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Two new interim final rules for the Paycheck Protection Program (PPP) have been released from the Small Business Administration (SBA) and Treasury in response to the changes and second round of funding enacted by the relief portion of the Consolidated Appropriations Act signed at the end of December. 

Changes in provisions for first-draw PPP loans 

First-time borrowers of PPP forgivable loans received consolidated rules in the IFR “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” as well as an outline of changes made by the Act. Here’s what this rule clarified: 

Additionally, specific funds were set aside for minority, underserved, veteran, and women-owned businesses. When the PPP portal reopens on Monday, Jan. 11lenders for underserved communities will have exclusive access for two days for first-draw loans and will be able to offer second-draw loans on Wednesday, Jan. 13The portal will be open to all borrowers following these exclusive access days.  

New provisions for second-draw PPP loans 

In the IFR “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans,” much-awaited guidance was released for those looking to apply for a second PPP loan. Here’s what it said:  

Eligible borrowers must  

New PPP application forms have not yet been released for first or second-draw loans. We will continue to update you as guidance, portals, and applications become available. Contact us for assistance with your application for a first or second-draw loan or forgiveness.  

With all of the curveballs 2020 has thrown at the nation, the economy, and businesses, there’s never been a better time to get an early jump on year-end planning for your business. While all the usual year-end tasks are still on the docket, you’ll want to consider implications related to the Paycheck Protection Program (PPP), any disaster loan assistance you received, and changes made by the Coronavirus Aid, Relief, and Economic Security (CARES) Act 

We’ve put together a checklist of what you need to do now to prepare for a great year-end that includes annual tasks as well as 2020-specific tasks. Keep reading for assistance getting your financials organized, reviewing your tax strategy, and preparing for next year. 

Get organized 

1. Bring order to your books – Now is the time to collect, organize, and file all of your receipts for the year if you haven’t been staying on top of it. Get with your CPA to ensure everything is clean and in order before the end of the year to help avoid surprises come tax time.  

2. Examine your finances – This includes having your balance sheet, income statement, and cash-flow statements prepared and up to date. Reviewing this information allows you to see where your money went for the year so you can properly prepare for next year. 

3. Work with your CPA on your PPP loan forgiveness application – We are currently awaiting further guidance on the PPP’s impact to taxes, but it’s important to work with your CPA on your PPP loan forgiveness application. Knowing where your PPP loan lies can help determine how to spread out your cash flow for the remainder of the year. 

4. Organize all disaster loan assistance documentation – This includes your Economic Injury Disaster Loan (EIDL) documentation if you received an advance grantEIDL advances must be added to your taxable income (unless different guidance is released), but you’ll be able to deduct any expenses paid with this grant  

Review your tax strategy 

5. Review your taxes with your CPA – Do not put off your tax planning meeting with your CPA. Especially after the year you’ve had and any potential federal state aid your business received, your tax plan needs a review. Getting a jump on this earlywell before the new year, can help you plan for what’s to come on Tax Day. It’s even more imperative to plan early for any tax obligations you may have at tax time as it’s likely the COVID-19 pandemic will continue to create a volatile environment for many industries’ revenue projections.  

6. Execute on year-end tax strategy adjustments such as: 

7. Prepare your tax documents – Once you’ve met with your CPA, it’s time to line up all the info you need to prepare your final tax documents or have your CPA take care of it. Be sure not to put this off to the last minute as it will be a complicated year for everyone. 

8. Automate your tax function – Instead of spending valuable time and energy on manual tasks and repetitive processes this year, consider investing in data analytics and automation tools to optimize and streamline your in-house accounting and tax functions. There’s never been a better time to invest in technology that will help you become more efficient and accurate. 

Plan for the future  

9. Evaluate your goals – There’s no doubt that 2020 likely threw a wrench in many of your goals for the year. However, you should still review the goals you set last year and see if you’ve met or made progress on any of them. This will help with 2021 business planning. 

10. Set goals for the new year – No one knows how 2021 will play out, and it’s unlikely the market or business will return to normal in the first part of the year. Take into consideration the challenges you’ve faced so far in the pandemic as you plan for 2021. Work with your trusted advisor to determine several back-up plans for what if scenarios in case of any state or national lockdowns.  

In a year like no other, it’s crucial to prepare like no other so you’re not met with any surprises or devastating fees. Contact us today to set up your tax and business planning appointment.  

The Tax Cuts & Jobs Act (TCJA) of 2017 made many significant changes for business tax deductions including the disallowing of the business deductions for most entertainment expenses. After a period of comments and proposed regulations, the IRS has released long-awaited final regulations for the treatment of meals and entertainment deductions, and businesses should apprise themselves of these changes.  

The main change with the TCJA was the removal of certain entertainment expenses as tax deductible for a business. Prior to the TCJA, entertainment expenses were eligible for an up to 50% deduction in expenses directly related to the active conduct of a trade or business or for expenses incurred before or after a bona fide business discussion. The TCJA eliminated this deduction for activities considered to be entertainment, amusement, or recreation as well as removed the reference to entertainment as part of the 50% limitation of deductibility for food or beverages.  

The final rules clarify that taxpayers may continue to deduct 50% of business meals if the taxpayer or an employee of the taxpayer is present, as long as the meal is not considered extravagant. Meals for current or potential business customers, clients, consultants, or similar business contacts are eligible. Food and beverages provided during entertainment events must be purchased separately from the event to qualify, otherwise they are considered part of the entertainment.   

Note that the TCJA did not repeal the exception for certain recreational activities that benefit employees, reimbursed expenses, entertainment treated as employee compensation, or includable gross income of a nonemployee as compensation or as a prize or award, which must be properly reported by the taxpayer. 

Separating meals and entertainment and aligning them in the right buckets for deduction can be tricky. Contact us for assistance in determining what qualifies.   

The Small Business Administration (SBA) and Treasury announced on October 8 that a simplified application (Form 3508S) for Paycheck Protection Program (PPP) loan forgiveness is now available for borrowers whose loans fall in the $50,000 or less threshold. As more and more businesses begin filing for PPP loan forgiveness, this change outlined in a new interim final rule greatly simplifies the process for borrowers with smaller loans. However, it is important to note that this simplified form is not equal to automatic forgiveness.   

Among the simplified provisions for borrowers with $50,000 or less in PPP loans is the exemption from a reduction in forgiveness based on reductions in full-time-equivalent (FTE) employees as well as reductions in employee salaries or wages. While certifications and documentation of payroll and non-payroll costs will still be required, this move streamlines the process significantly for borrowers with smaller loans who will not be responsible for potentially complicated calculations for FTE and salary reductions.  

Borrowers with loans of $50,000 or less who are also included in affiliate loans totaling $2 million or more are not eligible for the new application. The SBA estimates that approximately 3.57 million loans were issued for $50,000 or less or $63 billion of the PPP funds, and that about 1.71 million of the loans were for businesses with one or zero employees.   

Below are additional considerations to keep in mind: 

Updates for lenders 

Lenders should note the further guidance on their responsibilities released with the notice which includes review of borrower documentation for eligible costs for forgiveness for all forgiveness applications. Lenders are required to confirm receipt of the borrower certifications the borrower’s documentation of payroll and nonpayroll costs. Borrowers are responsible for their calculations and accuracy of the information provided, and lenders are permitted to rely on what the borrower has submitted.  

It’s important to note that the amount of forgiveness cannot exceed the principal amount of the loan even if a borrower submits documentation for eligible costs exceeding the amount of their PPP loan. 

Regardless of what form is submitted for forgiveness, lenders must: 

Many questions remain about the tax treatment of some expenses that fall under the PPP. Contact your CPA for assistance with your forgiveness application and to have a thorough discussion about the impact your PPP loan has on your tax strategy and when is the best time to apply for forgiveness. 

With the M&A market in flux after all the unexpected challenges of 2020, buyers and sellers are likely wondering how their Paycheck Protection Program (PPP) loan comes into play in an M&A transaction. On Oct. 2, we got some answers when the Small Business Administration (SBA) released guidance on what to do if you are buying or selling a business with a PPP loan. The Procedural Notice was addressed to SBA employees and PPP lenders and clarifies how a change of ownership is defined, the steps that need to be taken with a PPP loan, and the obligations of borrowers regardless of change of ownership. Here’s what you need to know:

What defines a change of ownership?

The guidance states that a change of ownership requires at least one of the following conditions to be true for a PPP borrower:

Aggregation of sales and transfers since the date of the approval of the PPP loan is required. Sales or other transfers for publicly traded borrowers must be aggregated when they result in one person or entity holding or owning at least 20% of the common stock or other ownership interest.

What must I do before the ownership change?

1. Notify your lender if you are contemplating a transaction that will change ownership – this must be done in writing and include relevant documentation.

2. If your lender is accepting PPP loan forgiveness applications, submit your application with all required documentation (we can help with this).

3. Set up an interest-bearing escrow account with your PPP lender which will be required in most cases by the SBA.

4. Determine if SBA approval of the change of ownership is required for your transaction.

How do I determine if SBA approval is required for my transaction?

SBA approval is not required for:

SBA approval is required for sales that cannot meet the above criteria. The SBA will have 60 calendar days to review and approve or not approve. The PPP lender is responsible for notifying the SBA within five business days from the completion of the transaction and must submit to the SBA:

What if I don’t set up an escrow account?

Borrowers attempting to make an asset sale with 50% of assets and no escrow account will require a condition of the purchasing entity to assume all of the PPP borrower’s obligations under the PPP loan. The purchaser will then be responsible for compliance with PPP loan terms, and the assumption must be part of the purchase and sale agreement.

What do I do if I end up with two PPP loans?

Transactions resulting in an owner holding two PPP loans will require the owner to segregate and delineate the PPP funds and expenses with documentation demonstrating PPP requirement compliance for both loans. Being thorough and accurate with your documentation is key.

Anything else I should know?

Loans that are repaid in full or are fully forgiven by the SBA have no restrictions for change in ownership. Note that all PPP borrowers are responsible for the performance of PPP loan obligations, certifications related to the PPP loan application including economic necessity, compliance with all PPP requirements, and supporting PPP documentation and forms. Borrowers will be responsible for providing any and all of this documentation to a PPP lender/servicer or the SBA upon request.

For questions and assistance with an M&A transaction and your PPP loan, reach out to us.

Employers can now defer payroll tax withholding on employee compensation for the last four months of 2020 and then withhold the deferred amounts in the first four months of 2021, confirms a recent update from the IRS. President Trump’memorandum on Aug. 8 gave employers the ability to defer payroll taxes for employees affected by the COVID-19 pandemic in an effort to provide financial relief  

The guidance directs that employers can defer the withholding, deposit, and payment of the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3102(a) and Railroad Retirement Act Tier 1 under Sec. 3201 from employee wages from Sept. 1 to Dec. 31, 2020.  

Employers must then withhold and pay the deferred taxes from wages and compensation during the period from Jan. 1, 2021, and April 30, 2021, with interest, penalties, and additions to tax to begin accruing starting May 1, 2021. Included in the notice is a line that indicates, if necessary, employers can “make arrangements to otherwise collect the total Applicable Taxes from the employee,” such as if an employee leaves the company before the end of April 2021, but does not provide details on what that entails.  

Employees with pretax wages or compensation during any biweekly pay period totally less than $4,000 qualify for the deferral. Amounts normally excluded from wages or compensation under Secs. 3121(a) or 3231(e) are not included in calculating the applicable wages. The determination of applicable wages should be made on a period-by-period basis.  

Companies may choose whether or not to enact the payroll tax deferral. We are closely monitoring updates related this and other presidential executive orders and will communicate if more information becomes available. For questions or assistance with this payroll tax deferral, contact us.  

On Aug. 24, the Small Business Administration (SBA) and Treasury issued the latest interim final rule update to the Paycheck Protection Program (PPP) that seeks to clarify guidance related to owner-employee compensation and non-payroll costs. This guidance has been long-awaited and clears up several questions borrowers have had about forgiveness. Here are the main points: 

1. Owner-employees of C or S corporations are exempt from the PPP owner-employee compensation rule for loan forgiveness if they have a less than 5% stake in the business. The intent is to provide forgiveness for compensation of owner-employees who do not have a considerable or meaningful ability to influence decisions over loan allocations. This clarifies earlier guidance that capped the owner-employee compensation regardless of what stake they have in the business.  

2. Loan forgiveness for non-payroll costs may not include amounts attributable to the business operation of a tenant or subtenant of the PPP borrower. The SBA provides a few examples of what this means: 

3. To achieve loan forgiveness on rent or lease payments to a related thirdparty, borrowers must ensure that (1) the amount of loan forgiveness requested does not exceed the amount of mortgage interest owed on the property attributable to the business’s rented space during the covered period, and (2) the lease and mortgage meet the Feb. 15, 2020, requirement for establishment. Earlier guidance had not addressed related third-party leases. 

It’s important to note that mortgage interest payments to a related party are not eligible for forgiveness as PPP loans are not intended to cover payments to a business’s owner because of how the business is structured – they are intended to help businesses cover non-payroll costs owed to third parties. 

For questions on any of these rules or assistance with your PPP loan forgiveness application, contact us today. 

CFOs are playing more pivotal roles in modern corporations than ever before, and the impact of the COVID-19 pandemic is shedding light on how CFOs can impact short and long-term financial stability. While growth is frequently considered the ultimate goal for a business, economic downturns like the one created by the pandemic show us that CFOs with eyes on long-term financial stability, and not just on growth, will be able to better help their organizations weather the storms of an economic crisis.   

A CFO’s strategy for long-term success should incorporate thorough cost management protocols, a comprehensive and holistic approach to increasing value, and stewardship and championship of the bigger picture. Here’s what that means. 

How CFOs impact direct costs 

As the financial head of the organization, the CFO naturally serves as the rightful guardian of business’s expenses. It’s through these direct costs that CFOs can implement stronger internal controls and recover lost revenue for long-term benefit. A CFO can improve long-term viability by analyzing:  

Cost of Goods Sold (COGS) – COGS are a key area for reduction as they represent the largest operating expense for the business. Depending on the industry, these costs can be complex, and the biggest expense can come in the form of purchased components and materials. CFOs can optimize this area with help from sourcing programs that consolidate costs by choosing more goal-aligned suppliers. 

Indirect Taxes – Indirect taxes are aoften-overlooked area of opportunity for many businesses. These taxes can be found in areas like R&D, procurement, labor, utilities, and manufacturing and can represent 25% of personnel expenses. Making indirect taxes a regular component of your tax strategy allows you to reduce costs in this area by 10-20% with quick realization rates. Bonus: “Look-back” provisions can help you save even more. 

Real Estate – With real estate, take a holistic inventory of your business and consolidate where possible. The COVID-19 pandemic showed us how much can be done at home or in fewer locations. Consider whether you need all your locations, your facility management costs, and negotiating your contractsAlso, plan for a future workforce that may expect a more flexible work-from-home situation. Just because you‘re growing doesn’t mean you will actually need all that extra space. 

Product Optimization – If you haven’t invested and implemented benchmarking and KPIs for your products, you need to now. Data and analytics are key to understanding how you can improve margins and grow profit. With product rationalization, you can drill down into what is really profitable and make decisions on what to cut and what to expand. Look at customer buying habits and your company overhead and determine what’s really worth keeping on the shelves.  

Labor – The key to optimizing labor costs lies within efficiency. Do you have the right people in the right seats? Can current employees be retrained to fill open needs? Consider where you can use automation and outsourcing to save on salaries/benefits and overhead.  

Working Capital – Assessing your working capital for cost efficiency involves taking a look at:  

 How CFOs impact value 

CFOs not only help to optimize costs, but they are also integral in increasing company value because of their instinct and insight into the finances, the business, and how everything relates. Value is the ultimate determinate for long-term success in a business as it is the final measurement taken into consideration at the time of succession or buy-out. And, as any good business valuation professional will tell you, the business is not worth what you think it’s worth. The consensus among international accounting organizations is that value is defined by your customers/stakeholders and created and sustained through the responsible management of your organization’s tangible and intangible assets, resources, and relationships.: 

One can clearly see how the areas of impact for CFOs listed in the costs section above directly relates to value creation in a business and the management of financial resources. The CFO is the gatekeeper for value creation and thus long-term viability.  

How CFOs champion the big picture 

Because the CFO is intimately connected to the financial health of the organization, they are also the eyes of the market. They see the trends and shifts directly in the numbers and can advocate for the right kinds of measurements to make long-term decisionsCFOs should take an active role in their organization’s strategic planning process and use their knowledge to translate the ebbs and flows of the business into scalable growth.  

Now more than ever, CFOs are at the forefront of business viability and growth. Their knowledge is invaluable in times of crisis and prosperity, and their voice and action are essential for long-term financial stability.  

Our outsourced CFO services can help you establish and maintain a long-term financial strategy for your business. Contact us for more information. 

In an effort to help businesses cope with the impact of COVID-19, the CARES Act passed by Congress in March of this year eliminated some of the restrictions on the business interest deduction set in place in 2017 by the Tax Cuts and Jobs Act (TCJA). Now, the IRS has released much-needed guidance and final regulations for business interest expense deductions.

Limiting the business interest deduction was originally a way of helping pay for the TCJA and began with tax years starting after Dec. 31, 2017. The deduction was limited to the sum of:

The final regulations state that the deduction does not apply to:

Taxpayers must use Form 8990 to calculate and report their deduction and the carry-forward amount of disallowed business interest expense.

Additional regulations released by the IRS cleared up some of the remaining questions including issues related to the CARES Act. These additional regulations can be used with limitations until the final regulations are published in the Federal Register.

Additionally, a safe harbor was created in Notice 2020-59 that allows taxpayers engaged in a trade or a business managing or operating qualified residential living facilities to treat that as a real property trade or businesses in order to qualify as an electing real property trade or business.

Reach out for assistance with understanding and reporting your business interest expense.

 

On August 8, 2020, President Trump signed an executive order extending certain aspects of COVID-19 relief in the absence of a new bill from Congress. The executive order includes several measures to protect individuals as provisions of the CARES Act expire or have expired.

Here’s what was in the order:

Payroll tax delay – The order authorizes the Treasury to consider methods to defer the employee share of Social Security taxes (IRC section 3101(a) and Railroad Retirement Act taxes under section 3201(a)) for employees earning up to $104,000 per year ($4,000 biweekly) for a period beginning Sept. 1, 2020, through Dec. 31, 2020. No interest, penalty, or additional assessment would be charged on the deferred amount. At this point, this is not effective. It means the Treasury can exercise authority and explore ways to achieve forgiveness on the deferred amounts, such as legislation. While nothing will be done until the Treasury issues guidance, employers will need to be mindful of this as the liability of this payment could fall on them depending on the final rule.

Unemployment benefits – The $600 per week unemployment benefit authorized by the CARES Act expired on July 31. The executive order retroactively authorizes $400 per week from Aug. 1; however, states must contribute $100 and the remaining $300 would come from the federal government. The funding for the federal portion would come from the FEMA Disaster Relief Funds and would continue until the earlier of Dec. 6, 2020, or a drop in the Fund balance to below $25 billion. The state portion is to come from federal funds already distributed to the states. Questions of whether the FEMA funds can be used for this purpose are still outstanding.

Evictions – The evictions portion of the executive order asks the secretary of HHS and director of CDC to consider whether halting residential evictions is reasonably necessary to help prevent further spread of COVID-19 and also authorizes the Treasury Secretary and HUD Secretary to consider potential financial assistance for renters. The CARES Act banned evictions through July 25 for properties with federal mortgage programs or HUD funds.

Student loans – The student loan interest deferral enacted by the CARES Act is set to expire Sept. 30, 2020. The executive order would waive student loan interest until Dec. 31, 2020, for loans held by the Department of Education only.

Final guidance is required from the respective agencies before some of these measures can be enacted. Contact us with questions.