As the year 2020 winds to a close, one of the biggest questions swirling in business owners’ minds is PPP loan forgiveness. In the past week, President Trump signed new legislation that brings much-needed clarity to this process, and several key tax benefits as well.
Business Benefits That Impact You:
Qualified expenses paid using funds from a forgiven PPP loan ARE allowed as business deductions, overriding prior IRS and Treasury guidance to the contrary
Under the CARES Act passed in March, the forgiven part of the loan was not included in the business’ taxable income. However, the expenses paid with those funds were not allowed as deductible business expenses. The result of this was a net increase in taxable income.
Under the new law, the expenses paid with forgiven PPP loan funds are deductible as business expenses. The forgiven part of the loan remains excluded from taxable income.
What this means for you: you no longer have to pay taxes on the forgiven portion of the PPP loan! Your estimated tax liability should, in many cases, be lower as a result.
EIDL Advances no longer reduce the forgiveness amount of the PPP
Under the CARES Act, PPP loan forgiveness was reduced by the amount of any EIDL Advance received. This effectively required the Advances be repaid, contrary to the spirit of the program.
The new law repeals this provision so the receipt of an EIDL Advance will have no impact on the PPP loan forgiveness amount. This amount is also not included in the business’ taxable income.
What this means for you: you are no longer required to repay the portion of the PPP loan equivalent to your EIDL Advance, nor do you have to pay tax on the forgiven amount.
A second PPP Loan will be available for certain eligible businesses. Eligible recipients must meet stricter requirements (Complete guidance for this has not yet been released).
Current guidance suggests that in order to qualify for this second PPP loan, your business must meet the following criteria:
- Has no more than 300 employees;
- Has used or will use the full amount of their first PPP loan; and
- Had Gross Income in Q1, Q2, or Q3 of 2020 that is at least 25% lower than the same quarter of 2019
- May use Q4 2020 if application is after Jan 1, 2021
- Borrowers who were not in business during the first, second, or third quarter of 2019 (January 1 – September 30), but were in business during the fourth quarter of 2019 (October 1 – December 31), can compare the first, second, or third quarter of 2020 (January 1 – September 30) to the fourth quarter of 2019.
- If the entity was not in business during 2019 but was in business by February 15, 2020, then such borrowers can compare their gross receipts during the second or third quarter of 2020 to the first quarter of 2020 (January 1 – March 30) to see if they qualify.
- Applicants still must show a “necessity” to support the ongoing operations. In other words, all borrowers must be able to demonstrate that the current economic circumstances makes the loan request “necessary” to support ongoing operations.
What this means for you: If you are interested we will see if you qualify. On your end, it is imperative that you keep accurate employment records, supporting documentation regarding expenditures, and any additional certifications regarding the application for loan proceeds and loan forgiveness.
Additional Expenses are Eligible for PPP Forgiveness
What this means for you: now expenses in the following categories can also be counted toward your eligible expenses for PPP forgiveness:
- Covered Operations Expenditures: payments for software or cloud computing services used to facilitate business operations, services and products delivery, payroll processing, HR functions and the account and tracking of supplies and inventory expenses.
- Covered Property Damage Cost: damages related to vandalism or looting due to public disturbances that occurred in 2020 that were not covered by insurance or other compensation.
- Covered Supplier Cost: payments made to a supplier of goods that are essential to the operation and are made in agreement to a contract or order in effect at any time before the covered period. Or in effect, at any time during the covered period, with respect to perishable goods.
- Covered Worker Protection Expenditures: operating or capital expenditures that allow a business to comply with requirements or guidance issued by the CDC, HHS, OSHA or any state or local government during the period beginning March 1, 2020 and ending on the date which the national emergency declared by the president expires
Employee Retention Tax Credit Expanded
What this means for you: if your business operations are either fully or partially suspended by a Covid-19 lockdown order OR your gross receipts are less than 50% of gross receipts for the same quarter in 2019 you may be eligible for a credit up through June 30, 2021 if you continue to pay your employees within that same time frame. There are many stipulations that will best be discussed on an individual basis to ensure you qualify for it.
Individual Benefits That Impact You:
Additional stimulus checks if you meet the following criteria:
- $600 stimulus for individuals making $75,000 or less, phased out by $5 per additional $100 of income.
- $1,200 for couples making combined $150,000 or less, phased out by $5 per additional $100 of income
- $600 will also be provided for each dependent child
- Individuals making $87,000 or more and couples making $174,000 or more will not be eligible to receive a stimulus check.
What this means for you: You could see another stimulus check in your bank account in the near future if you meet the income requirements. Please note that it is not guaranteed that you will receive either a $600 or $1,200 stimulus check. Your individual income situation will ultimately determine the amount you are eligible to receive.
Extension of the Pandemic Unemployment Assistance Program
What this means for you:
- Additional $300 per week, on top of state benefits, for all workers receiving unemployment, through March 14, 2021.
Extension of Solar Investment Tax Credit
What this means for you:
You can get a tax credit of up to 26% of the cost of qualified solar panel additions through 2022. Previously the percentage was set to drop to 22% in 2021.
Note: The information contained herein is provided as a convenience to our clients. It does not constitute advice in matters of tax, accounting, law, or financial planning. If you have any questions or would like to learn more about how the provisions of this new legislation impact your business directly, please contact our office at 561-744-9547.