Preparing for Paycheck Protection Loan Forgiveness

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It has been a long road for many of you who have already received your Paycheck Protection Program loan funds, and certainly for those of you who are still waiting for your funds to arrive.  Unfortunately, this is only the first step in the process under the CARES Act and the economic relief it is intended to bring.

To help you navigate this road, we at Marshall Jones want to be sure to continue to be there for you during the next phase, which is to help you use the funds in a way that prepares you for forgiveness.

PPP Loan Forgiveness Maximization

Much like the confusion that existed initially around applying for the PPP loan, there is a great deal of ambiguity around the precise forgiveness calculations that will be required.  While clarity will come with time, we believe there are some practical steps and safe interpretations of the forgiveness clauses of the CARES Act which will put you in the best position to receive total loan forgiveness.

We want to emphasize the areas we think are the most important considerations for you to make during the eight-week covered period after you receive your loan funds.  Doing your best to use the funds in a way that aligns with the intent of Congress will give you the best chance at maximum loan forgiveness.

Know Your Timeline

The clock to spend your PPP funds starts the day your funds are deposited into your bank account.  You will have eight weeks from this time to spend your loan funds on covered charges if you want to receive 100% forgiveness on your loan.

Track and Document Your Covered Expenses

There are many ways to do this, but some are more practical than others.  Some advisors are recommending opening up new bank accounts, changing payroll frequencies, or disbursing money in specific amounts to prove the use of funds.  We believe that a good accounting system is all you really need.

Ultimately, we believe that you will simply need a list of paid and incurred transactions covered by the CARES Act that the PPP funds were used for during the eight-week period after receiving your loan funds.  This list of expenses can be tracked simply in a spreadsheet or clever use of debits and credits in your account system.

Covered PPP Fund Expenses Include:

  • Gross wages, tips, vacation, FMLA
  • Employer portion of Health care benefits
  • Employer portion of retirement benefits
  • Employer portion of state and local taxes on compensation
  • Rent for real and personal property
  • Electricity
  • Water
  • Phone
  • Internet
  • Fuel
  • Interest on loans secured by real or personal property

Expenses Not Covered by the PPP Fund:

  • Employer portion of payroll taxes
  • Wages for the eight weeks that are more than $15,385 for a single employee (effectively excluding wages that are over $100k for a single employee)

ALL of these transactions should be supported by documentation.  We recommend that all this documentation be accumulated at least weekly, kept electronically, and ready to provide to the bank when asked for during the forgiveness process.

Maintain Your Payroll at Pre-Pandemic Levels

Forgiveness will be reduced if you do not retain an average number of employees during the eight-week period that is greater than that which existed at pre-pandemic levels (the lessor of the average number of FTEs from 2/15/19 – 6/30/19 or 1/1/20 – 2/29/20).

Forgiveness will also be reduced if you reduce employee salaries by more than 25% of their salary at pre-pandemic levels.

Forgiveness will be reduced if more than 25% of the loan funds are used on non-payroll costs.  Based on the calculation of the maximum loan amount, this should only be possible if you do not maintain your pre-pandemic payroll levels.

Remember the spirit of the CARES Act and the namesake of the loan program.  The Paycheck Protection Program was designed to let people keep their jobs and their salaries.  If you want the best chance at maximum loan forgiveness, maintain your payroll at pre-pandemic levels, which may include rehiring individuals who have been laid off or furloughed.  Doing this should keep you safely within the bounds of loan forgiveness interpretations that are to come.

Stay informed & Talk with Your Bank or a Professional at Marshall Jones

More information on loan forgiveness will be available in the coming weeks.  Please check with us or your bank to stay aware of the latest news and be prepared to adjust course if necessary.

There will be many nuances to the PPP loan forgiveness process, so if you want a more detailed analysis of your specific situation, we would be happy to have these discussions with you.  Please do not hesitate to reach out to us online or by phone at (404) 231-2001.

Tax Planning for Millennials

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Millennials are quickly taking over the workforce. It’s easy to adopt a do-it-yourself attitude however in many cases consulting a CPA for tax strategies can be extremely beneficial to eliminate the chance of a missed opportunity.

Finance a first-time home purchase
Finding the money for a down payment on a home can be daunting and it can seem tempting to seek alternative source, like tapping into a 401(k) from an old employer. An early distribution form a retirement plan can result in a 10% early-withdrawal penalty, but there’s a smarter approach that avoids penalties. By rolling that old 401(k) into an IRA you can take distributions for a first time home purchase (up to $10,000) and are not subject to the early-withdrawal penalty. However, it is important to be aware that those funds distributed will be included in income and subject to tax if they were contributed pretax.

Consider claiming educational expenses as a business deduction
Employees or those who are self-employed are able to claim educational expenses as an itemized business tax deduction. Employees may take a miscellaneous itemized deduction subject to 2%-of-adjusted-gross-income limitation as a work-related educational expense. The self-employed may deduct educational expenses as ordinary and necessary business expenses from gross self-employment income. The expenses MUST be for education that maintains or improved skills required in one’s trade or business. The maximum lifetime learning credit is $2,000 per year based on qualifying expenses of $10,000 for the year, with zero carryover. However, as a business or itemized deduction can take into consideration higher expense totals.

Take advantage of a cafeteria plan
Internal Revenue Code Sec. 125 allows employees to receive some of their compensation pretax for qualified expenses. CPAs might advice their millennial clients of the potential to avoid paying income tax and Federal Insurance Contributions Act tax (7.65%) on contributions to these plans. Cafeteria plans often include flexible spending arrangements for health care or dependent care expenses and qualified fringe benefits. These could save hundreds of dollars a year in taxes.

Manage student loans for optimal use of above-the-line deduction for interest paid
The general rule of thumb is to pay down student loans as early as possible because they cannot be discharged in bankruptcy and generally charge higher interest rates than safe investments. Although an adjustment to adjusted gross income (AGI) is available for student loan interest paid, it’s worth reinforcing that this deduction is limited to $2,500 and phases out at AGIs of $65,000 to $80,000. Student loan consolidation can reduce monthly payments as well as the total amount paid over the life of the loan. It’s important to take an inventory of all loans and consolidate only those current loans that are unqualified, so as not to lose credit for qualifying payments already made to date.

Addressing investment concerns
Young taxpayers may desire to invest, but find it difficult to pull together all the necessary funds. Converting a 401(k) to a Roth IRA is extremely beneficial. Investing is more tax-efficient within a tax-advantaged retirement accounts, such as a Roth IRA. This way when the funds are distributed in retirement they are not taxed.

Help sole proprietors understand their tax obligation
We see a lot of millennials that are creating craftsman-like businesses. It is extremely important to be aware of the importance of properly documenting ordinary and necessary business expenses. Time should be spent discussing listed property (furniture, equipment, and other property that might be fully deductible in the year of acquisition) as well as maintaining logs for business vehicle mileage and a detailed log of meals and entertainment.

 

New non-profit accounting standards

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Not – for – Profit Groups Prepare for Major Changes to Guidance for Expenses, Investments

The FASB’s not-for-profit accounting standard is the first major update to not-for-profit reporting in more than two decades, and it aims to lend better insight into how an organization operates and manages its finances. Other changes to the financial reporting by not-for-profit groups may also be in store. The FASB recently published a proposal to clarify when and how to recognize contributions with conditions attached to them, which could mean that organizations will have to adjust when they recognize their revenue.

For museums, charities, and universities, change is coming.

Starting in 2018, these groups and other not-for-profit organizations must overhaul the way they report expenses and investments in their financial statements.

Other changes may be in store further ahead. The FASB on August 3, 2017, released for public comment a proposal that aims to make it easier for organizations to determine how to record the proceeds from grants and donations that have conditions attached to them. While it may not sound as big of a change as a financial statement makeover, the question has dogged financial reporting for years because contributions with conditions attached to them are recognized differently from other types of contributions, and the distinction could affect the timing of the recognition of potentially millions of dollars.

“People need to think about how these different things affect them”, said BDO USA LLP Assurance Director Lee Klumpp. “It could get really ugly for some of these nonprofits, especially if they don’t know what’s coming.”