Roadmap to Recovery: Maximizing PPP Loan Forgiveness

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27 Apr 2020

Roadmap to Recovery: Maximizing PPP Loan Forgiveness

The next step on your business’ roadmap to recovery is maximizing your Paycheck Protection Program loan forgiveness. These loans give business owners the power to maintain their company and keep their employees on the payroll, without worrying about paying the disbursement back in full.

Paycheck Protection Program

As part of the CARES Act approved by Congress on March 26, the government enacted the Paycheck Protection Program (PPP). The program consists of loans worth 2.5x a company’s monthly payroll, up to $10 million. Loans from the PPP offer 1% interest for a term of 2 years. Loans from the Paycheck Protection Program are also forgivable so long as you use the disbursement to keep all your employees on your payroll and use the remaining funds for eligible allocations. The SBA and the federal government have determined what constitutes an eligible allocation.

Approved Loan Uses and Stipulations

The loan disbursement from the PPP can be used for payroll costs, employee benefits, mortgage interest payments, rent payments, utilities and interest on other debt accrued prior to February 15, 2020. While the government has approved several uses for the PPP disbursement, in order to qualify for forgiveness, at least 75% of it must be used for payroll costs. The other 25% of the loan can be used for the other qualified expenses. Eligible payroll costs include:

  • Employee compensation, up to $100,000 per employee
  • Payment for parental, family, medical or sick leave
  • Taxes assessed on employee compensation

Maximizing PPP Forgiveness

In order to maximize forgiveness, your business will need to diligently maintain documentation to take back to your lender after the loan period is up. You’ll most likely need to provide your lender with:

  • Employment and Wage Documentation
  • Receipts and Invoices
  • Official Certification

The government has allowed for partial forgiveness on these loans as well. Proportion of loan forgiveness will decline as headcount of employees declines or as salaries decrease. Employers who have laid off or furloughed employees or employers who have decreased employee salaries have until June 30, 2020 to reinstate the employees to their previous employment status and salary level. The amount of forgiveness the employer is eligible for increases proportionate to the number of employees reinstated.

Tracking Strategies

Tracking the way your business allocates your Paycheck Protection Program disbursement is vital to maximizing the forgiveness of your loan. If your business was also approved for an SBA funded Economic Injury Disaster Loan (EIDL), you must allocate the funding to different expenses. Using the following tracking strategies will help you understand how to apply the funding to your business in the best way possible. Track other Approved Expenses Maintain two separate spreadsheets for tracking Paycheck Protection Program allocations. For one spreadsheet, multiply the amount of your loan disbursement by 0.25. This determines how much of your loan can be used for approved non-payroll expenses. In the second spreadsheet, keep track of the remaining 75% of the loan disbursement for payroll and employee benefit expenses. As you use the funding for approved expenses, separate the deductions by the approved category. Maintain receipts, invoices and records of each of the recorded payments in a single, easy-to-access digital file.

Add Supporting Documentation

In addition to your well-organized spreadsheet, maintain additional documentation that validates the expenses you are recording. These documents include:

  • IRS payroll tax filings
  • Mortgage/rent agreements
  • Utility accounts in the business’ name
  • Previous tax returns

Build a Cashflow Forecast

A cashflow forecast is a 13-week financial model that shows where your available cash will be going. The forecast should be updated weekly to ensure that each of your financial decisions is backed financially. The forecast will help you determine how best to distribute your disbursement, whether it’s payroll or utility payments. As you determine how to allocate your funding, your cashflow forecast will also help you decide whether to seek other outside funding, like an Economic Injury Disaster Loan distributed by the SBA. Understanding where your funding is going is vital to making sure you use it wisely and in a way that maximizes your forgiveness.

Being Prepared for the Financial Impact of COVID-19

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7 Apr 2020

Being Prepared for the Financial Impact of COVID-19

The COVID-19 pandemic has hit businesses hard. To help them stay afloat, the federal government and the IRS pushed the tax filing and payment deadline to July 15, 2020.

There’s Still Time!

For many businesses, tax season is a last-minute dash to the finish—even with the new, later deadline. By this stage, many CPAs do not have the bandwidth to take on new clients and help them file their taxes in time to hit the deadline. At Better Accounting, our expert CPAs and bookkeepers are still available to help you prepare your finances and file your taxes. Our expert tax accountants can get started on helping your business with this year’s tax filings right away.

No Job Too Big

Even if you have multiple years of taxes left to sort through and file, we can help with that! We will help you sort through the IRS’ process for backdated returns, apply for penalty abatement if it’s applicable, and even gather the records you need for each of the years you need to file. Our tax experts will even help you monitor return processing and other compliance processes long after the tax deadline has passed. With Better Accounting, you can make this year the year your business gets caught up on tax filings and starts looking to the future.

Business Owners, Fear Not

We specialize in all tax filings, whether federal or state, business or individual. As small business owners ourselves, we understand that tax season is stressful. It doesn’t matter if your business’ finances are inextricably tied to your personal finances or you just need a little extra help on the personal side. Our tax experts are ready to help you with every tax form you may need to file. Our professional tax accountants also stay up-to-date on tax credits and incentives. If you’re eligible for deductions, credits or breaks, we will make sure to include the proper documentation with your filing.

We Do Tax Prep, Too

If you are not quite ready to file your taxes or you just don’t know where to begin, don’t worry! Our expert accountants also do tax preparation. We will help you get your finances in order before we complete your filing. Our CPAs and bookkeepers will help you organize your records and documentation. We understand that every business is unique, and our tax preparation strategy is tailored specifically to your business. Our tax experts will help you with everything from sorting a shoebox full of receipts to itemizing tax deductions. We use detailed tax preparation checklists to make sure you have everything you need to get started on those filings. The new tax deadline is fast approaching. Get expert tax help from Better Accounting and make 2020 your best year yet. Give us a call today!

What is the Paycheck Protection Program?

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2 Apr 2020

What is the Paycheck Protection Program?

As part of the CARES Act passed by Congress on March 26, the federal government is implementing many programs to help businesses. One such program is the Paycheck Protection Program (PPP), meant to incentivize small business owners to keep employees on their payrolls.

What is the Paycheck Protection Program?

The Paycheck Protection Program is intended to provide cash-flow assistance to businesses through federally guaranteed loans. The loans are disbursed to employers who maintain their payroll during the COVID-19 declared emergency. Employers who comply with payroll maintenance are eligible for loan forgiveness for certain expenses and 8 weeks of payroll forgiveness. Payroll forgiveness will be determined by employee retention rates and salary levels. Unlike other loans provided by the SBA, the PPP loans are not subject to SBA fees. Payment can also be deferred for six to twelve months in an effort to ensure that businesses can make their other payments and keep their doors open in the wake of COVID-19. Small businesses can apply for the loans if they’ve experienced economic injury as a result of the COVID-19 declared state of emergency. The dates of economic injury are between February 15, 2020 and June 30, 2020. The CARES Act also provides that the program be retroactive to February 15, 2020 to incentivize employers to bring laid off and furloughed employees back onto their payroll.

How do you apply for the Paycheck Protection Program?

You can apply for a PPP loan through any of the SBA’s pre-approved 7(a) lenders. These include banks, credit unions and other financial institutions. The CARES Act also gives the SBA the resources to approve additional lenders to accommodate the influx of applicants. A list of SBA-approved 7(a) lenders can be found here. To apply, you’ll need the following statements, reports and documentation:

  • Your 2019 IRS Quarterly 940, 941 or 944 payroll tax reports
  • The last twelve months of payroll reports beginning with your last payroll date
  • 2019 IRS Form 1099 for any independent contractors that would otherwise be your employee
  • Documentation showing total of all health insurance premiums paid by the company
  • Documents showing the sum of all company-paid retirement funding
  • Documentation showing employer contributions to 401K and IRA plans

What can I use my PPP funding for?

Funding disbursed from your PPP loan can be used for any of the following:

  • Employee compensation, including:
    • Salary and wages
    • Commission, cash tips or the equivalent
    • Vacation time or Paid Time Off (PTO)
    • Family, medical or sick leave
  • Healthcare benefits and insurance premiums
  • Retirement benefits
  • State or local tax assessed on wage compensation
  • Interest payments on mortgage obligations, not including principal
  • Rent, including rent for a lease agreement
  • Utilities
  • Interest payments on other debts incurred before February 15, 2020

The Paycheck Protection Program is one of many financial and economic stimulus options available to small business owners. Reach out to Better Accounting or your local SBA representative to learn what else you can do for your business.   Download the Paycheck Protection Program ApplicationThe information provided is based upon facts that were available at the time of publication and are subject to change.Better Accounting makes no warranties, express or implied, or representations as to the accuracy, completeness or timeliness of the information provided. Better Accounting cannot be held liable for any claims or damages that result from reliance on this information.