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Easy Breathing

Times may seem tough, but there's no reason to give up now. Snow Magazine finance writer Mark E. Battersby offers three tips to offset pandemic-related losses to your snow ops.

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June 24, 2020

Tax Relief
In the tax arena, a Net Operating Loss (NOL) occurs when a business has more tax deductions than taxable income in a given year. NOL carrybacks formerly generated a refund of taxes paid in earlier years, providing an often-badly needed infusion of cash.

Today, most NOLs arising in tax years after 2017 can only be carried forward. What’s more, the NOL deduction is limited to 80% of taxable income (determined without regard to the deduction).

And, don’t forget, while the snow removal and ice management business can’t get this tax break if it is a pass-through entity (such as sole proprietorships, partnerships or S corporations), their owners can apply their NOL on their personal tax returns. Regular corporations are, of course, taxed at the corporate level and the NOL carry forward is applied on the corporate tax return.

Business Interruption Insurance
Business Interruption Insurance, also known as Business Income Insurance, is insurance coverage that replaced business income lost in a disaster. It is not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.

Business interruption may result from government-mandated closure of the snow removal operation’s premises.  Examples include forced closures because of government-issued curfews, street closures or closures mandated to prevent the spread of the pandemic.

Covered are profits, usually based on earlier performance, operating expenses, temporary re-location of the operation and reimbursement for reasonable expenses that allow the business to continue operating while the business gets back on its feet. Employee wages, taxes and loan payments are also usually covered.

The income covered may be due to disaster-related closing of the business facility or due to the rebuilding process after a disaster.  But, remember, the insurer is only obligated to pay if he insured actually sustained a loss as a result of the interruption. The amount that may be recouped by the snow removal business will not exceed the limit stated in the policy.

But will it cover losses from the virus? Lost income and/or profits are not considered to be a casualty loss.  In fact, the tax deduction for casualty losses may be a tough sell since it will be difficult to prove just what property was ruined or destroyed as a result of the virus or virus-related circumstances.

Line Of Credit
A pre-established line of credit allows the snow removal business to borrow in increments as needed, repay it and borrow again as long as the credit line remains open.

Typically, the operation is required to pay interest on any balance borrowed and a lesser amount for having ready access to the unexpended amount of the line of credit.
Most small business lines of credit are backed by the Small Business Administration (SBA) and offered through the SBA’s 7(a) Program.

The SBA itself does not make loans. Instead, it acts as a guarantor to lending institutions that, in turn, make these loans.
 
These programs were originally designed to help small business needing funds to operate and grow their business. Although a business line of credit can provide cash flow when needed, other funding may be necessary at some point.

Mark E. Battersby is Snow Magazine's finance and accounting writer. He resides in Ardmore, Pa.