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Once again there is news surrounding the Payroll Protection Program (PPP). Over the last few days, a group of 11 democrat and 8 republican senators have written Steve Mnuchin and SBA Administrator Jovita Carranza requesting an easing of the PPP loan forgiveness restrictions.

The first request made by these Senators to Treasury Secretary Mnuchin was to change the IRS position on the deductibility of expenses paid from PPP loan proceeds which are ultimately forgiven. The IRS had published Notice 2020-32 which stated that loan proceeds received under PPP which were forgiven were similar to tax exempt income. The Internal Revenue Code states that expenses related to tax exempt income are not deductible. Let’s take an example of a taxpayer borrowing $100,000 from a home equity loan. Home equity interest incurred after 2017 is not tax deductible unless it is for improvements on a home, however, it may be deductible as investment interest. Investment interest is deductible only to the extent of investment income. If the taxpayer incurred $4,000 of investment interest expense but only earned $2,000 of investment income (interest income and certain dividend and capital gains income that are taxed at ordinary (not long-term capital gain tax rates) are considered investment income), then only $2,000 would be deductible and the remaining $2,000 would carryforward to future years when additional investment income can be used to allow the deduction. If the taxpayer had $4,000 or more of investment income, then the entire $4,000 of interest expense becomes deductible. If, however, the proceeds were invested in tax exempt bonds, there would be no taxable interest income and therefore none of the interest expense would be deductible. The IRS used this logic to state that the expenses paid with PPP proceeds (payroll costs, rent utilities and mortgage interest) would not be deductible if the proceeds are forgiven.

The senators are stating that loan proceeds forgiven by PPP are not the same as tax exempt income, because tax exempt income is tax exempt by definition while PPP loan forgiveness is not. It is only exempt if certain conditions are met. Additionally, the senators state it was not their intention to deny the deduction to small businesses when the passed the CARES Act.

The second request which was sent to Treasury Secretary Munuchin and SBA Administrator Jovita Carranza asked that the non-payroll forgiveness cap be raised from 25% to 50%. Currently, in order to obtain loan forgiveness payroll costs (including health and retirement benefits for employees) must be at least 75% of the forgiven amount. The senators, again, are requesting that this figure be dropped to 50%.

My opinion is that since this is bipartisan and congress writes the law, it has an excellent chance of being changed. Obviously, I will keep you informed.

IRS ADDRESSES HOW TO RETURN AN ECONOMIC IMPACT PAYMENT RECEIVED IN ERROR

Some individuals have received economic impact payments (stimulus checks) that they are not entitled to. The most common example would be a deceased taxpayer received a check. Treasury Secretary Mnuchin has asked that taxpayers return these checks and the IRS addressed how to do this within their Economic Impact Payment Information Center FAQs. Question 41 of the FAQs along with the answer to the question was added on May 6, 2020 and is provided below.

Q41. What should I do to return an Economic Impact Payment (EIP)?

A41. You should return the payment as described below.

If the payment was a paper check:

1. Write “Void” in the endorsement section on the back of the check.
2. Mail the voided Treasury check immediately to the appropriate IRS location listed below.
3. Don’t staple, bend, or paper clip the check.
4. Include a note stating the reason for returning the check. 

If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:

1. Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
2. Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (social security number,  or individual taxpayer identification number) of the recipient of the check.
3. Include a brief explanation of the reason for returning the EIP.

For your paper check, here are the IRS mailing addresses to use based on the state:

If you live in…

then mail to this address

Maine, Maryland, Massachusetts, New Hampshire, Vermont

Andover Refund Inquiry Unit
310 Lowell St Mail
Stop 666A
Andover, MA 01810

Georgia, Iowa, Kansas, Kentucky, Virginia

Atlanta Refund Inquiry Unit
4800 Buford Hwy
Mail Stop 112
Chamblee, GA 30341

Florida, Louisiana, Mississippi, Oklahoma, Texas

Austin Refund Inquiry Unit
3651 S Interregional Hwy 35
Mail Stop 6542 
Austin, TX 78741

New York

Brookhaven Refund Inquiry Unit
5000 Corporate Ct.
Mail Stop 547
Holtsville, NY 11742

Alaska, Arizona, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington, Wisconsin, Wyoming

Fresno Refund Inquiry Unit
5045 E Butler Avenue
Mail Stop B2007
Fresno, CA 93888

Arkansas, Connecticut, Delaware, Indiana, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, Ohio, West Virginia

Kansas City Refund Inquiry Unit
333 W Pershing Rd
Mail Stop 6800, N-2
Kansas City, MO 64108

Alabama, North Carolina, North Dakota, South Carolina, South Dakota, Tennessee

Memphis Refund Inquiry Unit
5333 Getwell Rd Mail
Stop 8422  
Memphis, TN 38118

District of Columbia, Idaho, Illinois, Pennsylvania, Rhode Island

Philadelphia Refund Inquiry Unit
2970 Market St
DP 3-L08-151
Philadelphia, PA 19104

A foreign country, U.S. possession or territory*, or use an APO or FPO address, or file Form 2555 or 4563, or are a dual-status alien.

Austin Refund Inquiry Unit
3651 S Interregional Hwy 35
Mail Stop 6542 AUSC
Austin, TX 78741

Join me, Every Monday at 12:30pm (EST) here: https://www.facebook.com/jeffcpaworld/

If you’d like to book an appointment with me, please click on the link below:

Hang in there and stay safe,

Jeff Skolnick, CPA, M.S. Taxation

Many employers that fought very hard to obtain Payroll Protection Program (PPP) funds (remember obtaining these funds was not an easy process for most) are finding when they offer to rehire laid off employees the response is less than enthusiastic. Employers are finding that some employees are turning down the rehire offers. The largest issue is that many workers, when the $600 per week of Pandemic Unemployment Assistance is added to their unemployment, are making more money on unemployment than they were when they were working. This causes a problem for the employer. The employer borrows the PPP funds from the SBA, which it is now supposed to be used for payroll costs (remember payroll costs must be at least 75% of total amount when calculating loan forgiveness) and for rent, utilities and mortgage interest.

There is a provision within the law that states if the number of full-time equivalent employees is reduced during the 8-week period of PPP loan disbursements, then the forgiveness amount will be reduced accordingly. This means that employers will lose part of the forgiveness, meaning they will have to repay part of the loan.

The SBA, which has been issuing guidance in the form of a Frequently Asked Questions (FAQs), added a question to address this situation on May 3, 2020. The new question is shown below:

 40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

A couple of things to keep in mind here are that the employer must have made a good faith, written offer of rehire and must document the employee’s rejection. There is currently no guidance on what documentation is required, but obviously something in writing, if it all possible, would make sense. The good news is it does help employers by allowing them to exclude the employees to refuse to be rehired from a calculation that would reduce their loan forgiveness. It’s hard to calculate the total impact because even though number of full-time employees may not be reduced, if the employer does not utilize its PPP funds fully during the 8-week period, it will still have to return the money to the SBA. This is where it would be helpful to know if an employer can issue bonus payments to an employee. For example, let’s say an employer had 5 employees making $1,000 per week before closing down. The law states that the employer must maintain 5 employees and let’s also say they must spend $40,000 on payroll over the 8 weeks. If one employee refuses to be rehired, the other 4 would only make $32,000 over the 8 weeks. Can the employer bonus the $8,000 that would have been paid to the employee refused to be rehired to the remaining 4 employees instead of paying it back to the SBA? There is also a provision that states if the number of full-time employees declines but is restored by June 30, 2020, then the employer can avoid a reduction in forgiveness.

The SBA also addressed the fact that employees that turn down employment may forfeit their eligibility for unemployment benefits.

I also wanted to address the question of when the 8-week period begins for employers to calculate payroll costs. In the same FAQs discussed above, the SBA states “the eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower”. I know the AICPA has suggested changing that period to begin when businesses reopen. I have not heard anything about the SBA changing its position because of this suggestion. I will provide an update if anything changes.

Join me, Every Monday at 12:30pm (EST) here: https://www.facebook.com/jeffcpaworld/

If you’d like to book an appointment with me, please click on the link below:

Hang in there and stay safe,

Jeff Skolnick, CPA, M.S. Taxation

Read more at: https://jeffcpaworld.com/blog/

Article by: Jeffrey Skolnick, CPA, M.S. Taxation

You’ve embarked on your career as a small business owner / entrepreneur. You are extremely excited by the products or services you sell or provide. Your self-esteem is high, after all you’re the head honcho. Everything is going well and then it happens. Overwhelm sets in. You had no idea how much paperwork business owners need to deal with. Regulations, how to advertise, handling employees, income taxes, payroll taxes, sales taxes, insurance premiums, record keeping and bookkeeping. In addition to the issues just mentioned, every time you go on the internet you see an advertisement for something that looks like you should have in your business. How can you keep all these things straight and still find time to actually sell your products and services? You start to panic and as I mentioned overwhelm sets in.

I have worked with many business owners in precisely this position. They come to me paralyzed by business management decisions that are taking so much time that their sales have fallen. At this point they may even start thinking about selling new and different products. Some are angry, some are in tears. It’s total chaos! In reality they are just individuals dealing with being overwhelmed.

The first thing I tell them is to step back, take a deep breath and relax. The key to relieving the stress and anxiety of this situation is organization. I know it sounds overly simple but let me explain how this removes the paralysis and begins the process of relieving your stress.

DEFINE YOUR GOALS

The first step you must take is to define your goals. I know you’ve heard this one before. There is a reason why you’ve heard this so often, it’s true. Whether you realize it or not you do set goals. Some individuals may have just a rough idea of why they are in business and what they are trying to accomplish. The most organized individuals will write down their goals. Actually, putting pen to paper (or in today’s world, typing in word), changes your mindset. Some business owners will even use vison boards and a variety of other tactics to cement their goals in place. If that’s you, great, but that may not be for everyone. Whether that is you or not, however, you still need to set some goals. I believe your goals will usually be uncovered by answering a series of questions. Some examples would be:

• Is your business going to be your main source of income or a side hustle? 
• How much do you need your business to net and how many hours are you willing to put in to make that happen?
• How soon do you need to reach your goals?
• How do you supplement your cash flow while you are initially building your business (in other words, before you’ve reached your goals)?

DESIGN A PLAN TO ATTAIN YOUR GOALS

Once you clarify your goals, the next step is to formulate a plan that will be your roadmap to success. 

Article by: Jeffrey Skolnick, CPA, M.S. Taxation

You’ve embarked on your career as a small business owner / entrepreneur. You are extremely excited by the products or services you sell or provide. Your self-esteem is high, after all you’re the head honcho. Everything is going well and then it happens. Overwhelm sets in. You had no idea how much paperwork business owners need to deal with. Regulations, how to advertise, handling employees, income taxes, payroll taxes, sales taxes, insurance premiums, record keeping and bookkeeping. In addition to the issues just mentioned, every time you go on the internet you see an advertisement for something that looks like you should have in your business. How can you keep all these things straight and still find time to actually sell your products and services? You start to panic and as I mentioned overwhelm sets in.

I have worked with many business owners in precisely this position. They come to me paralyzed by business management decisions that are taking so much time that their sales have fallen. At this point they may even start thinking about selling new and different products. Some are angry, some are in tears. It’s total chaos! In reality they are just individuals dealing with being overwhelmed.

The first thing I tell them is to step back, take a deep breath and relax. The key to relieving the stress and anxiety of this situation is organization. I know it sounds overly simple but let me explain how this removes the paralysis and begins the process of relieving your stress.

DEFINE YOUR GOALS

The first step you must take is to define your goals. I know you’ve heard this one before. There is a reason why you’ve heard this so often, it’s true. Whether you realize it or not you do set goals. Some individuals may have just a rough idea of why they are in business and what they are trying to accomplish. The most organized individuals will write down their goals. Actually, putting pen to paper (or in today’s world, typing in word), changes your mindset. Some business owners will even use vison boards and a variety of other tactics to cement their goals in place. If that’s you, great, but that may not be for everyone. Whether that is you or not, however, you still need to set some goals. I believe your goals will usually be uncovered by answering a series of questions. Some examples would be:

• Is your business going to be your main source of income or a side hustle? 
• How much do you need your business to net and how many hours are you willing to put in to make that happen?
• How soon do you need to reach your goals?
• How do you supplement your cash flow while you are initially building your business (in other words, before you’ve reached your goals)?

DESIGN A PLAN TO ATTAIN YOUR GOALS

Once you clarify your goals, the next step is to formulate a plan that will be your roadmap to success. 

You would start by listing every function that must be performed. I’ve already discussed many of the administrative tasks that must be completed. Keep in mind there are others. The administrative tasks I’ve mentioned would be pertinent to any business. Granted your business may not be required to perform all of these tasks but these can pertain to almost any business. You as a business owner also have decisions to make relating to your specific business. These might include pricing (including what your competition is charging and what you can afford to charge) or managing cost of goods sold (examples such as whether you can receive early payment or volume discounts) to name a few.

Once each task is listed you make informed decisions on each one. The key to remember here is how to make informed decisions. You should start by looking at each item on the list and deciding which decisions are best made on your own, and which may require some assistance.

If I start with assessing your insurance needs, I recommend getting a good insurance agent. You want someone with expertise to be able to ask the right questions and make sure you’re protected.

You would hire a great accountant (more on this in a bit).

Why write a business plan?

Article By: Jeffrey Skolnick, CPA, M.S. Taxation

A business plan is going to serve as a blueprint to the way you run your business. By far the biggest mistake I see individuals make when they decide to open their own business is they do it without enough thought. Let’s face it, writing a business plan is not fun, and most people go into business because they have a passion for something and very few people have a passion for anything as tedious as a business plan.

One reason you should do one, even if it is not a long plan is that it will require you to think about some things that are vital to your existence and should help you map out your future strategy.  Another reason may be if you are looking to raise capital, either through investors or borrowing, then you will need to provide information to the potential investors or lenders so that they are comfortable with going forward with you.  Keep in mind most startup businesses do not make it, and while I don’t know the statistical data, I can guarantee you those that plan will vastly increase their chances of success.

Where can I find out more about business plans?

There are some very good resources to choose from that can help you write a business plan. There are software packages that can walk you through the process and guide you to what information you require, and it will also require some research on your part. I believe the initial research is one of the biggest keys to your success, and I will explain a little more as we move along. While there are a lot of software packages, I also recommend searching the U.S. Small Business Administration website www.sba.gov.  This is a great free resource, everything is written in easy to understand language (as opposed to legalese), and there is some great information. I believe by spending just a little time there; you can gain some clarity on what you are trying to accomplish.

What is included in a business plan?

A traditional business plan will contain the following key elements:

Executive summary. This is going to a brief description ofwhat your business is, what need you are going to fulfill, and why you believe you will be successful. This is a summary of the overall plan. The details will be put forth in the remaining sections. Think of this as your elevator pitch or 30-second story. In other words, you want to explain what you do, how you do it, and why you do it very briefly.  

Company description. As the title suggests, this is information about your company. You will explain:

• Your products and services
• Your target market
• Your ownership, both from the type of legal entity you are (i.e., sole proprietor, partnership or corporation) and who you owners are as well as their experience
• Any advantages you may have in the market

This is going to be a detailed explanation of who you are and why you will succeed. I stress that even if you are not currently looking for investors or lenders that you approach this section as if you were seeking one or both of these groups. This will force you to think about your business in a more structured manner.

Market analysis. In my opinion, one of the most important areas you can think about. I am reminded of the old Honeymooners episode where Alice is scolding Ralph on some of his past ventures, and she asks about the time he invested in a parking lot near the new movie theater? He answers with, “How did I know they were building a drive-in theater?” While that is funny, you want to look at the market and see who your competition is. How will you compete and what will you need to do to be successful.

Organization and management. This area will explain the type of entity structure you will have (sole proprietorship, partnership, LLC, S or C corporation) and an organizational chart. This is also the area where you would explain the major players and possibly their qualifications.

Service or product line. Think of this as if you were going to appear on shark tank. You will explain either what your services are or what products you sell. Make sure you are thinking about the benefits to your customers/clients. Nobody spends money to benefit you. People spend money because they see value to themselves.

Marketing and sales. This section, while it will vary greatly depending on several variables such as business type or geographic region to name a couple, lays out how you will attract clients/customers.  Marketing is an area that is a constantly changing trial and error pathway. How many times have you seen or heard companies asking how you heard about them? These companies are spending money on advertising and attempting to determine the effectiveness of such advertising.

Funding requirements. Another key area that I see that causes business owners huge headaches. It is key that you understand how much money your business will require and how you are going to use it. Again, let’s go back to the show shark tank. The panelists will almost always ask, “What will you use the money for?” No lender or investor wants to give his or her hard-earned money to someone who is “winging it.”  If you’re a brick and mortar store, you may require funding for equipment, advertising, personnel, etc. 

You will also look at your business to determine your slow and busy times during the year. In my business, for example, I have much greater cash flow February through May then I have in August and September.  It is important to think of all the money you will need for funding capital expenditures and operations. Very few thing will make you less prepared then asking for money and then six months later asking for more because you didn’t anticipate correctly.

Financial projections. You will want to show projections to potential investors or lenders to give them a reason to give you their money. If your business is established you will use your current financial statements (balance sheet, income statement and cash flows statement). You will also show your projections over the next five years or so. New businesses will obviously only show projected numbers. When making financial projections you can should be more detailed and more accurate with the near term (next year or two).

These are the  basic areas of a business plan.  The SBA also lists an Appendix section for additional materials requested but I’m not going to cover that here.  The SBA also mentions a “lean startup format” which is a much simpler version of what I just discussed. Theses are sometimes referred to as a Business Model Canvas.

Conclusion. Although not typically the first thought on a new owners mind (these individuals are usually focused on their products or services), having a business plan will increase your odds of success greatly. If the venture is worthwhile, then please spend the time to make sure your foundation is solid before you build your house.

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