Full Transcript: Hi. My name is Janine. I’m a CFO at TGG and today I would really like to give you a summary of the Stimulus Act that was passed on December 27th. We really wanted to highlight some pieces of it that can be helpful to you in your small business as you look ahead to 2021 and keeping cashflow in your business. So on the top, just looking at the summary, here’s a few things that you should really look out for. First of all, the Consolidated Appropriations Act ensured tax deductibility for the business expenses that were paid with your Paycheck Protection Program Loans.
As you’re looking ahead to January 15th and making those estimated tax payments for your business, this is a really big benefit that we were looking forward to in this Act. There’s also another round of Paycheck Protection Program funding that was established in the Act as well as some additional funding for any businesses or individuals who did not receive the PPP funds during the first round. There are a number of components here that are really helpful for small businesses. This bill was passed on December 27th and it included a whole bunch of other provisions packed into this one Act. In addition to what I mentioned, there is also some aid set aside for the Economic Injury Disaster Loan (EIDL) for businesses in particular, who are in low-income communities and also in really hard-hit industries. If you’re a live venue, independent movie theater, cultural institution, etc. there is an additional $15 billion of funding for businesses specifically in that category. If you’re located in a low income or a minority community, there’s also $12 billion set aside for those businesses. It Is definitely something to look into if any of those qualifications align with your business.
We all heard about the $600 going out to individuals who are making up to $75,000 per year and more for couples and those with children. The bill also expanded unemployment benefits through March 14, 2021 which adds an additional $300 per week in supplement from the federal government. There are funds for rental aid, there’s expansion for the SNAP program, broadband expansion, there’s all kinds of spending all baked into this, but I’m going to move ahead to the components that really affect small businesses.
One thing to really look out for is the Employee Retention Tax Credit. When we think back to the CARES Act, this was offered earlier in 2020 as a benefit, but you can either do the PPP or you could go ahead and take advantage of the Employee Retention Tax Credit. And for most of my clients, the PPP funds were much more attractive. Now there’s no restriction if you took the PPP funds where you plan to take it again, you can still gain access to this tax credit. I really encourage those with employees to take a look at the Employee Retention Tax Credit and look more into this. There should be a lot more details coming through since this bill was passed.
There’s also another neat benefit and that is that meals and entertainment expenses are usually only 50% tax deductible. For 2021 and 2022, that is being bumped up 100% for any food and beverage spending at a restaurant. The goal here is to really boost the spending local restaurants and by boosting their revenue also giving you a tax deduction along the way.
Many of you are probably eager to hear about the Paycheck Protection Program round two. More funds are being poured into the Paycheck Protection Program, but this time they’re really narrowing the focus of who can gain access to those funds. Let’s take a look at what it takes to be eligible to apply. First of all, you have to have 300 or fewer employees. This is a contrast to the CARES Act and the first Paycheck Protection round, where you needed to have 500 or fewer so they’re shaving off the size of the business that is eligible to apply here a bit. You also need to have used or will use the full amount of your first PPP loan. If you still have some of those funds that you haven’t been able to spend, work with your accountant, work with your banker to think of how you might use those funds and become eligible for the next round of funding. There’s also a requirement that you show a 20% decline in revenue for one quarter in 2020 compared to the same quarter in 2019. If in Q1 2020, you saw 25% reduction in revenue compared to Q1 2019, you would be eligible. And that would be the case if it was Q2 or Q3 or Q4. Looking at the text of the bill it talks about gross receipts, but they’re not requiring you to look at this on a cash basis. They’re looking at the way that you typically book revenue.
The second round of PPP also is accessible to a few different kinds of businesses. A few more nonprofits and chambers of commerce, visitors bureaus which probably doesn’t apply to too many of you, but even if you have a small amount of lobbying activities it now it makes it available to you. There’s definitely some carve-outs if you’re a first time PPP borrower or if you fall into one of those specific categories, but for the most part, they’re looking for businesses that have been hard hit in 2020, seeing that decline in revenue and also using the full amount of their PPP loan the first time.
There are also a few different loan terms for this round of funding. Very similar to the first round of PPP. Now the costs that are eligible for loan forgiveness still include payroll, rent, you’re covered mortgage interest and utilities so that matches up with the first round that we’re more familiar with. There’s also some new components that would be potentially forgivable. This includes COVID-19 compliance supplies. We’re thinking of the personal protective equipment for your employees, the facility modification costs to keep your employees or your customers safe during COVID. Those types of expenses could be included as forgivable within the PPP round two. There’s are also essential purchases that can be included here. Thinking about whatever is essential for your current operations, as well as covered operating costs like software and cloud computing services or accounting needs. So right here, we’re in the first quarter, definitely even applying for this, looking for those accounting needs and other items that can be included in the PPP round two.
Very similar to the first round, the focus of these funds is really that paycheck protection goal. You do still need to spend at least 60% of the funds on payroll in order for that amount to be fully forgiven. Also, we’re still talking about a covered period of either 8 or 24 weeks. In my experience, my clients had a pretty hard time trying to spend all that money in 8 weeks, so we’ll probably have a lot of folks taking advantage of that 24 week extension that we had granted for the first PPP which flows over it to this one. The measurement of how much and how many funds you would be eligible for is still the 2.5 times your average monthly payroll. The exception to this is if you’re a restaurant, you’re in the accommodation industry or if your NAICS code starts with a 72, you would be eligible up to 3.5 times your average monthly payroll costs so there’s a bit of a boost for those industries. With the first round of PPP funds, we saw a maximum spending amount of $10 million. That would be the maximum funds that a business could be eligible to receive and now it’s been decreased to $2 million so they’re trying to take those funds and spread it out to more businesses.
There are a few more pieces in here that are pretty advantageous to businesses. If you received $150,000 or less, we have a really simple forgiveness form. I love making the paperwork easier so look out for that. It also pulls out the requirement to deduct your EIDL advance from your PPP forgiveness amount which is kind of a small adjustment there. Then if you have 10 or fewer employees or you’re a first time PPP borrower, there are some advantages for you. Look to apply for your next round of PPP funds by March 31 and stay in touch with your bank, whatever bank granted you the first round of PPP funding, find out their process for applying for round two.
We talked a bit at the beginning about the tax deductibility for PPP expenses and this Act made it super clear that any expenses that were applied to the first round of PPP funds are tax deductible. Not only is the income from that PPP loan forgiveness not taxable, but those expenses are deductible. This is definitely a benefit compared to the IRS guidance we got at Thanksgiving time. The intent of the PPP funds is that it’s a tax-free benefit to businesses and this applies to the next round of PPP funding as well so you can apply for this loan with clarity on what that tax perspective is going to look like. I do encourage all of my clients and all of you listening to go talk to your CPA about how this is going to be applied in the state where you’re doing business, the state where you’ve earned revenue because it’s not being treated the same way in all of the individual states.
I hope that these highlights from the stimulus have been helpful for you and that you have some guidance on what to look for, what questions to ask as you interpret how it might be beneficial for your business. Here at TGG we’re helping many of our clients apply for forgiveness for the first round of PPP funding and we do still have our Forgiveness Tracker up and available on our website if you’re trying to consolidate a lot of that information for your business. That being said, we’re here at TGG for any questions you have on any of these topics that I just discussed and thank you so much for listening.