New PPP Loans and Tax Credit are on Their Way
You’ve probably heard the news that a new PPP package was passed this week.
Here are the highlights:
- PPP income is NOT Taxable. And purchases made with the funds are eligible for deductions.
- New PPP loans are on the way.
- There is a new tax credit in place.
PPP is not taxable
The biggest news of all. After the PPP 1.0 rollout, guidance was lacking and there was confusion over whether or not purchases made with the funds would be eligible for deductions.
The CARES Act clearly states that PPP forgiveness was not to be taxed, but the IRS tried to throw in a wrench, issuing Notice 2020-32 – stating expenses paid with PPP funds are NOT deductible, essentially making your PPP funds taxable.
This legislation steps in and clears things up within Section 276 of Division N:
“no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.”
Boom. PPP is not taxable, and deductions are allowed.
If you received $200k in PPP funds and your tax rate is 35%, that’s an additional $70k in your pocket!
Here’s what you need to know:
- Expenses are Deductible & PPP Funds are Not Taxable
- You are eligible for PPP 2.0 if revenue dropped 25%
- The Employee Retention Tax Credit is up to $7,000/employee per quarter
- 100% deduction for meals
- Prior SBA 7a loan payments are not taxable + 3 additional payments are on the way
- A quick reminder – PPP is calculated by multiplying 2.5 times your 2019 average payroll.
PPP Round Two
Many of you have had strong years with your clients looking to increase their digital footprint. That may very well make you ineligible for PPP round 2. But this year has impacted everyone in a different way.
If your revenues dropped by 25% in a single quarter during 2020 (compared to the same quarter in 2019), you’ll be eligible for round 2. BUT – how will revenue be defined?
Revenue can be shown on an accrual or cash basis. And based on certain events, those can be very different numbers. If Congress leaves it up to you to select how revenue is recognized for PPP purposes, you can make some changes to your numbers to increase the chances you are eligible.
This is where your CPA can help you big-time.
If you’re an Agency CPAs client, know that we are already working to get those numbers in place for you.
If you’re not, click here to speak with a CPA about how we can help you get the most for your business.
An overhaul to the Employee Retention Credit
Under the CARES Act from earlier in 2020, you had to choose between the Employee Retention Credit (ERC) OR PPP. PPP was the obvious choice, and why not many have heard of the Employee Retention Credit.
The ERC allowed a company to claim 50% of the first $10,000 of wages as a tax credit. To be eligible, your company needed to have been shut down by government order OR to incur a 50% decline in revenues in a quarter (compared to the same quarter in 2019).
Well, that has all changed.
Now you can claim BOTH PPP and the Employee Retention Credit. The only catch is you cannot use the same funds for PPP and the ERC.
For the First 2 Quarters of 2021:
- You are eligible if revenues dropped 20% compared to the same quarter in 2019
- This credit jumps from 50% to 70% of an employee’s first $10,000 of wages per quarter.
- That’s up to $14,000 per employee for the first half of 2021
You may not be eligible for PPP 2.0, but the Employee Retention Tax Credit could be for you.
Meals, Meals, Meals
The triple martini lunch is back. The new bill allows for 100% expensing of restaurant meals for 2021 and 2022, given that the taxpayer is present along with a business associate or employee. This will drive much-needed revenue to the restaurant industry and give you a 100% deduction for meals over the next two years.
Already have an SBA loan?
If you already had a non-PPP SBA (7a) loan, the SBA has made 6 months of principal and interest payments on your behalf. This bill extends that for an additional 3 months, beginning in February.
Just as they did with PPP, the IRS tried to complicate things with their attempt to treat these repayments as taxable income. Congress steps up in this bill, labeling this as non-taxable income.
What we learned
If PPP Round 1, taught us anything, it’s two things:
- Things are going to change
- Be prepared to act and move fast
Make sure you have the right partners to support you through this process. From banks to CPAs to bookkeepers, having everything in order for when it comes time to move gives you an advantage.
If you have specific questions on how this directly impacts you, we are here to answer them. If you’re already a client, just shoot us an email. If you’re not, let us know your questions here and we’ll get you the right advice.