It’s hard to see silver linings in the throes of an unexpected crisis, but if business owners are willing to look hard enough, they can find opportunities to make the best of the situation.

Operational Support

9 Opportunities to Consider During COVID-19

  • Dave Wiggins
  • 4/7/2020

Key insights

  • Challenging times can still be ripe with opportunities, if you know where to look.
  • Consider what changes you might want make for your business and yourself.
  • From retirement planning to personnel decisions and inventory considerations, businesses across industry sectors could benefit from reviewing their financial and operational decisions

These are unprecedented times. Much of the country has been shut down, our businesses face an uncertain future, and the stock market is volatile. However, even with all the unpredictability, opportunities still present themselves if we look for them. Here are some planning ideas that might benefit you or your dealership.

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Several of these ideas could be more beneficial in light of the current estate exemption amounts ($11.58 million for 2020) that sunset — and may be much lower — after 2025. Business and stock values are down and may stay down until the end of 2020. In light of that possibility, keep in mind that some of these planning opportunities might disappear when things return to normal.

  1. If you or your loved ones have significant retirement savings in 401(k) plans or IRAs, but might not need to withdraw funds from them until after age 72 (the age Required Minimum Distributions must begin), consider these alternatives:
    • You can convert some or all of your 401(k)/IRA to a Roth IRA. Most retirement plan account values are down 20 – 40%, which can provide a lower cost way to convert funds into tax-free investments. Purchasing at a low value creates the potential for a substantial rise in value after the pandemic has run its course.
    • If your taxable income is down or a loss in 2020, consider converting some of your taxable IRAs to a Roth to use low income tax rates to pay for the conversion.
    • Give stocks to children or expected non-charitable beneficiaries while values are down and let the potential upside occur in their estates. This is especially timely if your gifts are less than the annual gift exclusion amounts ($15,000 per donee).
  2. Many small business or stock account values may decrease significantly now or later this year, based on earnings or other factors. This could allow for significant value discounts that you can use in conjunction with estate and succession planning:
    • Transfer assets to a spousal limited access trust (SLAT). These trusts could potentially allow a spouse, children, or others who qualify to use the assets — but, as a SLAT, they are treated as gifts. Gift values may be very low, as public stock values are down and business valuations of closely held businesses reflect lower values.
    • Consider creating and selling assets to intentionally defective grantor trusts (IDGTs) or grantor retained annuity trusts (GRATs). Again, values for assets are low, so sales or transfers to these trusts could result in transfers of value that are much lower than the past couple years.
  3. Consider the estates of individuals who have passed away recently. The alternative valuation date for estate tax returns may allow you to value estate assets much lower than they were at the date of death. Using alternative valuation dates could result in lower estate tax bills. This is a benefit for taxable estates, reducing estate tax by up to 40% of the reduction in value. Future capital gain may increase as a result. Work with your tax advisor to analyze the costs and benefits related to lower income tax basis on assets.

  4. With mortgage rates at their lowest in years, you may want to consider the following with regard to business or personal debts:
    • Refinance mortgages and fixed rate term debt at lower rates;
    • Consider refinancing existing adjustable rate debt into fixed rate obligations;
    • Consider borrowing at low interest rates to fund investments in assets that have plummeted in value; and
    • Consider the purchase or sale of closely held rental real estate because rental rates generally have not changed, but interest rates have decreased (which provides purchasing power).
  5. If you’re comfortable with your organization’s cash flow and future business prospects, look for opportunities to acquire used vehicles or other inventories at distressed price levels.

  6. Review stock and bond portfolios for losses that can be harvested. It may be possible to recognize stock losses now while markets are down and reinvest assets in the same or similar investments (you can’t purchase the same security for 30 days). If you wait until the end of the year, this opportunity may be lost.

  7. If you have personnel needs and are solid financially, this could be a great time to actively recruit talented personnel who are laid off from their jobs.

  8. Actively search for deals on business and personal items. Deals may exist while retailers and manufacturers look to unload inventories of items that you need anyway.

  9. Determine how to market your business when tax incentives (such as individual rebates) are released to the public.

How we can help

At CLA, we know these are challenging times. While it’s understandable to get upset or distracted, keep your business wits about you. We hope some of these items can help you in your decision making. If you have questions about any of these topics, connect with us to learn more about how we can help you and your dealership.

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