How the SBA justifies the $50,000 limit for simplified PPP loan forgivenessThe SBA rationale to remove these requirements for loans of $50,000 or less is that almost all borrowers in this loan amount category are sole proprietors, independent contractors, or employers with one employee. The SBA stated as follows:
“Within this population of potentially affected loans, SBA believes that most borrowers would not be affected by the loan forgiveness reduction requirements because (1) the borrowers did not reduce FTE employees or reduce employee salaries or wages, or (2) the borrowers would qualify for one of the existing exemptions from loan forgiveness amount reductions. Excluding such borrowers, the aggregate dollar amount of PPP funds affected by these exemptions relative to the aggregate dollar amount of all PPP funds is de minimis.”
The SBA issued some data points to further justify its analysis that removing these borrowers from the requirements regarding the need to keep head count and salaries at close to pre-COVID levels in order to receive full forgiveness is de minimus. According to the SBA, there are 3.57 million outstanding PPP loans of $50,000 or less out of the 5.2 million issued, totaling approximately $62 billion of the $525 billion in PPP loans. Approximately 1.7 million PPP loans of $50,000 or less were made to businesses reporting zero employees other than the owner, or one employee.
The SBA made the calculation that owners would obviously not furlough themselves, and employers with just one employee only represented $49 billion or 9% of this loan range. Therefore, even if these borrowers laid off or reduced the salary of that one employee, the impact would be minimal.
This exemption was long sought by lenders and the business community, albeit at a higher level. Initially, these interested parties sought “check the box” forgiveness at $1 million or in the $250,000 to $500,000 range. Those numbers proved too ambitious and the number floated for the potential new stimulus bill was $150,000, a level covering most PPP loans. The SBA likely settled on the $50,000 level so it could make the above argument that the impact on employees would be small, and so the goal of the PPP loans would still be maintained.
While this new Interim Final Rule resolves one issue that resulted in $135 billion in PPP funds being left on the table when the program closed on August 8, 2020, and the reticence of many employers to file for forgiveness without more clarity, many issues are outstanding, giving businesses pause.
This is reflected in the fact that the SBA has received 96,000 forgiveness applications to date and has reviewed none of them. The SBA has stated it will begin reviewing applications “shortly.” This new regulation will certainly reduce the SBA’s administrative burden on loan forgiveness.
IRS rule on deducting expenses remains an issueThe main outstanding issue is the deductibility of expenses used with PPP funds. While the original CARES Act creating the PPP program made clear that once the loan is forgiven and becomes a grant, the funds are NOT income and not taxable as such. However, the Internal Revenue Service then issued guidance (Notice 2020-32) on April 30, 2020, stating that expenses normally deductible for a business CANNOT be taken if used with PPP money. Again, every lender and business advocacy group has been lobbying against this and have been hoping to see a fix in the new stimulus bill.
The main argument against this rule was simply one of fairness: if the intent was a grant, why create a new tax burden on these businesses the government was trying to bail out? The IRS rationale, however, was the businesses should not be allowed to “double dip” by both getting tax-free government money and taking these deductions. Again, the IRS is alone in that assessment.
More important, the rule created a grey area many businesses are now facing. Prior to forgiveness, PPP is a loan and remains one until forgiveness is received. As lenders have 60 days to review forgiveness applications and the SBA 90 days, most borrowers won’t receive a forgiveness decision until Q1 or Q2 of 2021, if then, with the likely backlogs to come. So, the question becomes, do borrowers take the deductions now and amend their tax returns upon full or partial forgiveness, or not take the deduction and receive a refund if all or part of their PPP loan is not forgiven? And, what of any potential penalties and interest?
Should businesses file now for PPP loan forgiveness?Since the PPP covered period is now 24 weeks, most businesses should easily qualify for full forgiveness. While the rules dictate that 60% of the PPP funds must be used on payroll, and 40% on expenses such as rent, utilities, mortgages, and loan interest, it is advisable and easier to document if all the funds are used on payroll if possible. If borrowers can do so, the conservative approach would be to not take the deductions and assume full forgiveness.
However, if borrowers want to hold onto cash, or have concerns about forgiveness, they can still take the deductions now. This is a business decision borrowers should make in consultation with their accountant, lawyer, and lender. Either way, for most borrowers of smaller loans, especially those with loans of $50,000 or less, applications for forgiveness should be filed sooner rather than later.
Many businesses have held off filing for forgiveness, waiting to see what new legislation would bring, such as more clarity, easing of rules, and a second chance at PPP money. The House version of the stimulus bill offered a second round of PPP funds to those businesses with 2020 revenue down 50% over 2019. In addition, there were set asides for employers with under 300 employees, $25 billion for employers with 10 or fewer employees, and $10 billion for community lenders. The intent was to address complaints that women and minority-owned businesses were largely shut out from the first and second round of PPP loans. The bill also expanded the list of forgivable expenses to include supplier costs, worker protective gear, and operations.
Unfortunately, none of these improvements or additional funds have come to pass. The talk now is of scaled down and targeted bailout money for the airline industry and perhaps restaurants and hospitality. The chances of anything happening prior to the election on November 3rd remain slim to none.
In the meantime, while things may and likely will change with future regulations, at least the 3.57 million borrowers of loans of $50,000 or less have much more clarity on both full forgiveness and the tax deduction issue.
In the wake of the failed effort to sign a new stimulus package into law, the Small Business Administration (SBA) along with the Treasury Department issued new guidance on October 8, 2020, allowing borrowers with Paycheck Protection Program (PPP) loans of $50,000 or less to self-certify they used the money appropriately and receive complete forgiveness.
While this latest Interim Final Rule addressing the PPP loans created under the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) will still require borrowers to provide documentation, such as a payroll provider report, it offers a new, simplified form and a “check the box” process for forgiveness. Borrowers can use new SBA Form 3508S for their application or wait for their lender to update their online application portals.
The new rules also remove the need to show that the borrower did not reduce head count or salaries and, therefore, suffer a reduction in loan forgiveness. Previous regulations outlined that if an employer reduced salaries by over 25%, the amount over 25% would not be forgivable. Borrowers would also have to document that if they did furlough employees, they tried in good faith to rehire them or couldn’t hire similarly qualified individuals, or also be subject to an unforgiven portion of their PPP funds.
Many small businesses accept their accountants price increases with out a question. The questions you should ask is am I getting more for my money, is customer service meet or exceed my expectations and are prices increase only happen about every 5-years? If you answer NO to these questions you may want to get a quote from another accountant. Yearly price increases from an accountant mean they know you are comfortable and wont question the increases.
Another big factor is who is doing your bookkeeping and taxes? Is it the accountant you have known for years and trust or is it a new intern just out of school? Many accountants only briefly look over the financials or a company before they sign off on the tax return.
At McVay Business Services we operate differently:
Mike McVay, Accountant for over 25+ years is hands on. Mike looks at all his bookkeeping clients almost every day. Downloads and codes transactions on a regular basis. Monthly bank reconciliations, adjustments and preparing of monthly financial statements are produced and verified each month. At year-end taxes are ready to be completed with little or no adjustments. On time tax filing is always available and payroll, payroll taxes and management of such is always 100%.
Its not rock science. A trusted, organized, educated accountant that puts every clients business first is what a true accountant should be offering. These offerings should also be customized to fit the business needs and budget for long term relationships. Many say an organized and educated accountant will have far fewer audits on there business or tax returns.
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Institutions are waiting for more guidance from the federal government as well as potential legislative action on the Paycheck Protection Program.
Although the Small Business Administration opened its Paycheck Protection Program forgiveness portal on Aug. 10, many contractors have found their banks are not ready to accept applications. The portal allows lenders to submit completed PPP loan forgiveness applications to the SBA for its review.
This means that small businesses across the country — including hundreds of thousands of contractors — that took money from the government assistance program designed to keep workers on the job during the COVID-19 pandemic, have to wait to submit their applications and find out if their loans will be forgiven.
Many banks have indicated that they are waiting to see if new guidance or legislation will streamline the forgiveness process. They are also want to see if Congress will pass legislation providing automatic forgiveness for loans of $150,000 or less.
Major lending institutions such as Chase and PNC Bank have not begun accepting forgiveness applications, according to their websites. Some banks, however, are accepting applications, according to Mike McVay, Tax Accountant, industry leader of McVay Business Services Accounting practice. These applications are awaiting approval by the SBA, he said, adding that he has not seen any SBA approvals yet.
Meanwhile, questions abound about several aspects of the forgiveness program. Most notably, some contractors are wondering whether to apply for forgiveness because of an IRS ruling might mean they pay more in taxes than to pay back the original loan. In a notice this spring, the IRS said it had ruled out tax deductions for wages and rent paid with forgivable PPP loans in order to prevent a “double tax benefit.”
The sooner contractors are able to submit for forgiveness, the sooner they will be able to contemplate the ramifications on their financial statements and tax returns, Callahan said.
It’s also important to note that some banks will not accept the forgiveness application until either the eight-week period is completed or the 24-week period is completed since those are the options that are listed on the forgiveness application, he said.
“It is in the best interests of the small business to achieve maximum forgiveness and submit a true and accurate certification based on the guidance available at the time of their submission for forgiveness. Each small business should consult with their respective qualified trusted business advisor to make sure they meet all of these requirements to achieve maximum forgiveness," he said.
Mike McVay, Tax Accountant and Certified QuickBooks ProAdvidor * 850-725-5696
Many people didn't receive a stimulus check because of many possible reasons. One of the biggest reasons is having multi years of back tax returns not filed. Mike McVay is an expert working with the IRS to get your caught up and minimizing penalties and liabilities. He can work with you on taxes as far back as 10-years. Look at the services we offer in the image to the right. We offer these services at a reduced cost that will fit into your budget. Don't trust the big national firms, as they only care about volume and prices can fluctuate during the process.
McVay will quote you a total turn key price and will never exceed the quote, guaranteed. McVay has been a top small business accountant in the Pensacola area for 25+ years. His firm was voted as one of Pensacola's most trusted firms and hold a five star fating on several review platforms.
Call Mike today for a free consultation. We can work virtually or have some in-office appointments available. Mike is licensed with the IRS and holds an Intuit Elite Account and Certified QuickBooks ProAdvisor certificates. Mike McVay, Accountant 850-725-5696 * Mike@MikeMcVay.com
Trump’s executive order calls for a payroll tax deferral from Sept. 1 to Dec. 31, 2020. The order only addresses the 6.2 percent employee’s share of Social Security taxes but doesn’t apply to the 1.45 percent employee’s share of Medicare taxes, according to a briefing released Tuesday by Wolters Kluwer. The payroll tax deferral only applies to employees with bi-weekly pre-tax income of less than $4,000. The Treasury Department is expected to issue guidance on how the deferral will work and address a number of uncertainties.
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Confused about the Taxability of your COVID Grants? Your not alone. Facts About COVID-19 Bookkeeping and the CARES Act SBA EIDL Grant
Bookkeeping and the CARES Act SBA EIDL Grant
First off, the CARES Act EIDL Grant is an emergency grant of up to $10,000, up to $1,000 per employee. Sole proprietors, for example, received $1,000.
Per the AIPB (American Institute of Professional Bookkeepers), “Proceeds can be used for such purposes as providing sick leave to employees unable to work due to the direct effect of COVID-19, maintaining payroll during business disruption or a substantial slow down, meeting increased costs of materials due to disruption of the supply chain, making rent or mortgage payments and repaying obligations that can’t be met due to revenue losses.”
EIDL Grant Notes
Is the SBA EIDL Grant Taxable Income?
There seems to be conflicting information on this. A recent article, titled“7 Questions About PPP and EIDL the SBA and Treasury Need to Answer ASAP” (bullet point #5) says “Yes” for regular pre-COVID-19 EIDL loans, but suggests there is ambiguity for the CARES Act SBA EIDL Grant.
That being said, most sources I have consulted indicate the CARES Act SBA EIDL Grants are tax-free money. That may change in the future, but this is my understanding as of today.
How to Book SBA EIDL Income
By now, many of our clients have received their SBA EIDL funds. Per the SBA website, while they are referring to it as a “loan,” the website clearly says, “This loan advance will not have to be repaid.” Since this is not a loan to be repaid, a liability account does not need to be created on the Chart of Accounts.
Instead, I recommend creating an “Other Income” account, which appears at the bottom of the P&L, not at the top. Suggested account name: SBA EIDL Grant-Not Taxable
One colleague even posited that since the EIDL is not a loan, and is not taxable, that it does not even need to appear on the P&L. It could instead be posted to the Balance Sheet as Owner’s or Shareholder Contribution. I am not in agreement with that approach, and instead recommend the P&L entry as noted above.
ConclusionThe above suggestions are for those who received just $10K from the SBA. However, many businesses did apply for, and receive, more. In those cases, a Long Term Liability account should be setup on the Chart of Accounts for the loan, and when the $10K portion is forgiven by the SBA, an adjusting entry can be made to move $10K from the loan liability account to Other Income.
Mike McVay is a degreed accountant with over 25+ years running and working with small businesses., a QuickBooks® Certified Pro Advisor, and a member of the Intuit elite network. His company, McVay Business Services in Pensacola, FL, specializes in remote bookkeeping services, QuickBooks clean-up and set-up, monthly and quarterly bookkeeping and individual, corporate and LLC income tax preparation. You can find his series of Blog posts here....
QuickBooks rewards top Accounting Firms with Elite Status when reviews, work ethics and certifications exceed Intuits ProAdvisors requirements.
Personal Tax Returns Due April 15, 2020
2020 Tax Deadlines for Filing 2019 Business Returns
Partnership Tax Deadlines:Due Date:
Original tax deadline for partnerships (Form 1065)
March 16, 2020
Extension tax deadline for partnerships (Form 1065)
September 15, 2020
S Corporation Tax Deadlines:Due Date:
Original tax deadline for S Corporations (Form 1120S)
March 16, 2020
Extension tax deadline for S Corporations (Form 1120S)
September 15, 2020
C Corporation Tax Deadlines:Due Date:
Original tax deadline for C Corporations (Form 1120)
April 15, 2020
Extension tax deadline for C Corporations (Form 1120)
October 15, 2020
Sole Proprietor Tax Deadlines:Due Date:
Original tax deadline for sole proprietors and individuals (Form 1040)
April 15, 2020
Extension tax deadline for sole proprietors and individuals (Form 1040)
October 15, 2020
Nonprofit Tax Deadlines:Due Date:
Original tax deadline for exempt organizations (Form 990)
May 15, 2020
Extension tax deadline for exempt organizations (Form 990)
What Flow-Through Entities (S Corps or Partnerships) Need to Do By Their Tax DeadlineEntities—like S Corps and Partnerships—get the name “flow-through” or “pass-through” because they do not pay income tax. As a flow-through, your business’s income and losses get passed on to the partners, owners, and shareholders. So when your flow-through entity files a Form 1065 to the IRS, you must also issue Schedule K-1s to each partner or shareholder for them to report on their individual returns. For this reason, if you plan on electing to extend your tax deadline, be sure and let all partners and shareholders know so they can do the same!
What Individuals and C Corps Need to Do By Their Tax DeadlineAs an individual (including sole proprietors) or corporation, your taxes are due on the fifteenth day of the fourth month of your fiscal year or the fifteenth day of the tenth month if you file an extension. This means you will file your taxes or an extension on April 15, 2020, and pay any tax liability you owe. If you ask for an extension, you will file taxes by October 15, 2020, but you will still need to pay taxes by April 15.
What Exempt Organizations (Nonprofits and Charities) Need to Do By Their Tax DeadlineExempt organization, such as a nonprofit or charity, file taxes on the fifteenth day of the fifth month of your fiscal year or the fifteenth day of the eleventh month if you file an extension. For your 2019 return, you’ll need to file your taxes or an extension by May 15, 2020. If you ask for an extension, you will have until November 16, 2020 to file your return, as the fifteenth falls on a Sunday in 2020.
When to Consider the Tax Extension for Your 2019 Business TaxesNeed extra time to get organized? Did something disruptive from your personal life take priority? Did your 2019 business activities have way more tax consequences than you expected? Extending your return deadline doesn’t need to be a stressful decision, in fact, it should help eliminate stress!
C Corporations, Partnerships, and S Corporations use Form 7004 to request a 6-month extension; individuals use Form 4868. For nonprofits, you can request a 6-month extension using Form 8868.
Millions of taxpayers are eligible but choose not to claim the thousands of dollars this tax credit offers.
Most Americans' goal during tax season is to pay as little tax as possible, and ideally to get a refund that's as large as you can get. Unfortunately, preparing taxes is complicated, and the complex laws governing taxation are so challenging to navigate that many taxpayers end up not claiming tax breaks that could put thousands of extra dollars in their pockets.
It might come as a surprise to learn that the IRS actually wants to encourage taxpayers to take tax breaks, but that's exactly what it's doing on Jan. 31. With the 14th installment of its annual EITC Awareness Day, the tax agency wants to make sure everyone knows about the benefits of claiming the earned income tax credit -- a tax break that it believes 6 million eligible taxpayers leave untouched.
Image source: Getty Images.
How does the earned income tax credit work?
The EIC Credit helps workers with modest income levels save on their taxes. For the 2019 tax year, credit amounts can be up to $6,559 for taxpayer families with three or more children, and smaller limits of $5,828, $3,526, and $529 apply to those with families of two, one, or no children, respectively. Below, you'll see the income limits that apply to the credit for 2019, putting an upper bound on how much money you can make and still receive a portion of the credit amount.
Income Limit if No Children
Income Limit if 1 Child
Income Limit if 2 Children
Income Limit if 3+ Children
Single, head of household, or widowed
Married filing jointly
Data source: IRS.
Best of all, the earned income credit is a refundable credit. That means that even if you otherwise wouldn't owe any tax, you can still file a return and get a refund back that includes the credit amount. That's a fairly unusual tax break, and it's one that can sometimes justify filing a tax return even if you wouldn't ordinarily be required to do so.
Why is the IRS promoting the earned income tax credit?
The sad thing about the earned income tax credit is that so many people don't choose to claim it. The IRS estimates that 25 million taxpayers received the earned income tax credit last year, with the average amount received coming in just over the $2,500 mark. However, one out of every five eligible taxpayers failed to claim and receive the credit. Doing the math, that leaves roughly 6.25 million taxpayers having missed out.
IRS Commission Chuck Rettig explained the rationale for the IRS outreach effort:
The EITC is a vital tax credit that helps millions of hard-working working families around the nation. It's critical that people review the credit to see if they qualify. Increasing awareness about the EITC is important, and the IRS is proud to support the ongoing efforts by partner groups across the country for sharing this critical information with taxpayers.
In particular, the IRS identified several groups of taxpayers who are most likely to miss out on the credit. They include the following:
- Those without children.
- Those who live in nontraditional families, such as where grandparents are raising grandchildren
- Those who saw their filing status or income change.
- Those with limited English skills.
- Members of the Armed Forces.
- Those who live in rural areas.
- Native Americans.
- People with disabilities or who care for those who are disabled.
If you qualify for the earned income tax credit, make sure that you claim it. There's no reason to pass up hundreds or even thousands of dollars added to your tax refund. The IRS EITC Website provides a tool to help you figure out if you qualify and what the amount of your credit would be. With even the IRS wanting you to take advantage of the credit, it's worth the time as you're preparing your 2019 tax returns to check and see if you qualify.
McVay Business Services
Mike McVay, Tax Accountant
5336 N Blue Angel Pkwy
Pensacola, FL 32526
WHY DO I NEED ACCOUNTING AND BOOKKEEPING? QUALITY ACCOUNTING AND BOOKKEEPING SERVICES IN PENSACOLA FL
Where can you get quality accounting, tax, and financial management services in NW Florida?
The answer is McVay Business Services in Pensacola FL. Since 1991, McVay Business Services has had our accounting and bookkeeping services designed and set to make jobs go easier. By handling a company’s accounting and payroll, we are giving their head department more time to focus on building their business in Florida. McVay Business Services has several individualized services for small businesses in industries like real estate accounting, legal accounting, hospitality accounting, manufacturing and wholesale trade accounting, and many other business industries
WHY DO I NEED ACCOUNTING AND BOOKKEEPING?
McVay Business Services is a QuickBooks Certified Pro Advisor. We are also certified by the National Association of Tax Professions, Payroll Administrators.
It is important for our customers to know that our team is QuickBooks Certified. QuickBooks is a computer software was developed by Intuit. It is used for accounting purposes for businesses. It is a helpful financial management system. It maintains a record of any company’s accounting in a structured and highly organized way. With QuickBooks,
McVay Business Services can look over a business’ budget, profit and loss standards, and customer/client information.
Some of the other accounting services of McVay Business Services include the following:
We provide our services to businesses of all sizes – small or large. Mike McVay, Tax Accountant keeps up with the federal tax changes and we know how to handle business taxes.
For more details on one of the services provided by McVay Business Services, you can visit our Pensacola office located at 5336 N Blue Angel Pkwy Pensacola, FL 32526.
You can call them too at 850-725-5696. Call McVay Business Services today and get your business started on a new financial journey.
Mike McVay, Accountant
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This payroll program provides customized comprehensive solutions for all of your payroll needs. This specific type of service provides personalized service and support to fit your business’ unique needs. It is easy and convenient payroll services that can be found only through McVay Business and Payroll Services in Pensacola, FL. 850-725-5696
With McVay's Payroll Solutions, you leave all of your payroll in the hands of an experienced payroll company. McVay Business Services in Pensacola, FL will make sure all of your employers get paid for the correct amount of hours they work. They have worked with businesses of all shapes and sizes. McVay Business Services understands the important function payroll plays in the business.
HERE IS A LIST OF PAYROLL SERVICES YOU CAN GET FROM McVay Business Services in Pensacola, FL.
If you are interested in McVay Business Services in Pensacola, FL payroll services at 850-725-5696.
McVay Business Services in Pensacola, FL also offers businesses with tax preparation services, financial management services, and accounting services. McVay Business Services in Pensacola, FL and accountants are standing by and ready to help your business more forward and get more successful than it is now.
You can get a free estimate for their payroll services. Answering just a few easy questions can tell you how much money you can possibly save with McVay Business Services in Pensacola, FL as your payroll company. 850-725-5696. Mike McVay, Payroll Accountant. Send email with pay frequency and number of employees to: Mike@MikeMcVay.com for quote.
Certified QuickBooks ProAdvisor & Licensed Tax Accountant Pensacola, Fl
Mike McVay, Accountant -Experienced IRS Tax Resolution Specialist
With over 20-years experience working with individuals, families & small business owners allows me to share helpful information and long term knowledge to help with their income tax, I.R.S tax issues and businesses.