Net Operating Loss carrybacks: Look at the big picture
KENNETH TORNHEIM, CPA, CFE
To help manufacturers and other businesses improve their cash flow, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a temporary five-year carryback for net operating losses (NOLs). Previously, under the Tax Cuts and Jobs Act, NOL carrybacks were eliminated starting in 2018. Now, under the CARES Act, businesses with NOLs in 2018, 2019 or 2020 may carry those losses back up to five years, offset them against taxable income in those years and claim a refund.
Look before you leap
Before you take advantage of this opportunity, however, it is important to look at your overall tax picture and consider how NOLs interact with other tax provisions.
- Consolidated Group Considerations
Certain consolidated groups of corporations should consider how the rules regarding consolidated returns may limit their ability to carry back NOLs experienced by certain members of the group. For example, this may affect businesses with a group member that was part of a different consolidated group during the carryback year, but was since sold or spun off.
- Business Interest Deduction Election
Affected businesses may opt-out of the limit on deductions of business interest if they forgo bonus depreciation and other accelerated depreciation benefits. The CARES Act allows businesses to retroactively claim 100% bonus depreciation for certain building improvements. In some cases, doing so generates NOLs, which can be carried back up to five years, yielding additional tax benefits. However, businesses that previously elected out of the interest deduction limit are ineligible for bonus depreciation. The CARES Act permits these businesses to reverse the election, but before doing so it is critical to weigh the benefits of bonus depreciation (and related NOLs) against the loss of business interest deductions.
Seize the opportunity
For many manufacturers, temporary NOL relief provides a great opportunity to reduce tax liabilities in previous years, claim a refund and give their cash flow a much-needed boost. Before seizing this opportunity, however, you will need to evaluate the potential interaction between NOLs and other tax provisions. Your ORBA tax advisor can help you look at the big picture and determine the best strategy for your situation.
Diversity in Manufacturing Offers Many Benefits
As the U.S. population continues to grow more diverse, many manufacturers are adapting their workforces to reflect that diversity. And while diversity for its own sake is an admirable goal, a diverse workforce can also pay off in the form of improved business performance.
Manufacturers can struggle to find quality workers. This includes employees with the highly technical skills needed as the manufacturing process increasingly turns to automation and digital technologies. Expanding recruitment efforts to reach a more diverse audience can help close the skills gap.
Manufacturers that embrace diversity often find it helps them reach more customers. Diversifying their workforce to reflect their customers’ values helps manufacturers better understand their customers’ needs.
Studies show that a more diverse workforce enhances innovation and improves financial performance. For example, a study of women in manufacturing by The Manufacturing Institute, Deloitte and APICS found that manufacturers with greater gender diversity (particularly those with strong female leadership) enjoy not only an improved ability to innovate, but also higher return on equity, increased profitability and better-than-average valuations.
A commitment to diversity can also help manufacturers keep valuable employees. Manufacturers that incorporate diversity into their cultures often enjoy improved retention rates as employees see themselves and co-workers appreciated and treated with respect.
Here are some best-practice tips for manufacturers that want to step up their diversity efforts:
- Do Not Exclude Inclusion
Simply having a diverse workforce is not enough. It is equally important to create a culture of inclusion in which all employees feel accepted, understood, respected and valued.
- Set the Tone at the Top
To succeed, diversity and inclusion efforts must have the full support of company leadership. Company leaders must communicate their commitment to diversity throughout the organization.
- Communicate Measurable Goals
Often it is not enough for a manufacturer to simply say they are committed to diversity. They should also communicate to employees the specific, measurable objectives they are implementing to achieve that commitment.
- Empower Employees
Many of the companies that have been most successful in creating a culture of diversity and inclusion have embraced employee resource groups (ERGs). These identity- or experience-based groups help give a voice to various communities within an organization, allowing them to share their experiences and advocate for increased recognition and opportunities.
- Emphasize Diversity in Recruiting
Involve leaders in your recruiting efforts with backgrounds similar to those you are striving to recruit.
- Track Diversity Metrics
Treat diversity and inclusion as key business performance goals and track related metrics in recruiting, hiring and employee retention. Analyze data related to diversity in leadership and promotion decisions.
- Implement Training Programs
Conduct regular training on unconscious bias, communication, conflict resolution and other diversity and inclusion issues.
- Address Work-Life Balance
According to the Deloitte study mentioned above, lack of work-life balance is one of the top reasons women leave manufacturing. Create an ERG that focuses on this issue.
- Embrace Foreign-Born Workers
The percentage of the U.S. population that is foreign-born has been steadily increasing and represents an often underused source of knowledge and talent. Consider strategies for accommodating language and cultural barriers.
- Cultivate Diverse Teams
Diversity within organization teams connects people with contrasting perspectives, which in turn fosters collaboration, innovation and creative solutions.
Positive impacts of diversity
Diversity does not just make the workplace more interesting. It has been shown to improve morale and enhance employee engagement, leading to greater innovation, increased productivity and other significant business benefits.
How has your company strived to increase diversity in its workforce and how have you seen it improve your business?
Sidebar: Workplace safety in the COVID-19 age
The COVID-19 crisis is not behind us quite yet. The Centers for Disease Control (CDC) and the Occupational Safety and Health Administration (OSHA) have published safety guidance for the manufacturing industry workforce. Many of these measures are labeled “temporary,” but uncertainty about COVID-19’s continuing impact means that they will likely be with us for the foreseeable future.
While much of the guidance has been relatively easy to implement, some recommendations are more complex and potentially costly, such as moving or repositioning workstations to maintain distance between workers, or installing barriers between workstations, such as plexiglass shields or strip curtains.
Manufacturers can also look into reconfiguring break rooms and other common areas to improve worker separation or use alternative areas, such as conference rooms or outdoor tents.
Establishing staggered shifts or other flexible work-hour arrangements may be another way to meet CDC guidelines. Regardless of split shifts, the CDC recommends installing handwashing stations and adding additional clock in/out stations or switching to touch-free methods. You may need to consult an HVAC engineer and make necessary modifications to ensure adequate ventilation in work areas.
These are just a few examples of the many guidelines offered by the CDC and OSHA. For more guidance, visit the CDC website.
If the cost of some of the larger fixes is overwhelming, keep in mind that the cost of interior improvements to your manufacturing facility may qualify for 100% bonus depreciation tax breaks as qualified improvement property (QIP). Contact your ORBA CPA to learn more.