Happy New Year and Happy January 2021! This time of year is a great time to revisit forecasts and tax plans to ensure a strong start toward your 2021 goals, especially in light of new legislation. In addition, we strongly recommend early preparation for 2020 taxes this year. Reach out to our professionals or your trusted advisor to talk about cash flow or budget analysis for 2021 as you are closing out and preparing for 2020 taxes and look for your 2020 Tax Organizer, now available on your Sharefile portal!
Part of the new Covid-19 relief bill passed in December provides for new PPP or PPP2 Loans. These funds are available for:
- Second draw loans for hardest hit businesses. This includes small employers who saw a 25% decline in gross receipts in any one quarter of 2020 as compared to the same quarter in 2019. EIDL and PPPL proceeds are not included in gross receipts for this calculation. This appears to be based on a calendar quarter, but we are waiting for the SBA to clarify the comparison period.
- First draw loans for qualified businesses who did not participate in the first round of PPP Loans may apply for a first PPP Loan. This will likely be similar to the original program however the new Act allows nonprofit business league §501(c)(6) organizations to participate this time. If you have a business league with payroll then you may qualify for a PPP Loan under the new provisions.
The SBA has 10 days from December 27th to issue their guidance so we will know more by the end of the week.
We expect the same lenders to be available for the new round of PPP loans, but you are not required to use the same lender if you apply for a second PPP loan. Email Crystal Brady or Kim Hitchcock if you want to discuss your options. We are also available to help support you in the application process, aid in the determination of eligibility for PPP2, and to gather the documents for this application.
Other PPP Provisions
The new legislation addresses and clarifies many questions surrounding PPP Loans and forgiveness including:
Clarification that the EIDL advance will not impact forgiveness. We do not, yet, know how this will be cured for anyone who has already received forgiveness but we are watching for guidance over the next few weeks.
New costs are eligible for PPP forgiveness. For PPP2 loans, in addition to payroll and rent, you can apply for forgiveness for amounts spent on worker protection, supplier costs, operations expenses and property damage costs. The 60/40 split between payroll and other costs is the same for PPP2.
Gross income does not include any amount that would otherwise arise from the forgiveness of a PPP Loan and, more excitingly, deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven. This applies to both PPP1 and PPP2 loans.
There will be a simplified loan forgiveness process for loans $150,000 or less. This new form, not yet released, can be no longer than one-page. If you’ve already submitted your application to the bank for forgiveness then your application should continue through the process.
The SBA will continue to subsidize 7(a) loans for another 3 months! In addition, the tax treatment of the subsidy is the same as the PPP forgiveness so the subsidy is not taxable but the expenses will be deductible.
Employee Retention Credit
The new legislation dramatically expands the Employee Retention Credit (“ERC”) to allow more employers to benefit and to increase the benefit to all who qualify. Employers who received a PPP Loan can now participate in the ERC program so please reach out to your service provider if this applies to you! The ERC is now available for:
- wages paid through July 31, 2021
- 70% of qualified wages (formerly 50%)
- $10,000 per eligible employee per quarter (formerly $10,000/employee in total)
- employers who suffered a reduction in gross receipts of 20% (formerly 50%) when compared to the same quarter in 2019.
In addition to the PPP and ERC provisions, this Appropriations Act also extends tax deductions and credits that were set to expire including the reduced 7.5% floor for medical expenses, energy credits and the deductibility of mortgage insurance premiums. It also created and expanded a new deduction for cash donations up to $600 for joint filers that could benefit every taxpayer, even if you take the standard deduction, so be sure to provide donation information with your 2020 tax documents.
There are many more provisions in this Appropriations Act, including the stimulus payment and expanded unemployment benefits. More clarification on the above provisions will be forthcoming over the next few weeks as well. Let us know if you have questions on anything you’ve read on these new laws!
As a reminder, your 2020 Tax Organizer is available now! They can be downloaded from your Sharefile portal, available at our front desk, or dropped in the mail upon request. This year you can schedule your appointment online at Mcnurlincpa.com or call our front desk for an appointment. As always, you can also reply to this email if you have any questions.
We are still accepting new clients for the 2020 tax seasons and we love your referrals so please reach out if you have any questions about our services or if you know someone who would like to become a client of the Firm this year!
Thank you for reading to the end! We look forward to seeing many of you either live or through video in the next few months. Take care and Happy New Year!
The owner of McNurlin, Hitchcock & Associates, PC a certified public accounting firm located in Lakewood, Colorado. Kim specializes in all areas of accounting, tax strategy planning, business management, and financial statement reporting. Kim can be reached directly at firstname.lastname@example.org.