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Your Guide to PPP Loan Forgiveness

(Updated: 4/24/20) On Thursday, April 23rd, the House approved a $484 billion package to help small businesses. This includes $310 billion for additional Paycheck Protection loans. The SBA has yet to re-open the application process. We will continue to update this post as we learn more.

 The Xendoo team is here to help with getting your books caught up, preparing and filing your taxes, or just to talk about the relief efforts available. Click here to book a no-cost, no-commitment consultation.

Before we get started, here are the resources we’ve published about the Paycheck Protection Program:

We’ve heard from many business owners who are looking for guidance on how to ensure their PPP loan is 100% forgiven. We’re sharing our guidance based on what we know from the U.S. Treasury.

Approved expenses (payroll, mortgage interest, rent, utilities) are eligible for forgiveness, however, the following conditions apply:

  1. 75% of your loan must be used for payroll costs. This means at least 75% of the funds provided must be used for payroll. This does not include payments made to independent contractors.
  2. You must maintain the total number of employees on your payroll. 
  3. Your funding must be used over eight weeks of coverage. Eligible expenses are those that take place over eight weeks starting from the day the first payment was made by your lender (may or may not be the date you signed your loan agreement.) An easy example to reference: if your loan gets deposited in your bank account on May 1st, you can only use the funds on expenses incurred during the 8 weeks following May 1st.
  4. You must maintain at least 75% of the total salary paid to your employees. This is going to be individually assessed for each employee (only employees that did not receive more than $100,000 in annualized pay in 2019.) This means that employees pay over the 8 weeks must be at least 75% of their total pay received during the most recent quarter in which they were employed. If their pay is less than 75% of the pay they received previously (in the most recent quarter), the eligible amount for forgiveness will be reduced.
  5. Rehiring: you can rehire any staff that was laid off or furloughed and reinstate pay that was decreased by more than 25% to meet the requirements for forgiveness. Businesses will have until January 30th to do so.

How do self-employed individuals prove their PPP funds were used as intended?

Those that are self-employed are entitled to use their PPP loan to replace lost compensation due to the impacts of COVID-19. However, the full amount is not to be used entirely to replay pay. Eight weeks’ worth of your 2019 net profit will be eligible for forgiveness.

Self-employed individuals that have mortgage interest, rent, or utility expenses must have claimed or be entitled to claim a deduction for those expenses on your 2019 Schedule C to claim them for forgiveness.

How do you apply for PPP loan forgiveness?

Each lender will be processing forgiveness applications. Your lender is going to be your go-to for instructions on how to apply for forgiveness and when to apply for forgiveness. Your lender will be required by law to provide you with a response within 60 days.

What do you need to apply for PPP loan forgiveness?

Each lender may have specific requirements on what is needed to apply for forgiveness. However, the following documents are required to provide alongside your PPP forgiveness application.

  • Documentation verifying the number of full-time equivalent employees on the payroll, including their pay rates, for the periods used to verify you met the staffing and pay requirements.
    • This includes:
      • Payroll reports (from your payroll provider)
      • Payroll tax filings (Form 941)
      • Income, payroll, and unemployment insurance filings from your state
      • Documents verifying retirement and health insurance contributions
  • Documentation verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements)

For sole proprietors who do not have payroll through a payroll provider, you can have eight weeks of the loan forgiven as a replacement for lost profit, however, you will need to provide documentation. Documentation must be for the remaining two weeks’ worth of cash flow, proving you spent it on mortgage interest, rent, lease, and utility payments.

How much of my loan will be forgiven?

The U.S. Treasury outlines loan forgiveness as follows: You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utility payments over the 8 weeks after getting the loan. Due to the likely high subscriptions, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll.

  • The number of staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-hiring: You have until June 30, 2020, to restore your full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

PPP, EIDL, Both? Choosing the Right COVID-19 Business Loan(s)

You’ve got options when it comes to government financial aid for your pandemic-impacted business. But which one is right for you will depend on your needs and business model.

Here we’ll discuss the federal government’s Payroll Protection Program (PPP) and the Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL).

Compare the Pros and Cons

PPP EIDL
Maximum loan amount $10 million $2 million
Forgivable Yes $10,000 of it (advance grant)
Collateral required No Depends on the amount of loan
Credit check No Yes
Loan terms 1%, 2 years 3.75%, up to 30 years
(2.75% for non-profits)
1st payment deferral 6 months 12 months
Approved uses Payroll expenses
Rent
Mortgage interest
Utilities
Payroll expenses
Fixed debts (e.g. rent, utilities)
Accounts payable
Some bills that could have been paid if the disaster hadn’t occurred
Where to apply Approved lender SBA website

Can You Apply for Both Loans?

Yes, most businesses can — and probably should —so that each covers what the other one doesn’t. Just remember that:

  • You can’t use funds from both loans for the same purpose, such as payroll costs
  • The EIDL grant can’t be added on top of the PPP forgiveness amount; on the contrary, it will be subtracted

Who Can’t/Shouldn’t Get a PPP Loan

The business is not qualified if it doesn’t have any employees and the business owners pay themselves through compensation types that are not taxed as wages.

Compensation types not taxed as wages (DON’T qualified for PPP):

  • Owner draws
  • Member distributions

Compensation types taxed as wages (DO qualify for PPP):

  • Net profit from sole proprietorships, single-member or partnership LLCs
  • Payroll expenses for corporations

Businesses that primarily use 1099 contractors won’t benefit much from a PPP loan, since whatever they pay these workers don’t count in figuring payroll costs (independent contractors can apply for a PPP on their behalf). At least 75% of the PPP must be used for payroll for the loan to be forgiven, so if that payroll figure is low, so will be the loan amount.

Also, you can’t receive unemployment benefits at the same time you’re using a PPP loan. A good workaround is to use the PPP for its 8-week life, then apply for unemployment.

Who Can’t/Shouldn’t Get an EIDL

There certainly are fewer restrictions on how you can spend the EIDL than there are for a PPP loan. However, there are some ineligible uses, and if they are what you wanted a loan for, the EIDL is not right for you. These expenses include:

  • Dividends and bonuses
  • Owner disbursements
  • Stockholder/principal loan repayment
  • Long term debt refinancing
  • Facilities expansion, fixed asset acquisitions
  • Physical damages repair or replacement
  • Relocation

Also, you won’t be eligible for an EIDL if you are delinquent on:

  • Existing SBA loans
  • Loans from another federal agency
  • Payment of any part of a direct federal debt except IRS obligations

Worried about the bookkeeping needed to apply for, track expenses, and pass the audit on your COVID-19 financial aid loan? Xendoo is here to help with a ton of accounting and small business expertise. Let us show you a one-month free trial.

 

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

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(Updated) 2020 Tax Deadlines for Small Businesses

Keep this chart handy or copy the relevant parts of it into your calendar so you won’t miss a due date throughout the year.

W-2 Filing

(Wage and Tax Statement for Full- and Part-Time Employees)

January 31

Form 1096 Filing

(Information Return by Employers to the IRS on Form 1099s Issued to Independent Contractors)

February 29

Form 1099-MISC Filing

(Statement of Payments Made to Independent Contractors)

January 31 Copy A paper or electronic submission to the IRS if box 7 is filled in

January 31 Copy B to the contractor

February 28 Copy A paper submission to the IRS if box 7 is empty

March 31 Copy A electronic submission to the IRS if box 7 is empty

S Corporation Tax Filing

(for a calendar tax year)

March 16 Submit Form 1120S Income Tax Return

March 16 File for an extension

Partnership Tax Filing

(for a calendar tax year)

March 16 Submit Form 1065 Income Tax Return

March 16 File for an extension

C Corporation Tax Filing

(for a calendar tax year)

July 15 Submit Form 1120 Income Tax Return

July 15 File Form 7004 Application for an Automatic Extension of Time

LLC Filing as Corporation Tax Filing

(for a calendar tax year)

July 15 Submit Form 1120 Income Tax Return

July 15 File Form 7004 Application for an Automatic Extension of Time

Individual Tax Filing

(Sole Proprietor, Independent Contractor)

July 15 Submit Form 1040, 1040A or 1040EZ Income Tax Return

July 15 File for an extension

Nonprofit Tax Filing

July 15 Submit Form 990

July 15 File for an extension

Estimated Quarterly Tax Payments

Q4 2019 (January 15) Send final 2019 payment with Form 1040-ES Payment Voucher 4

Q1 2020 Extended Deadline (July 15) for first 2020 payment with Form 1040-ES Payment Voucher 1

Q2 2020 Extended Deadline (July 15) for  second 2020 payment with Form 1040-ES Payment Voucher 2

Q3 2020 Regular Deadline (September 15) third 2020 payment with Form 1040-ES Payment Voucher 3

 

Some types of businesses may have different or additional deadlines and requirements. Consult with your accountant or tax advisor early in the year to make sure you meet your obligations.

 

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Where do I find my W-3 and 1096 forms

Cover sheet Form W-3 is a federal form that Gusto files with paper copies of the Form W-2 to the Social Security Administration (SSA). This form is not required for electronically filed W-2s.

W3 Tax Form

Since Gusto files most federal W-2s electronically, if there are changes or corrections to W-2s, you won’t see changes on the W-3. Administrators can locate this form in Gusto by following these steps:

  • Click the Documents tab from your Admin profile.
  • Click the Company tab.
  • Select “Form W-2: 20XX” package.
  • Scroll to page 2, or beneath the cover page, and Form W-3 will be available.

Important: If you download this as a zip file, the W-3 will be the very last file in the downloaded folder.
You can review, download, or print the entire package from this location.

Note: Some states and local agencies may require an Annual Reconciliation along with Form W-2 filings. Gusto will file Annual Reconciliation if required.

Tax Form 1096

Cover sheet Form 1096 is filed to the Internal Revenue Service (IRS) along with paper copies of forms 1099-MISC. This form is not required for electronically filed 1099s. Administrators can locate this form in Gusto by following these steps:

  • Click the Documents tab from your Admin profile.
  • Click the Company tab.
  • Select “Form 1099: 20XX” package.
  • Scroll to page 2, or beneath the cover page, and Form 1096 will be available.

You can review, download, or print the entire package from this location.

Note: Some states require a paper copy of the 1096 to go with the state copy of Forms 1099. Gusto will file a paper Form 1096 if required.

 

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

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