by Daniel Kittell | Accounting News, Construction, Industry - Construction, News
While Congress appropriated a total of $669 billion in loans to small businesses under the Payment Protection Program (PPP) as part of the larger CARES Act, funding was reportedly exhausted by May 5th of this year. However, there are a number of additional programs and tax provisions, discussed below, that business owners should be aware of to use in place of or jointly with PPP loans.
Section 2302 Delay of Payment of Employer Payroll Taxes
This provision, created under the CARES Act, permits employers and self-employed individuals to postpone payment of the 6.2% employer portion of the Social Security taxes. The first half would be due by December 31, 2021 and the second half would be due by December 31, 2022.
Credits and Incentives for Developing Businesses
States and local communities usually have programs and tax incentives accessible to growing companies. Small businesses, including construction firms, were hit hard during the Covid-19 pandemic, but preparing for the future is necessary as companies begin to recover. Look into possible tax credits, exemptions, and grants as methods that might assist in your business’s growth, either now or in the near future.
Section 2307 Bonus Depreciation of Qualified Improvement Property
Section 2307 of the CARES Act amended a technical error allowing businesses to directly write off costs correlated with improving facilities retroactive to January 1, 2018. The adjustment expands businesses’ access to cash, as it permits them to amend prior year returns to claim the 100% bonus depreciation for qualified improvement property. It also motivates businesses to invest in property improvements, thereby stimulating the economy.
Research and Development Tax Credits
Businesses can make use of both federal and state research and development tax credits that reward companies based on contribution to the development of new products and processes. These tax credits can be applied on both current and amended tax returns to produce refunds or credit carry forwards.
Cost Segregation Studies
Cost segregation is a vital tax planning tool that has the potential to shelter taxable income by depreciating various elements of a property at an accelerated rate. In real estate, commercial properties are depreciated over a period of 39 years. However, when a company obtains, renovates, restores, or builds real estate, it frequently overestimates the amount of 39-year real property and limits depreciation deductions. Under the Tax Cuts and Jobs Act (TCJA), business owners can take a bonus depreciation of 100% for qualified assets in the first year (as defined by a cost segregation study) instead of depreciating the assets over a longer period of time. This 100% bonus deduction is available until 2022 when it will slowly start to phase out until 2027.
by Pete McAllister | Accounting News, COVID-19, News, Relief Bill, Stimulus, Stimulus Package
The Paycheck Protection Program (PPP) was created in 2020 by the CARES Act to help small businesses withstand the economic fallout from the COVID-19 pandemic. The recently passed PPP Extension Act of 2021 extends the deadline for PPP applications from March 31 to May 31. This move also grants the Small Business Administration an additional 30 days beyond May 31 to process loans. Here’s what small businesses need to know.
New Deadline Provides Breathing Room
According to the National Federation of Independent Business (NFIB), nearly one in every six small business owners reported the likelihood of needing to close their doors forever if current economic conditions did not improve within six months. The extension to May 31 will benefit these businesses, as well as lenders and businesses that have experienced errors and delays from technical difficulties in the application process. The SBA has also increased security in order to detect fraud, which has delayed processing in some cases. It’s important to note that May 31 is Memorial Day, so borrowers should have their applications in by May 28, before the start of the long weekend.
Opportunities for New First Draw PPP Loan Borrowers
The additional time may also benefit small businesses that received their first PPP loan this year. Because typically eight weeks must pass between the loans in order to spend money on payroll, this may give businesses enough time to use up those funds and apply to a Second Draw PPP Loan. Keep in mind that in order for a small business to qualify for a second draw loan, additional criterion must be met, according to the SBA:
- no more than 300 employees
- must be able to show at least a 24% reduction in gross receipts between comparable quarters in 2019 and 2020
The PPP Extension Act does not provide for further funding of the PPP. At the time of signing, however, the SBA said there was about $80 billion in funding that had yet to be disbursed to small businesses.
by Pete McAllister | Accounting News, CARES Act, News, Tax
The Consolidated Appropriations Act, 2021 (the Act) signed into law by President Trump on Dec. 27, 2020 includes significant modifications to the Employee Retention Tax Credit (ERC) enacted under the CARES Act. The credit originally provided a 50% refundable tax credit for businesses that maintain employee payroll, even amidst temporary business closures due to government-mandated lockdowns, or considerable downturns in gross receipts due to loss of business. This article will highlight changes to the ERC for 2021.
Period of Credit Availability
The CARES Act originally provided credit for qualified wages paid after March 12, 2020 and before Jan. 1, 2021. The new law extends availability of the credit for qualified wages to the first two quarters of 2021 (before July 1, 2021).
Amount of Credit
Under the original law, the credit amount was set at 50% of the qualified wages paid to the employee, plus the cost to continue providing employee health benefits. The Act increases the credit amount to 70% of qualified wages, which is intended to include the cost of employee health benefits.
Maximum Credit Amount
The CARES Act capped the credit at $5,000 per employee for all qualified wages paid during 2020, but the Act increases the maximum credit to $7,000 per employee for each of the two quarters in 2021, so the maximum credit for 2021 will be $14,000.
Eligibility Requirements for the Credit
In order to qualify for the ERC under the original law, businesses must have been experiencing full or partial suspension of operations due to a Covid-19 lockdown order. They could also qualify if, for any quarter in 2020, gross receipts were less than 50% of gross receipts for the same quarter in 2019. With the passage of the Act, businesses whose operations are either fully or partially suspended by a government-mandated lockdown order due to Covid-19 or whose gross receipts are less than 80% of gross receipts for the same quarter in 2019 can qualify for the ERC.
Credit Eligibility Whether or Not Employees Are Working
For a company with more than 100 employees, the original law under the CARES Act did not provide credit for wages paid to employees who were performing services for the employer in some capacity. However, a company with 100 employees or less did qualify for the credit, even if the employee was working. The Act raises this threshold to 500 employees, so that for the first two quarters of 2021, a company with 500 or fewer will be eligible for the credit, even if employees are working.
PPP Loan Eligibility
A company that received a Paycheck Protection Program (PPP) loan was not eligible for the ERC under the original CARES Act. With the passage of the Act, companies that received a PPP loan in 2020 may also qualify for the ERC. To prevent double dipping, a credit may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven. However, amounts paid that were either not forgiven or are over and above the PPP loan amounts can be included for ERC purposes.
by Jean Miller | Accounting News, Bookkeeping, Business Consulting, COVID-19, News, Resources, Tax
Congress passed the Paycheck Protection Program Flexibility Act (PPPFA) on June 5, 2020, amending several provisions in the original PPP loan program. Along with granting business owners more flexibility and time to spend the PPP loan proceeds, the Act permits funds to be used on a wider-ranging variety of expenses while still allowing for loan forgiveness. Here is how this will affect businesses moving forward with a PPP loan.
Extended Covered Period
Originally, borrowers had 8 weeks from the receipt of loan proceeds to spend funds on forgivable expenditures. Now the covered period specifies 24 weeks after the origination of the loan, or December 31, 2020, whichever is sooner. To qualify for forgiveness, however, borrowers must maintain payroll levels for the full 24-week period. Borrowers do have the option to stick with the 8-week deadline, and they must likewise maintain payroll levels through the full 8 weeks to qualify for the full loan forgiveness amount.
Additional extensions include the timeline for eliminating reductions in workforce and wages, as well as restoring workforce levels and wages to pre-pandemic levels required for loan forgiveness (both extended to December 31, 2020).
Changes to Percentage of Payroll Costs
The PPPFA reduced the payroll expense requirement from 75% to 60%, which means that 40% of the PPP loan funds may now be put towards forgivable non-payroll expenses such as mortgage interest, rent, and utilities. Note that the expenses originally designated as forgivable have not changed.
Changes to Repayment Period
For borrowers whose loans are not forgiven, the PPPFA increases the repayment timeline from two years to five years. The 1% interest rate remains the same.
Changes to Rehiring Requirements
The PPPFA also extends the rehire date to December 31, 2020 and allows for a reduced headcount. Rather than basing loan forgiveness on a borrower’s ability to rehire the same number of employees on payroll as was used to calculate the loan, the PPPFA allows for loan forgiveness amount to be determined by documentation showing that the borrower was (1) not able to rehire former employees and unable to hire similarly qualified employees, or (2) not able to return to pre-pandemic levels of business activity in response to federal guidelines related to COVID-19.
Changes to Payroll Tax Deferment
The CARES Act originally prevented borrowers who received PPP loan funding from deferring additional payroll tax once the lender decided to forgive the loan, but the PPPFA eliminates this restriction, and borrowers can now defer the payroll tax for the period from March 27 to December 31, 2020.
Overall, the PPPFA will ease the burdens of businesses that received PPP loans, but it doesn’t fix everything or answer all the questions, so expect more regulations and changes to the PPP program in the near future.
by Stephen Reed | Accounting News, Business Consulting, COVID-19, CPA, IRS, News, Professional Services, Retail & Distribution, Tax Consulting
On March 27 the CARES Act was signed into law in response to the COVID-19 pandemic. Below is an overview of the types of assistance available to small businesses in an effort to lessen some of the economic impact.
Paycheck Protection Program (PPP) Loan
This is a $350 billion loan program that will provide loans to small businesses for 2.5 times the average monthly payroll based on payroll reports from the previous year, with a cap of $10 million.
The interest rate for the Payment Protection Plan is 1%, and loan payments for any non-forgivable parts will be deferred for six months. The loan can become forgivable if funds are used for approved expenses: payroll costs, including continuation of health care benefits during periods of paid sick, medical, or family leave; insurance premiums; employee salaries and commissions; payments of interest on any mortgage obligation, rent, and utilities; and interest on any other debt obligation incurred before February 15, 2020. No more than 25% of the loan forgiveness can be related to non-payroll costs, and the amount of the loan available for forgiveness will be reduced if full-time employee count, salaries, or wages decrease.
Businesses and charitable nonprofits with fewer than 500 employees, self-employed individuals, sole proprietors, and independent contractors are eligible. There may be some exception to larger restaurant and hospitality businesses who have less than 500 employees per location.
Emergency Economic Injury Grants
Small businesses, private nonprofits, sole proprietors, and independent contractors who were in operation as of January 31, 2020 are also eligible for $10,000 of SBA economic injury disaster loans (EIDLs) without a repayment requirement. These loans can be used to pay for expenses such as payroll, paid sick leave to employees, production costs, as well as business debts, rent, and mortgage payments. However, using these funds to refinance pre-existing debt or to pay dividends in not permitted. The deadline to apply for an EIDL is December 16, 2020 for most states.
Debt Relief for SBA Borrowers
Included in the stimulus package is $17 billion for immediate relief to small businesses through standard SBA 7(a), 504, or microloans, which covers loan payments for existing SBA borrowers for six months. This includes principal, interest, and fees. This relief is also offered to new borrowers who take out an SBA loan within six months after March 27, 2020.
Employee Retention Credit
For employers whose businesses were fully or partially suspended as a result of COVID-19, the CARES Act specifies a refundable payroll tax credit for 50% of wages paid by employers during the pandemic. This also applies to business owners whose gross receipts declined by more than 50% when measured against the same quarter in 2019. Qualified employers with 100 employees or less are entitled to the credit, whether business is open or subject to a shut-down order. However, employers with greater than 100 employees qualify for the credit based on wages paid to employees while business is halted due to COVID 19-related circumstances.
