardship you are dealing with. Nonetheless, this would at least be something that could help you get back on your feet. If the PPP doesn’t work out, then you could apply for an Economic Injury Disaster Loan (EIDL) through the Small Business Administration (SBA). As part of this program, you could qualify for a loan advance of up to $10,000 if you are experiencing a temporary loss of revenue. Similar to the PPP program, this loan advance could ultimately be forgiven so you would potentially not be required

to repay it. Keep in mind that if you receive a loan advance through the EIDL program, then you would have to reduce your allowable PPP loan by this amount.

If your business is set up as an S corporation or a C corporation, then another option is to file for unemployment. Many business owners don’t realize they are eligible for unemployment, but if your business has a corporate tax status and you have been drawing a “salary,” then your business has been paying unemployment taxes (on behalf of the business owner) and you would be eligible for unemployment. I think this option would be best for a business owner who doesn’t qualify for much through the PPP or EIDL programs and is unsure whether they will be able (or even want) to reopen their business. Lastly, there is one additional strategy (that under normal circumstances I would not recommend) worth considering. As a result of the coronavirus, the rules for withdrawing and distributing money from a retirement account — an IRA, Roth IRA, 401(k), etc. — have been relaxed considerably. Any taxpayer is now able to withdraw up to $100,000 from their retirement accounts before Dec. 31, 2020, with zero penalties. Additionally, you’d have up to three years to pay the money back before it would become taxable. There are several other new rules related to this, so be sure to have a discussion with your accountant before taking any action to ensure you do it properly.

Please stay safe and healthy and hang in there! We are all in this together!

–Toph Sheldon

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WHEN THE IRS COMES KNOCKIN’ ... LET US ANSWER THE DOOR!

The client’s name and personal details in this story have been changed to protect the identity of those involved. However, the tax results are 100% factual. An IRS Compromise for the Ages Julia and her spouse found themselves in an incredibly stressful situation with the IRS. Her husband was self-employed, and his business was doing very well. Prior to 2008, they were bringing in a healthy income, but they were making one major mistake: They weren’t paying attention to their taxes. Eventually, the IRS came looking for those unpaid taxes — upward of $250,000. The IRS doesn’t care what you do or do not know about paying taxes. If you owe, then they will come after you. Julia and her husband spent 10 years going back and forth with the IRS trying to resolve their issue with back taxes. Meanwhile, penalties were stacking up, and it seemed that with every passing day, things got worse. Julia admits they weren’t being as proactive as they should have been. They were young, and they didn’t take their situation seriously. Later on, as Julia and her husband tried to apply for loans, they were hit with denial after denial. The IRS placed tax liens on them, and they were unable to buy a car or a house. Soon they realized they needed to get their situation fixed, so they hired a tax “professional”— not Toph Sheldon. This was another learning experience for Julia because this person wasn’t as professional as she’d expected him to be, and he failed to help Julia and her husband. He had no confidence he could help them and, in the end, he delivered nothing.

Do Successful People Enjoy a Digital Detox? 3 Entrepreneurs Share Their Secrets Constant technology use can leave us feeling drained, so it’s good to do a digital detox by unplugging periodically. Digital detoxes have become very popular, but for most managers and business owners, cutting technology out of their lives isn’t just difficult — it can be irresponsible! You can’t throw your smartphone in the sea and expect to have a job next week. While completely quitting tech isn’t realistic, it is possible to enjoy the benefits of a digital detox while sticking to your responsibilities. Here’s how a few successful entrepreneurs manage this balancing act. Arianna Huffington puts her phone ‘to bed.’ HuffPost founder and Thrive Global CEO Arianna Huffington says the first part of her nightly routine is “escorting my phone out of the bedroom.” Huffington doesn’t allow digital devices in her bedroom and relies on an analog alarm clock. “Charging your phone away from your bed makes you more likely to wake up as fully charged as your phone,” she says. Erich Joiner has a hobby separate from his work. Running a content creation company that caters to big brands means Erich Joiner, founder and director at Tool of North America, is plugged in most of the time. To get away from the demands, he races cars on the weekend. During that time, Joiner puts his phone away in order to focus on the race. “While it takes a lot of focus, which can be strenuous, it also mentally cleanses, or ‘digitally detoxes,’me during the weekend,” Joiner says. “By Monday, I can go into work with a clear mindset, ready to take on my week.” Celia Francis tracks her online activity. Sometimes technology can help you cut down on technology. Celia Francis, CEO of online marketplace Rated People, downloaded the app Moment to monitor how much time she spends on social media. This >Page 1 Page 2 Page 3 Page 4

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