Will Trump’s recent move involving COVID relief affect your business? After Congress failed to reach a consensus about the next phase of COVID-19 relief, Trump issued an executive order, which, among other things, suspended payroll tax for the American worker. That’s suspended only, not entirely revoked. So your business’s accounting promises to be even more complicated through the rest of the year. To hear her take on the order, check out Christy Lee, the Business Tax Ninja, in her latest YouTube video “Covid-19 Relief.”

#taxtips #payroll #covid19

Waiting for additional guidelines before asking forgiveness for your PPP loan? We’re still in the interim final rules phase, and banks are hesitant to accept applications for forgiveness just yet. The SBA guidelines from yesterday continue the trend of fewer and fewer restrictions for forgiveness. Join Christy Lee, the Business Tax Ninja, as she discusses the latest PPP news in “PPP Updates, including Appeals, Allowable Expenses, and the New Congress Proposal.”

Tax returns are due Wednesday, July 15th. Unable to file your taxes by then? The Business Tax Ninja, Christy Lee, is here to explain how to file your taxes at a later date without penalties. Warning: an application extension is not the same thing as a payment extension.

Have questions? Be sure to reach out! Contact the office at the contact information at the end of the video.

The government continues to release additional regulations about the Paycheck Protection Program, including how to apply for forgiveness, and what expenses qualify for forgiveness.  In the most recent revisions to the regulation, we received answers to two of the questions we are asked most frequently:

1.  When can I submit my PPP forgiveness application?   A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan so long as the borrower has used all of the loan proceeds for which it is requesting forgiveness.  The borrower can even submit the application before the end of the covered period.  However, if the borrower applies before the end of the covered period and has reduced any employee’s wages or salary in excess of twenty-five percent, the borrower must account for the excess salary reduction for the full covered period.  But just because you can apply any time before the maturity date of the loan, that doesn’t mean you should wait that long.  If you don’t apply for loan forgiveness within ten months after the last day of the covered period, OR if the SBA determines the loan is not eligible for forgiveness, even in part, the loan is no longer deferred.  Principal and interest payments then become due.

2. I am an owner-employee of my business.  Are there special rules for the treatment of my compensation?    Yes.  Your compensation is affected by both the length of your covered period and the type of business you own. 

• 8-week covered period.  If you elect to use an 8-week covered period, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at the lesser of 8 weeks’ worth of 2019 compensation or $15,385 per individual in total across all businesses. 
• 24-week covered period.  The amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at the lesser of 2.5 months’ worth of 2019 compensation or $20,833 per individual across all businesses. 
• C-Corporation owner-employees. The forgiveness of these payroll expenses is capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf. 
• S-Corporation owner-employees.  The forgiveness of this compensation is capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf.  Employer health insurance contributions made on their behalf cannot be separately added as these are included in employee cash compensation. 
• Schedule C or F filers and General Partners cannot include retirement and health insurance contributions in addition to their owner compensation amount based on 2019 net profit. General Partners should also pay close attention to the formula in the regulations for their owner compensation that reduces the 2019 net earnings from self-employment for certain deductions and expenses.

Many of you who received loan proceeds at the outset of the Paycheck Protection Program have used all your funds and are ready to apply for forgiveness.  We have thoroughly reviewed the revisions to the regulations and forgiveness application and are ready to answer any questions that arise as you prepare the packet.

Last week President Trump signed the Paycheck Protection Program Flexibility Act which brought significant changes to the Paycheck Protection Program, including extending the time period allowed for businesses to spend the proceeds.  Many of these changes have been discussed in detail in the media, but after reading the regulations, we have three points to make that may have slipped under your radar.

1. Maturity date.  Loans made after June 5, 2020 will mature in five years rather than two.  Any loans made before June 5, 2020 will maintain their original two years maturity date unless the borrower and lender mutually agree to extend the term.  If you need the extended five-year term to repay any amount not forgiven, you need to take matters into your own hands and contact your lender to discuss extending it. At this point it isn’t clear which banks, if any, will be open to extending the term. 

2. Fraud.  We have seen and heard many people speculate that if they could not spend the loan proceeds on a covered expense, they would just keep the funds to spend on other items after the covered period and merely pay the unforgiven portion back over the loan term.  If it wasn’t clear to you to begin with, after reviewing the revised application and revised Interim Rule Number One released today, you should have no doubt that if you knowingly spend the loan proceeds on something other than a covered expense, you can be legally liable for charges of fraud. Covered expenses include payroll, lease payments, mortgage interest payments (both real and personal property), and utilities. Don’t risk fraud charges by making your mortgage principal payments or other unauthorized payment with the proceeds.  Now that the Act gives borrowers the opportunity to extend the covered period over twenty-four weeks instead of eight, you should have no problem finding covered expenses to pay.

3. Payroll Expenses Threshold.  One of the most significant changes to the PPP is that only 60 percent of proceeds must be spent on payroll expenses to achieve full forgiveness.  The revised Interim Rule One provides a sample calculation to show how forgiveness will be reduced pro rata.  The reduction is based off what percentage of the 60 percent threshold for payroll expenses is actually spent on payroll expenses.

Give us a call if you have questions concerning how that calculation works or stay tuned to our upcoming webinar, where we will cover the calculation in more detail.Don’t forget: a new forgiveness application reflecting these changes and others should be released soon.  As always, we are here to help you make sense of the amendments.

Still hitting store after store in the Great COVID Hunt for Toilet Paper?  Don’t get frustrated.  Just substitute your PPP forgiveness application for those highly prized, soft-as-cloud white rolls. Why?  The answer’s simple:  On Monday, June 8, the Trump Administration announced it will “promptly” issue new rules and guidelines for small businesses seeking forgiveness of their PPP loans.  The changes include a modified loan forgiveness application. 

Beyond the unexpected bonus of toilet paper, what can you anticipate from the upcoming changes?  So far, the PPP has benefited thousands of small businesses that otherwise would have closed their doors this spring.  The workforce appears to be in the recovery stage, as May’s unemployment numbers dropped substantially. And rumor has it that there are relief funds still available – if not through the PPP, then through some other low-interest loan program.  Given yesterday’s announcement, it’s very possible that the current PPP loan recipients may qualify for additional funds.

Keep that possibility in mind when you make your decision about staying with the 8-week loan period or opting for the newly approved 24-week period. There’s so much to consider, it could take hours to address all the related questions.  For instance, if you go for the 24-week period, can you apply for forgiveness as soon as you’ve exhausted all the funds, or do you have to wait until the end of the 24 weeks?

Then there’s the sticky problem of potentially running out of tax-planning time before the end of 2020.  Not having specific guidelines early on, banks unintentionally loaned way too much money to some businesses.  If you weren’t meticulous about your calculations when applying for the loan, you could find your forgiveness application is denied. A 24-week loan period pushes the forgiveness out close to the end of the year.  This early on, who’s to know what your tax return will look like if your application for forgiveness isn’t approved or still pending when it is time to file your taxes?

But for a couple of reasons I’m still eyeballing the 24-week period for those business owners who did their due diligence when computing their loan amounts and maintaining proper records:  (1) Even if you expend all the PPP funds on approved expenses way before the deadline, you’ll have plenty of time to scrutinize every figure in your loan forgiveness application before turning it in.  That should go a long way in increasing your chances for forgiveness.

And (2), so far the declining unemployment rates reflect the PPP’s positive impact, and changing guidelines have favored the small business owner repeatedly.  It’s likely any new changes will continue to favor the small business owners. I.e., remember those rumors of additional funding. But even if you don’t wind up with more loan monies, at least you’ll still be able to enjoy some quality toilet paper.

Still confused about the best way to move ahead with the PPP, including the 8-week vs. 24-week loan period?  Give us a call at Law Offices of Christy Lee, P.C.  We’ll analyze the facts, figures, and rules applicable to your specific situation and offer you sound guidance designed to help achieve loan forgiveness.