Yea, I know! Who cares?

But really, there are 3 new tax credits that YOU, as a business owner MUST know about! All 3 are Covid-19 related, so if you or any of your employees have been effected by the current pandemic, your businesses has less than 500 employees, and you paid wages, more than likely you qualify!

These are refundable tax credits, which means not only can your tax liability be reduced below zero, but any excess is refunded to you. Yep, refunded to the taxpayer. Without boring the heck outta you, I’ve briefly listed all three below. No need to become an expert, but PLEASE PLEASE PLEASE mention this to your CPA or feel free to schedule a time to chat with yours truly, RDJ CPA. These are SUBSTANTIAL tax savings and they are here to help small business owners during these challenging times!

Qualified Sick Leave Credit

Eligible if your business provided employees with paid sick leave for Covid related reasons from April 1, 2020 through March 31, 2021.

$511/day per employee; up to 10 days.

So, potential credit of up to $5,110/employee.

Avaliable to self-employed individuals, but lesser of $510/day or 100% of average daily self employment income

Qualified Family Leave Credit

Eligible if your business provided employees with family and medical leave for Covid related reasons from April 1, 2020 through March 31, 2021

$200/day per employee; up to 10 days

So potential credit of up to $2,000/employee

Available to self-employed individuals also, but lesser of $200/day or 67% of average daily self employment income

Employee Retention Credit

Eligible if business paid qualified wages from March 12, 2020 through July 1, 2021 (first 2 qtrs. of 2021) for 2020

50% of qualified wages up to $10,000

So potential credit of up to $5,000/employee; For 2021 tax year (so next year): 70% of qualified wages up to $10,000 for each calendar quarter

So potential credit of up to $14,000/employee for 1st 2 qtrs. of 2021

That’s all for now….

On December 27, 2020 the Consolidated Appropriations Act allocated an additional $284.5 billion in funding for the Paycheck Protection Program. Starting January 18, 2021 all lenders will be accepting applications for PPP2 loans.  Borrowers can apply with their bank (if offering the loan) or any fintech provider listed here. Businesses have until March 31, 2021 to apply. An entity MUST certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”.

First time borrowers are subject to the same terms as in the first Act.  

• Loan available to any US based business that was in operation on or before February 15, 2020
• Must have 500 or fewer employees
• Sole proprietors, independent contractors, self-employed, 501(c)(3) non-profit organization, 501(c)(19) veterans’ organization, or Tribal business concerns are also eligible.

Borrowers that received a PPP loan previously are subject to slightly different terms.

• Must have 300 or fewer part-time or full-time employees.
• At least a 25% reduction in gross revenue in any calendar quarter of 2020 as compared to the same corresponding quarter of 2019. For example, if gross receipts in the first quarter of 2019 (Jan-Mar) were $100,000 and first quarter 2020 (Jan-Mar) gross receipts were $65,000 there was a 35% reduction in gross receipts.
• Lenders will require documentation that proves reduction in gross revenue. This may include tax returns, financial statements, or bank statements.
• Borrower must attest that they have used or will use the entire amount of first draw funds on eligible expenses.
• If the business is part of a single corporate group, loans are capped at an aggregate of $4 million.

Loan amounts have been updated.

• The loan is the lesser of $2 million or 2.5X average monthly payroll costs (capped at $100,000 per employee). For example, if average monthly payroll in 2020 was $60,000, the maximum loan amount would be $150,000.
• Average monthly payroll costs can be computed based on payroll costs from 2019, 2020 or the 12-month period prior to when the loan is made.
• Entities that fall within the NAICS code that begins with 72 “Accommodation & Food Services” are calculated based on 3.5X average monthly payroll costs. This mainly includes hotels, restaurants, casinos and RV parks.

PPP loan funds can now be used on a broader range of expenses. The first round of PPP funds defined eligible expenses as rent, mortgage interest, payroll costs, and utilities. The new Act expands the eligible costs to include operations expenses, property damage costs, supplier costs, & certain worker protection expenses. Remember, at least 60% of the proceeds MUST be used on payroll costs. If loan proceeds are used for qualified expenses, 100% of the loan can be forgiven.

Any expenses paid with PPP funds are indeed TAX DEDUCTIBLE. Contrary to what we knew before, the new act addressed the deductibility of expenses paid with ppp loan proceeds and stated that any forgiveness of the PPP loan is not included in taxable income.

Have questions? Need help applying for the second round of funds or the first-round forgiveness? Feel free to schedule a time to chat here! In the meantime, visit the website and sign up for our blog to keep you updated as we learn more.

That’s all for now. Until next time…

On December 27, 2020 the Consolidated Appropriations Act allocated an additional $284.5 billion in funding for the Paycheck Protection Program. Starting January 18, 2021 all lenders will be accepting applications for PPP2 loans.  Borrowers can apply with their bank (if offering the loan) or any fintech provider listed here. Businesses have until March 31, 2021 to apply. An entity MUST certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”.

First time borrowers are subject to the same terms as in the first Act.  

• Loan available to any US based business that was in operation on or before February 15, 2020
• Must have 500 or fewer employees
• Sole proprietors, independent contractors, self-employed, 501(c)(3) non-profit organization, 501(c)(19) veterans’ organization, or Tribal business concerns are also eligible.

Borrowers that received a PPP loan previously are subject to slightly different terms.

• Must have 300 or fewer part-time or full-time employees.
• At least a 25% reduction in gross revenue in any calendar quarter of 2020 as compared to the same corresponding quarter of 2019. For example, if gross receipts in the first quarter of 2019 (Jan-Mar) were $100,000 and first quarter 2020 (Jan-Mar) gross receipts were $65,000 there was a 35% reduction in gross receipts.
• Lenders will require documentation that proves reduction in gross revenue. This may include tax returns, financial statements, or bank statements.
• Borrower must attest that they have used or will use the entire amount of first draw funds on eligible expenses.
• If the business is part of a single corporate group, loans are capped at an aggregate of $4 million.

Loan amounts have been updated.

• The loan is the lesser of $2 million or 2.5X average monthly payroll costs (capped at $100,000 per employee). For example, if average monthly payroll in 2020 was $60,000, the maximum loan amount would be $150,000.
• Average monthly payroll costs can be computed based on payroll costs from 2019, 2020 or the 12-month period prior to when the loan is made.
• Entities that fall within the NAICS code that begins with 72 “Accommodation & Food Services” are calculated based on 3.5X average monthly payroll costs. This mainly includes hotels, restaurants, casinos and RV parks.

PPP loan funds can now be used on a broader range of expenses. The first round of PPP funds defined eligible expenses as rent, mortgage interest, payroll costs, and utilities. The new Act expands the eligible costs to include operations expenses, property damage costs, supplier costs, & certain worker protection expenses. Remember, at least 60% of the proceeds MUST be used on payroll costs. If loan proceeds are used for qualified expenses, 100% of the loan can be forgiven.

Any expenses paid with PPP funds are indeed TAX DEDUCTIBLE. Contrary to what we knew before, the new act addressed the deductibility of expenses paid with ppp loan proceeds and stated that any forgiveness of the PPP loan is not included in taxable income.

Have questions? Need help applying for the second round of funds or the first-round forgiveness? Feel free to schedule a time to chat here! In the meantime, visit the website and sign up for our blog to keep you updated as we learn more.

That’s all for now. Until next time…RDJ CPA

Congress has indeed passed a $900B coronavirus relief bill, which is set to be signed into law really soon. Here’s what we know so far…

Any expenses paid with PPP funds are indeed TAX DEDUCTIBLE. This one’s a biggie. It’s what we in the tax and accounting arena have all been waiting to hear. Congress and the IRS were at odds with regards to if these expenses would be deductible or not. The IRS said NO, and Congress failed to address the language of deductibility in the passing of the initial CARES Act.

There WILL be another round of PPP funds. Over $280B will be allocated to the PPP (Paycheck Protection Act) loan program. There are few changes as to the requirements. The business must have 300 or fewer employees & a decline in gross receipts of at least 25% in any quarter in 2020 as compared to the same corresponding quarter in the prior year. If your business meets the requirements, the money is there – APPLY! To add icing to the cake, if used for qualified expenses, it’s possible that the entire loan will be fully forgiven.

PPP funds can be used for a broader range of expenses. In the initial Coronavirus aid package, qualified expenses were defined as rent, mortgage, utilities and of course payroll. The new bill includes additional qualified expenses.

If your business received a loan of $150,000 or less, forgiveness is basically automatic. But not so fast, the business owner will still be required to sign a one-page form in order to have their loan forgiven.   

There is additional funding for the EIDL loan program. An additional $20B will be allocated to the EIDL loan program. Unlike the PPP loan, the EIDL loan must be repaid. 3.75% rate for small business and 2.75% for non-profits with a 30-year term.

Have questions or need help applying? Feel free to schedule a time to chat here! Also, visit the website RDJ CPA and sign of for our blog posts to stay up to date as it all unfolds!

That’s all for now. Until next time…

Usually around this time of year, we are ready to deep dive into some tax planning – however the PPP loan has thrown a huge wrench in what we have known as a normal tax year.

The IRS has recently doubled down on what we thought we heard them say earlier in the year. ANY eligible expenses, that are otherwise deductible, are excluded from deductibility in the current tax year, if the taxpayers PPP loan is forgiven. Yep, you heard it right! If a businesses PPP loan is forgiven, any of the eligible expenses paid with PPP loan funds aren’t deductible in 2020.

What if the taxpayer hasn’t received a final determination as it relates to forgiveness by the end of 2020? Or why not just hold off on applying for forgiveness? Oh no no – they were a step ahead! The Treasury Department specifically stated that “If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not.” So, they are actually encouraging taxpayers to go ahead and apply for forgiveness.

Now, there are 2 exceptions to the rule that would allow deductions in 2020 (or as they call it – a safe harbor)

• If the taxpayer decides not to apply for forgiveness at all, or
• In a subsequent year if forgiveness is denied entirely or in part

Is this what Congress intended when passing the CARES Act? Of course not. I mean after all; the law was put into place to help small businesses during economic uncertainty. However, while the CARES Act specifically stated that any PPP funds would not be included in gross income, they failed to address the deductibility of expenses during the initial passing of the law.

So, is this over? May or may not be! We are still waiting to see if Congress will pass legislation reversing what the IRS’s treatment of expenses paid.  In the meantime, we at RDJ CPA will stay up to date on the ever so changing laws and keep you updated.

Make sure to visit our website, sign up for the blog and “All Things Entrepreneur”. Until next time…

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