PPP Forgiveness Applications
SBA has opened their forgiveness portal and many banks have submitted applications (as of 12/1 about 10% of PPP loans). Some have been processed and some have been forgiven. Many files have been sitting on a desk at SBA for greater than 90 days — well beyond the statutory time limit defined in CARES Act.
There are 3 different applications for forgiveness depending on the size of the loan — all dependent on the size of the PPP. Larger loans (greater than $150,000) require several complicated calculations that can trip the borrower up. All require maintaining the documentation — payroll, mortgage payments, utilities for up to seven years and some documentation must be submitted with the forgiveness application.
Congress still hasn’t acted on what was described as “blanket forgiveness” for loans $150k and below or $100k or even $50k as has been debated since before the July 4th recess.
Loans being “totally forgiven” have deducted the Economic Injury Disaster Loan Grant proceeds from forgiveness. That’s the $1k-$10k grant based on the number of employees in small businesses. This was always defined as a “grant” that wouldn’t have to be repaid. This grant has left many banks with small balance loans on the books. This is a great example of Congress passing a law with good intentions, then leaving interpretation and implementation to government-employed legal bureaucrats. The EIDL grant, which magically appeared in bank accounts of companies that applied for disaster assistance had no restrictions and for many businesses, it was simply a lifeline for existence until another loan (EIDL or PPP) was approved and funded.
And there is the matter of taxation. Under normal circumstances, the forgiveness of debt is taxable. The IRS has weighed in that PPP proceeds won’t be taxable, but there appears to be some waffling. While the proceeds may not be taxable, the expenses won’t be deductible either, essentially making the matter taxable.
The boogieman in the closet is the State. There are 19 States which require legislative action to not tax that forgiveness of debt. NY, IL, and CA and others who are in fiscal distress have already stated those proceeds are taxable by the State.
Banks & Associates has been on the forefront working with financial institutions, SBA and our Congressional delegation to add clarity to the project.
Click the link below to schedule time with us to discuss your company’s PPP forgiveness.
Prepare for W-2’s
Closing in on the middle of December, it’s time to check your employee records, especially those who may not currently be on the payroll. It’s important that W-2 information is accurate.
- Confirm Name
- Check Social Security number
- Confirm Mailing Address
- Provide Email Address
Many payroll services mail the W-2 directly to the employee without it ever touching the business owner’s hands. It’s a good idea these days to make sure an accurate email address is in the file. You or your payroll service must issue/file W-2’s by Jan 31st.
Prepare for 1099’s
The IRS requires each eligible vendor to receive a 1099 documenting payments during the year. Check your vendor files to see that you have a current W-9 on file (best business practice is to obtain a W-9 before you ever issue a payment to a new vendor). From that form, you will be able to determine if that vendor is a 1099 vendor or not and you’ll already have their taxpayer identification number on file.
Most of the time you’ll be issuing a 1099-MISC though there are various versions, including one for rent. This year, IRS is re-introducing the 1099-NEC, designed for independent contractors. All that PPP attention to independent contractors have resurrected that form. We can help with the filing of 1099s, but the prep work must be completed. The filing deadline is like W-2’s — Jan 31st.
We can help with a sample letter requesting the W-9 and the form itself is downloadable from the internet.
Who’s eligible to receive 1099?
Frankly, the 1099 regulations are so poorly written, 1099’s are a spot if IRS wants to find something wrong, they can, no matter how diligent you are. Fortunately, their current focus is matching 1099’s to reported income unless the issuing entity is just ignoring the regs or there are fraudulent activities.
In general, any vendor or sub-contractor paid more than $600 – individuals, partnerships, LLC, LP or estates. The exception list is fairly lengthy but generally if a Corporation or S-corp (that’s determined from the W-9 they send back), you are not required to 1099, except for attorneys. Freight is excluded, as are credit card payments.
Tax Planning Time
It’s odd to say in 2020, but while there is still some time remaining, you should evaluate your income situation and discuss tax consequences with your tax advisor. This year there are the normal considerations and PPP. There can be timing differences that will occur based on the handling of the expenses that may not be deductible as a result of the loan. Your situation may vary. Worse yet, because of the way forgiveness is being handled by SBA and lack of Congressional guidance, you may have no control over what occurs. There are the traditional items for your consideration — buying or selling a business, purchasing equipment or other fixed assets, expansion.
Cash Flow Forecasting
This year (and almost every other) cash is king. As a small business owner, you need to know how to use the financial data from your accounting system to be prepared from the unknown – 2020 has been full of that! Our LivePlan system is the solution. It includes meeting with us on a monthly basis to evaluate your performance against your cash forecast using up to 10 scenarios to predict cash as a result of your operations.
You know how critical planning is and going into 2021, the plan and your execution of it may be the difference between success and failure. Looking forward to recovery from the pandemic, we believe you will be presented with a myriad of opportunities that range from business acquisitions to commercial real estate acquisitions for existing or new locations.
Those opportunities may even be looking at your own capital structure and refinancing existing debt to provide working capital to strengthen your company. Don’t do this alone. Seek expert assistance you can trust with your business. Bank & Associates is here to help!