She was also kind enough to invite me as a guest on her Spanish-language show Alas de Amor on Radio Dimension Latina FM last Saturday — and I managed to pull off most of it without resorting to English, though she was kind enough to expertly translate when I did. (Our session is from about 3:30-35:30 -ish.)
Alas de Amor on Radio Dimension Latina FM — https://fb.watch/3IztQD22aS/
Algunos aspectos destacados:
Estoy muy ansioso por difundir este importante programa de ayuda financiera para empresas pequeñas, se llama PPP. El Programa de Protección de Cheques de Pago (PPP) de la SBA se abrió para una otra ronda de solicitudes, hasta las 31 de marzo. Este programa proporciona a las pequeñas empresas fondos para costos de nómina, alquiler, servicios públicos y otras categorías nuevas de gastos adicionales.
Necesitas solicitar un préstamo PPP a través de un banco u otra institución financiera, no directamente a través de la SBA. Además, no tienes que solicitar el préstamo de tu banco principal. Hay muchos diferentes bancos, prestamistas y otras instituciones financieras que pueden ayudarle a presentar la solicitud.
En la primera ronda de préstamos PPP en abril de 2020, había muchos problemas con las aplicaciones. No había suficiente información sobre cómo presentar la solicitud y a veces había información contradictoria. Esto resultó en bastantes problemas para los negocios que trataron de solicitar préstamos PPP1.
Después de los desafíos de abril, la SBA publicó más información sobre cómo presentar una solicitud y el congreso presentó nueva legislación retroactiva que resolvió muchos de los problemas originales.
Las reglas ahora son más claras y beneficiosas para las pequeñas empresas.
La nueva ronda de préstamos PPP está abierta y la fecha límite para las solicitudes es el 31 de marzo. ¡Todavía hay tiempo para presentar su solicitud – incluso para la primera ronda de préstamos PPP!
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This past Wednesday, February 17th 2021, I was honored once again to participate in State Representative Will Guzzardi’s FREE Facebook Live series designed to help his constituents — and anyone else who wants to tune in — to learn about financial relief during Covid-19.
The full-length webinar is FREE, as are the slides, resources and links to walk you through the application process. Additionally, a PDF version of the slides is available for download here:
We covered the following topics: 1) Paycheck Protection Program Summary 2) Current Program Overview 3) Eligibility 4) How To Apply 5) Where To Apply 6) Forgiveness Basics 7) Resources & Questions
Please share far and wide to help small business owners learn about the current status of the Paycheck Protection Program and how they can determine eligibility and apply for a non-taxable forgivable loan to help their companies stay afloat during these challenging times.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
I’ll cover the following topics: 1) Paycheck Protection Program Summary 2) Current Program Overview 3) Eligibility 4) How To Apply 5) Where To Apply 6) Forgiveness Basics 7) Resources & Questions
Slides will be available through Rep. Guzzardi’s office by request, and I will link to a recording here on my blog.
As an exciting bonus, the webinar will be translated into Spanish, by the talented Elsa Prado. She was kind enough to invite me as a guest on her Spanish-language show Alas de Amor this past Saturday — and I managed to pull off about 85% of it without resorting to English, though she was kind enough to expertly translate when I did.
In either language, please join us to learn about the current status of the Paycheck Protection Program and how you can determine eligibility and apply for a non-taxable forgivable loan to help your business stay afloat during these challenging times.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
This year, along with the usual year-end forms we ask clients to submit so we can prepare their taxes, we are also asking them to provide Notice 1444 & 1444-B — respectively, the letters that arrived with each of the two stimulus payments (or if direct deposited, around the same time).
However, because these Notices didn’t look like official tax documents, but rather letters from the White House, many taxpayers didn’t read or retain them. The letters contained this information:
The amount of the payment
A phone number to call with issues
Where to find information about the payment on irs.gov
How the payment was made i.e. direct deposit, check, or debit card
Because the IRS does not have the resources this year to create an online “lookup tool” the way they did the last time the government issued stimulus checks — their “Get My Payment” system simply states whether or not a payment was received, and not the amount — then as tax preparers we need the Notice 1444/1444-B to know whether the full amount was issued, or a lesser amount.
Why would this matter? If a taxpayer did not receive the full amount, then they are entitled to recoup the difference on their 2020 tax return.
(But don’t worry: if you received too much, you don’t have to pay it back — unless it was obtained fraudulently.)
After attending numerous year-end tax update courses, we’ve come to the conclusion that the best solution to the missing stimulus payment letter is to have clients download their own 2020 Account Transcript. It’s free, reasonably easy, and reliable.
Keep in mind that Steps 2-9 are one-time only, to register for an account. Once you have a login and password, you can easily access the site anytime you need a transcript.
3. Click “Continue” to register for an account. Once you’ve done this, you should save your login information so you can use it every time you need to order a transcript of any type (for example, a transcript of your most recent tax return).
4. You will need to provide various types of information to validate your identity. Click “Continue” or “Yes” for the next few screens, until you reach the “Let’s Get Started” page.
5. Enter the required information, click “Send Code”, and then check your email for the code and enter it on the following screen.
6. Enter the required information exactly as it appears on your tax return (SSN, date of birth, street address and zip code), then click “Continue”.
When entering the information into the IRS address matching system note the following:
Refer to your most recent tax return and enter the address exactly as it is on your return; for example, spelling out the word “Street” rather than using the abbreviation “St” could be enough to cause an error.
However, addresses in the IRS system are sometimes auto-corrected through a postal-address validation program and frustratingly, may not match what you put on your tax return. If you are having problems getting the address to match, try running your address through the USPS and trying the auto-corrected version.
7. To validate your identity, the IRS will need an account number from one of your financial accounts. You are able to use any of the following: a) Credit Card Number (your credit card will NOT be charged); b) Auto Loan Account Number; c) Mortgage or Home Equity Loan Account Number; or, d) Home Equity Line or Credit Account Number.
(If you do not have one of these, the system will not work for you and you’ll have to request a transcript by mail. And given Covid-19 wait times, that could take months, sadly. Don’t get me started on how inequitable this is.)
8. Enter your Mobile phone number and an Activation Code will be sent to you. Enter your code on the screen and click “Continue”.
9. Create a User Name and Password and Login.
Now you have an account! The rest is easy.
10. Once you’re in the system, you’ll need to select the reason you need a transcript.
In this case, you would select “Other”.
11. Leave the Customer File Number blank and click “Go”.
12. The screen will display all four types of transcript options and the available years.
13. Select “2020” under “Account Transcript”.
Make sure you are selecting the right kind of transcript. (Click here for information on what each of the types of transcripts are.)
And like magic, a pdf pops up in a new tab of your browser with a letter from the IRS — and if you scroll down to the bottom, there’s section detailing all the transactions you need.
The two rounds of stimulus payments will have these codes:
At this point, print the file to pdf and save somewhere safe, along with the rest of your tax season documents.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
As is the case every year, we’re hearing from lots of folks confused about when to send a 1099 form or other “information returns” to someone. It is true that over time, these forms have continued to change, and the rules have become more specific… but the basics remain the same. The most important point is that only businesses need to issue 1099s — if you paid someone for personal purposes, you are not (yet) required to send them or the IRS a Form 1099.
Here’s a crash course for each type of form, followed by an FAQ.
1099-NEC This form was new for 2020 and replaces the old Box 7 of Form 1099-MISC. “NEC” stands for “non-employee compensation”. It is due to recipients and the IRS by January 31st (or the first business day after that, if 1/31 falls on a weekend).
If you paid: 1) a NON-corporation (*see below); 2) for services (not products); 3) via check, cash, ACH, or wire transfer — but not merchant services or electronic payments (such as credit & debit cards, PayPal Business, Venmo Business (**see below) — and starting in 2022 Zelle/QuickPay, CashApp, personal Venmo & PayPal); 4) $600 or more in a calendar year; then you need to send them a 1099-NEC.
(*) A lot of folks get confused and think the rule is if you paid an “individual,” but really the rule is a “non-corporation,” which means that partnerships and LLCs are included. Just because they have a business name doesn’t mean they’re incorporated. You cannot depend on the company’s name to determine corporate status, nor can you rely on the state LLC/Corp database, as it only indicates the entity type at the state level — almost any type of entity may elect corporate status with the IRS.
So, keep in mind that a company can be an LLC but be taxed as a corporation. In this case, you would not need to send them a 1099, because in the eyes of the IRS, they are incorporated. Here’s an example of a W-9 showing an LLC that is taxed as an S-Corp:
This is one of many reasons you should collect Form W-9 from all service vendors before giving them their first check, just to be safe. The person filling out the W-9 will indicate their entity type and whether or not they are taxed as a corporation.
There’s also an exception to the incorporation rule for attorneys and law firms. You must issue a 1099 to a lawyer or law firm regardless of whether they are incorporated. (Law firms and attorneys have so many specialized 1099 issues, they get their own blog post.)
(**) There’s a lot of confusion over Venmo and PayPal, because there are personal-use “Friends & Family” versions as well as business versions of both platforms. Legally, no business should be using the non-business versions of these payment types… but in real life, many do. It’s very hard to distinguish which payments were made using which method — in theory, a 1099-NEC would need to be issued to a vendor who was paid via a personal Venmo or PayPal method, but I’m not sure how this would be tracked. My recommendation (for many reasons) is to only use the business versions, and then the 1099-NEC is a non-issue (because Venmo and PayPal will issue a 1099-K instead). It also sounds like, starting in 2022, even the personal versions of these programs will be required to issue a 1099-K if $600 and over.
I know, that’s all very confusing. Here’s a nice decision-tree provided by our friends over at Bookkeepers.com, courtesy of Bookkeeping Buds.
1099-MISC
Items such as rent payments, royalties, attorney settlements (as mentioned above, not payments for legal services), and medical healthcare payments will still be reported on Form 1099-MISC, though the form has been redesigned and the boxes renumbered.
Report prizes and awards of $600 or more that are not for services performed in Box 3. Include the fair market value of merchandise won. And be careful here, as it is easy to accidentally include these on Form 1099-NEC if the recipient also provided unrelated services.
Rent paid ($600 or more) (Box 1)
Royalties paid of at least $10 or more (Box 2)
Prizes and awards and certain other payments ($600 or more, see instructions for Form 1099-MISC, Box 3 for more information)
Backup withholding or federal income tax withheld (any amount) (Box 4)
Amounts paid specifically to physicians, physicians’ corporations, or other suppliers of health and medical services ($600 or more) (Box 6)
Direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (Box 7)
Gross proceeds paid to an attorney ($600 or more whether or not incorporated) (Box 10) – “made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services”; for example, a settlement agreement.
The deadline for providing this form to recipients is the same as above, January 31st. However, the deadline for filing 1099-MISC with the IRS is February 28 if filing on paper, and March 31 if filing electronically.
1099-K
It’s unlikely that anyone reading this will be in the position of issuing Form 1099-K to vendors — but you should know about this form, for a few reasons: 1) You are likely to receive one. 2) It’s the reason you don’t have to issue 1099-NEC to anyone you pay via credit card/debit card, Zelle, QuickPay, a business PayPal account, or a business Venmo account. 3) You may need to reconcile this form against the amount of sales income you report on your tax return.
Form 1099-K is for payments made in settlement of “reportable payment transactions”, which is any credit card, payment card or third-party network transaction. So if you receive payments in this way (unless you only accept checks, e-checks, ACH, or zelle/QuickPay, you probably do), then you’ll get a 1099-K for this total.
But because these amounts are reported to the IRS for you, you don’t need to issue 1099-NEC or 1099-MISC forms to vendors whom you paid using one of these methods. In that case, the recipient could end up having the same income reported to the IRS twice.
As a bookkeeper, accountant or tax preparer, it’s important to protect your small business clients by making sure all taxable income is being reported on their books/returns. If the 1099-K is for an amount that is lower than what’s on the income section of the Profit & Loss, it’s not likely to be an issue. But if it’s higher, you’ll need to do a reconciliation to show that the difference was due to non-taxable receipts such as sales taxes collected, tips collected, refunded sales, and the like.
1099-INT
This form is issued to anyone who lent your business money, and your business paid them at least $10 of interest in the past calendar year. It includes owners, partners, and shareholders.
Note: do not issue this form for accrued interest; it is only for actual payouts of interest in cash or trade.
The form is due to recipients by January 31 (February 1 in 2021), but isn’t due to the IRS until March 1 if filing on paper and March 31 if e-filing.
If not e-filing, you can use the IRS’s fill-in pdf Copy B for the recipient copy, but for the version that goes to the IRS, you have to order an official form with special scannable ink — they’re free, but they take a while to be mailed, so fill out your request early. Make sure to mark the year you are filing for, not the current year — an easy mistake to make.
Another note: I have had clients reach out confused by the language “You are not required to file Form 1099-INT for interest on an obligation issued by an individual”. This means if the loan were TO an individual rather than FROM one, and the individual paid interest to the company. (This is not usually the case.) In that situation, the individual would not have to issue the company a 1099-INT (although the company would still have to declare the interest income).
1099-DIV
This form is issued to a shareholder of a C-Corporation for dividends or other distributions paid in the past calendar year.
Most folks don’t think this applies to them — but if you own a business that is taxed as a C-Corp, and you took money out that wasn’t W-2 or loan repayments, then you may have issued yourself dividends. (And if it was for a loan repayment, did you pay the required amount of interest? If so, see the “1099-INT” section above.)
The form is due to recipients by January 31 (February 1 in 2021), but isn’t due to the IRS until March 1 if filing on paper and March 31 if e-filing.
If not e-filing, you can use the IRS’s fill-in pdf Copy B for the recipient copy, but for the version that goes to the IRS, you have to order an official form with special scannable ink — they’re free, but they take a while to be mailed, so fill out your request early. Make sure to mark the year you are filing for, not the current year — an easy mistake to make.
1098
This form is to report mortgage interest and real estate taxes. You may not think it applies to you, but if you do the bookkeeping for or are a member of a housing cooperative, you may find that it does. This needs to be issued to housing co-op members for their allocated portion of mortgage interest and real estate taxes paid by the cooperative, so they can deduct them on their personal tax return, Form 1040, Schedule A. If not e-filing, you can use the IRS’s fill-in pdf Copy B for the recipient copy, but for the version that goes to the IRS, you have to order an official form with special scannable ink — they’re free, but they take a while to be mailed, so fill out your request early. Make sure to mark the year you are filing for, not the current year — an easy mistake to make.
Frequently Asked Questions
What do I do if the vendor will not give me their Tax ID Number, which I need to file the 1099?
First off, it’s the business’ responsibility to obtain this number. That’s why I recommend getting the W-9 from the vendor before giving them their first payment. But in the case where it’s 1099-time and you still don’t have that TIN for some reason, respectfully let the vendor know that not having their info will not prevent you from filing the 1099. It just means the IRS will receive it with “REFUSED” written in the field where the number should be (or if you use an e-filing program, you will check the box that the number is unavailable). This will almost always trigger an audit for both the business and the recipient, which no one wants. Presented with this information, I find that most non-compliant vendors are suddenly able to fill out that W-9 form after all.
Do I really have to send one to my landlord? They get angry when I bring it up.
If your landlord is not incorporated, yes, you do. If it makes them mad, then consider why… are they trying to avoid declaring it as taxable income? Is that the type of person you want to rent from?
What if you forgot to issue a 1099 to someone?
It’s never too late! Since the statute of limitations never starts if you don’t file a return, penalties and interest can continue to accrue forever. If you noticed that you forgot to file a 1099, even for a prior year, reach out to the recipient in question and make sure they declared and paid taxes on the income you inadvertently forgot to remind them about — and hopefully they have. In this case, no amended return will be required on their end, and the form’s arrival will not come as an unwelcome surprise. If not, then that’s a bigger concern. It is the responsibility of each recipient of income to declare it on their return, regardless of having received the 1099. Not getting the form does not exempt a taxpayer from declaring the income they earned. So, the business owner needs to evaluate the risk involved to their company in knowingly refusing to comply with tax law, versus the recipient’s desire to evade taxes.
What do you do if you receive a 1099 that is incorrect or unnecessary?
If you receive a 1099 that has incorrect information on it, simply reach out to the issuer to ask for a corrected 1099. Do this as soon as possible, as it will help them to fix it before it is submitted to the IRS.
If they will not correct the total, then declare the full amount on your tax return, but “back out” the incorrect amount as a negative, with an explanation to the IRS for why this amount was inaccurate. If you receive an audit notice, provide the IRS with the documentation showing why your calculation is correct, and the support showing you reached out to the issuer when you realized the form was not right.
If you should not have received a 1099 at all, follow the same advice as above. A good example of this would be if you received a 1099-K for credit card payments, but also received a 1099-NEC from the company that paid you (this is quite common… it is extremely challenging in most bookkeeping software to distinguish how a bill was paid in most reports). In this case, if the customer will not void the 1099 form for some reason, simply declare the full amount on your business’ tax return and “back out” the amount that was double-issued, with the explanation that it was already declared in income via 1099-K or some similar wording.
However, if the reason you should not have received the 1099 was that you are taxed as a corporation, and you’ve already declared this income on your tax return, then you can ignore the form — it will have no effect on anything and was just a waste of time on the part of the issuer.
How do I run the 1099 report in QuickBooks? Won’t it tell me who needs a form from my company?
Most bookkeeping professionals don’t use the 1099 report that QuickBooks generates — it’s too prone to user error when setting up the vendors, accounts, and dollar-thresholds. Instead we run the detail of the cash accounts and filter by transaction type – Check, Expense, Bill Payment… then sort by Name. The problem may be that there is not a name in there, or it is not a Vendor Name: another great reason to make sure you’re setting up bank rules and being careful about data entry to include vendor information on all transactions.
How does PayPal work?
Oh my goodness, is this ever complicated.
If you pay a business using your personal bank or Paypal account, or pay through “Friends & Family” PayPal you do need to send a 1099 (if over $600), because PayPal thinks this was a personal transaction — because, as I mentioned at the top of this post, personal transactions do not require 1099 forms. If you had used “Business” PayPal, then PayPal would send the 1099-K and there would be no reason to issue a 1099-NEC.
A colleague of mine recently called PayPal support about this and here was their response: If the transaction detail says “money sent”, those qualify as Friends & Family transactions. However, if the transaction says “invoice paid” or “payment”, then it is a business payment — even if it’s within a personal Paypal account.
What about Venmo?
According to Venmo’s term of service, using it for business is a violation, and they can seize whatever money you have sitting in your Venmo account if they catch you using it for business.
However, we know sometimes this is the best way to collect money from folks, or that customers will send you Venmo funds without thinking about it, or that you’ll do the same with your vendors.
Venmo is considered a “peer-to-peer transfer service”, and not a third-party network. Therefore, treat these like cash payments from a business and send a 1099 form to your vendor.
(Side note: Venmo is starting to accept applications from a number of businesses for a new “Business Venmo”, but it’s brand new and very limited. Be careful with this. The problem with Venmo, PayPal, Bento, and other similar companies like that is that they don’t act like they’re banks — and their staff doesn’t realize that banking is actually the primary function of the company they work for — they don’t get the same kind of intensive training that bankers do. I recommend avoiding Venmo for business payments as much as possible.)
The short version here is that not all states have the same rules. Some allow the IRS filing of certain information returns to substitute for state filing requirements, and some don’t. Some require e-filing and some allow physical mailings. In past years, the IRS offered state-filings with the 1099-MISC, but didn’t bring that into the modern era when they released 1099-NEC. So please, do your homework when it comes to state filings.
Where can I find more info on due dates, penalties, and real-life scenarios?
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From the Chicago Department of Business Affairs & Consumer Protection:
The U.S. Small Business Administration (SBA) Paycheck Protection Program will support small businesses throughout the country with up to $284 billion toward job retention and certain other expenses. Businesses apply for PPP loans through a bank, credit union, community lender, online lender or other participating lenders. Please note that some lenders may not be participating in the program – please contact your preferred lender to determine if they are participating. Learn more at sba.gov/ppp and find a lender using the SBA Lender Match Tool. While BACP does not manage the Paycheck Protection Program, we will be holding webinars and continuing to share information in the coming days and weeks. The first webinar, “The Paycheck Protection Program and Other Emergency Funding Opportunities,” will be presented by the U.S. Small Business Administration and Accion Chicago on Tuesday, January 19, at 3:00 pm.Register and learn more at chicago.gov/businesseducation. More webinars will be planned in the coming weeks – stay tuned! To learn more about the PPP, please visit these links:
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
January 11, 2021: The next round of the popular Paycheck Protection Program technically opens today — but only for a very small number of lenders, called Community Financial Institutions. According to CPA Practice Advisor, “To promote access to capital, initially only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter.”
In the finance industry, this is being referred to as the “Soft Launch” of the PPP. The reason for this tiered approach is that these institutions (CFIs), and the disadvantaged businesses they often represent — many of them from underserved communities — were mostly shut-out of the first round of PPP back in April. Brian Thompson published a great article in Forbes yesterday, explaining the details, that I encourage you to read. In short, the SBA is trying to equalize access to business ownership and support for black and brown communities. So if you’re not in one of these groups, today’s opening is not meant for you. Please be patient.
Although only this small group of lenders will be the included in the Soft Launch, unfortunately very few of them will be prepared to take full loan applications this week. These CFIs are generally only accepting applications from their existing customers, and do not have the processing capacity to receive an influx of applications, especially from those outside the communities they serve.
My recommendation is to continue with the strategy that you have already devised — whether that’s working with your existing banking relationship, or with your CPA to apply through a lending portal (I am using the CPA Business Funding Portal, a joint program between the AICPA and biz2credit — more here — you can also use the platform for free to help prepare applications to be sent to clients’ existing lenders).
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Initially only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter.
Updated PPP guidance outlining Program changes to enhance its effectiveness and accessibility was released on January 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act.
Key PPP updates include (underlines are mine):
PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;
PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;
The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, destination marketing organizations, among other types of organizations;
The PPP provides greater flexibility for seasonal employees;
Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount; and
Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan.
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
Has no more than 300 employees; and
Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. (Updated since to provide an option for annual comparison for those without quarterly records.)
The guidance included two interim final rules (IFRs).
The 82-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” consolidates the rules for PPP forgivable loans for first-time borrowers and outlines changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, P.L. 116-260.
The 42-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” lays out the guidelines for new PPP loans to businesses that previously received a PPP loan.
In addition, the SBA released a three-page “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns.” That guidance includes a commitment from the SBA to make at least the first two days of the PPP application window open exclusively to applications from community financial institutions that serve minority- and women-owned businesses.
AICPA Firm Services Vice President Lisa Simpson got up at 5 am on the morning the SBA guidance was released, and was ready by 3 pm — slide deck and all — to share it with us on the AICPA Town Hall. The hour-long episode is free and available to the public — it’s all excellent, but her presentation in the first half-hour will give you almost everything you need to know. I’ll attempt to summarize it here, but honestly… you’re doing yourself a favor to sit down and watch it.
Here’s a summary of what I consider to be the highlights:
SBA program will open January 11, in phases, as outlined above (minority-owned businesses were the last to receive assistance first-time around).
March 31st is last day to apply for PPP (first- or second-round).
For payroll costs used in calculating the loan amount (x 2.5 months, or x 3.5 for the hospitality industry, including restaurants), one can use: a) 2019, b) 2020, or c) 12-months’ prior to application.
Borrowers that want a 2nd PPP must show a 25% quarterly revenue loss in any quarter of 2020 compared to the same quarter in 2019 (or annual, see below). The SBA is streamlining this for loans under $150k. It will not require supporting documentation to be submitted with the application but only later, when applying for forgiveness.
Businesses trying to show the quarterly 25% revenue drop for 2nd PPP loans can cite an annual reduction of 25% and submit copies of annual tax forms to verify. SBA and Treasury say this will help small borrowers that may not have quarterly revenue information readily available.
For details on both first-draw and second-draw maximum loan amounts and eligible costs, this Journal of Accountancy article is the best summary I have read so far.
The AICPA has been very generous in encouraging us to share its slides from the Town Halls in order to get the word out. Here are a few “best of” from Thursday’s session. Again, I encourage you to watch for yourself to get some clarity.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
UPDATE 3/9/21: See this informative blog post written by a colleague of mine for recent updates to the program, application process, required documentation, etc. An important reminder that applicants are required to register for a DUNS number on the SAM.gov website prior to applying — and it takes up to two weeks to process.
It’s big news that Consolidated Appropriations Act of 2021 (CAA) — the newest financial relief legislation — included a provision of grants for shuttered venue operators, originally known as the Save Our Stages Act. They set aside $15 billion to help these organizations, regardless of entity type.
I’ve recently received some questions that make it clear that folks don’t really understand how this program is distinct from others, and I wanted to clear up some confusion: 1) The reason live venues cannot receive PPP2 funds is that the Shuttered Live Venue Grant program is its substitute, built specifically for these types of organizations and industry. 2) It will be phased in over the course of a month — two weeks for the hardest hit, then two more weeks for the next-hardest hit, then it opens up to any other qualifying businesses. (This is generally not the case for other grants or credits, like PPP or ERC. Each has its own rules.)
To clarify, the grant program is not yet live and we do not yet know at what point the funds will be available.
But as is the case with all the other financial relief I’ve been covering, what’s important is to get as ready as you can be NOW, so that the moment guidance is released, forms come out, and the program goes live, you’re on it.
I’m going to start by encouraging you to read two articles — one is from Withum, a trusted accounting firm with a team that specializes in this industry. It’s to-the-point, instructional, and a solid reference.
The other is no surprise: my favorite tax writer, Tony Nitti, breaks it down and explains the details like few others can, with analysis and humor. If you actually intend on applying for one of these, skip the rest of my post and just switch to his most recent Forbes article. My post is simply a summary of his article, for those who aren’t sure if they might be interested and just want to learn about the basics.
And with that… there are three types of requirements: qualifying category; business requirements; and venue requirements. His article lists them in detail, but as a summary:
I. Qualifying Category Requirements
Category 1: Live venue operators or promoters, theatrical producers, or live performing arts organization operators a) Organize/Promote/Produce/Manage/Host Life Performances b) Ticket Brokers
Category 2: Relevant Museum
Category 3: Motion Picture Theater Operator
Category 4: Talent Representative
II. Business Requirements
1. It must have been fully operational on February 29, 2020; 2. Had a 75% of gross revenue during any quarter of 2020 over the same quarter in 2019; 3. Intends or has resumed operations (requirements differ based on which category); 4. Cannot be publicly traded or have received more than 10% of its revenue during 2019 from federal funding; 5. Cannot have MORE THAN TWO of the following characteristics: – Locations in more than one country, – Locations in more than 10 states, or – More than 500 employees as of February 29, 2020. 6. No strip clubs; 7. Cannot receive a Paycheck Protection Program loan — either round 1 or the new second round — after December 27, 2020.
III. Venue Requirements Depending on the category, there are specific requirements that the venues have certain characteristics, such as a defined performance and audience space, as well as paid ticket or cover charges. Again, see the article for a detailed list by category.
Once a business meets ALL the relevant requirements above, it is eligible to receive a grant.
Grant Amount Calculation
The initial grant will generally be equal to the lesser of three amounts: 1. 45% of the gross earned revenue of the business during 2019; 2. If the business started after January 1, 2019, the amount equal to the product of 6 multiplied by the average monthly gross earned revenue for each full month the business was in operation in 2019; or, 3. $10 million.
The grants will be prioritized: for the first 14 days they are available, grants will be awarded to those with a 90% drop in revenue compared to the same period in 2019. The next 14 days will prioritize those businesses who lost at least 70% of revenue when comparing the two periods.
Each qualifying business — even if affiliated with other businesses –- is eligible for its own grant. However, no more than 5 business entities of any “affiliated group” can receive a grant. For museums, the maximum grant for any one museum operator is $10 million, regardless of the number of museums operated.
A supplemental grant is also available if the revenues for the first quarter of 2021 are at least 70% less than the revenues for the same quarter in 2019. It will be 50% of the initial grant, but between initial and supplemental grants, the total amount received cannot exceed $10 million.
The grant dollars must be used for costs incurred from March 1, 2020 through December 31, 2021 (or as late as June 30, 2022 for supplemental grants). If not expended by the relevant deadline, the funds must be returned within 1 year after the date of disbursement of the grant.
The grants must be used on eligible expenses, including: payroll costs, mortgage interest, rent, utilities, worker protection expenses, independent contractors (up to $100,000 in annual compensation each), maintenance, administrative costs, state and local taxes, operating leases, insurance premiums, advertising, production transportation, and certain capital expenditures.
Receipt of the grant is not taxable — the grant represents tax-exempt income; and 2) any expenses paid with the grant money is fully deductible.
Again, thank you Tony — and best of luck to any of you out there who qualify; we can’t wait until the pandemic is over and we’re back in your halls again.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
In preparing webinars and zoom sessions for my clients and colleagues, I often run across other CPAs doing similar work. Some are better than others, and some leave a lot to be desired. I’ve been very impressed with the free series presented by Hannah Smolinski of Clara CFO.
Recently I presented a webinar for Bookkeeping Buds members that they graciously allowed me to share at no charge on my blog. It goes through everything Hannah mentions in the above video, however it a) focuses on the Employee Retention Credit and its interaction with PPP, and b) is directed toward accounting and bookkeeping professionals, rather than small business owners.
Hannah sums up the PPP2-eligibility portion of that webinar in this free 18-minute video quite well, so I wanted to share it with my readers (rather than record a new one of my own or make you sit through an hour and 15 minutes of accounting-speak).
But before you watch it, here’s a summary of PPP2 commonly-asked questions and answers:
Am I eligible for more money? If your business’s gross receipts declined at least 25% in at least one quarter (any one) of 2020 compared to that same quarter in 2019.
Can I get more PPP money if I got it the first time? Yes, you can get a second loan if you got a first, as long as you meet the above eligibility requirement.
Do I need to apply with the same bank that gave me my first PPP loan? No, it doesn’t have to be with the same bank. I am using the AICPA’s partnership with biz2credit because their application and forgiveness process are both streamlined; it is directly with a bank, rather than a third-party; the professional consultation of AICPA gives me confidence that the calculations are accurate.
Do I need to have applied for forgiveness already on my first loan? No, you don’t have to have already applied for forgiveness on your first loan in order to apply for a second round. You just have to certify that you have used all the PPP1 funds.
What if I didn’t apply first-time around? You are eligible to apply for a loan under the original rules, meaning you don’t have to prove the decline in revenue like second-time borrowers.
Hannah also provides a free spreadsheet with a tab to run the “25% decline in gross receipts” test, if you don’t already use QuickBooks Online (or if you use QBO Simple Start, which does not have the same reporting features).
She goes through both the spreadsheet tab and the QBO reporting option in the video. (Note: this sheet is an additional tab she’s added to her already-existing free PPP Forgiveness Calculator Excel workbook; and while I think she’s done a very good job with it, I prefer the AICPA version, also free to the public. They also offer a free FTE calculator, which you will need if you are not able to claim any of the safe harbors.)
Once you’ve determined that you qualify, you’ll want to know how to calculate the maximum amount of PPP2 to which you’re entitled. The AICPA offers a free calculator for that as well, but I noticed that Hannah has a low-cost ($37) one-hour webinar recording from January 6th available; she generally does a nice job explaining things to business owners who might be doing their own bookkeeping, so while I have not myself seen the video, it feels worth sharing with you here in case it is helpful.
I do not have any professional affiliation with Clara CFO and do not receive any payment from her or AICPA for promoting their offerings — I just think they’re really good and want to share!
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
