With just days left of 2020, another stimulus package is on its way as part of the omnibus spending package. The document is over 5,000 pages long – you can check it out here for some light reading. Here are some of the ways it could impact business owners:
Deducting expenses with the Payment Protection Program
For business owners who received the Payment Protection Program loan, there was some debate about how that money would be handled at tax time. Good news: if the bill is passed, those expenses will be deductible, and the loan amount is not included in gross income.
The Economic Injury Disaster Loan (EIDL) advances are also tax free and you’re allowed to deduct the expenses. There are some stipulations for receiving the full $10,000 EIDL grant, including owning a small business in a low-income community and having suffered an economic loss of more than 30%. You can read more about that here.
Another bonus is that this stimulus bill makes loan applications under $150k much simpler. All you have to do is sign and submit a certification to the lender that includes:
- The number of employees the eligible recipient was able to retain because of the covered loan
- The amount of your loan that you spent on eligible payroll costs
- Signed agreement that you accurately provided information, complied with requirements and plan to retain four years of employment records and three years for other applicable records
PPP Expansion for Business Owners
Congress also expanded the PPP program by allowing forgiveness for several more eligible expenses. These definitions, provided by this Forbes article, include:
- Covered operations expenditures: Payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing of payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.
- Covered property damage costs: Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation.
- Covered supplier costs: Expenditures made to a supplier that were a) essential to the operations of the business at the time the expenditures was made and b) made pursuant to a contract or purchase order in effect any time before the covered period or, for perishable goods, any time during the covered period .
- Covered worker protection expenditures: These are operating or capital expenditures made to comply with COVID-related requirements established by the Department of Health and Human Services, the Centers for Disease control the Occupational Safety and Health Administration or by state and local governments.
- Group life, disability, vision and dental insurance are included as payroll costs.
(All of the original covered expenses, including payroll, interest on covered mortgage obligations, rent and utilities are still eligible for forgiveness.)
Second PPP Loan
This new bill also offers a second PPP loan for companies with less than 300 employees who experienced a 25% drop in any quarter’s revenue from 2019 to 2020. You can read more about the eligibility requirements for this loan here.
You can calculate the maximum loan amount (for most business owners) by multiplying your average monthly payroll by 2.5. This time, you can choose the period of 2019 or any time within the year before the date the loan was created. The bill does allow you to multiply your payroll by 3.5 for the accommodation and food service industries. The maximum loan amount is $2M.
Employee Retention Tax Credit
This stimulus bill also expands the Employee Retention Tax Credit (ERTC) to make it much more attractive to small business owners. Originally, this credit could not be used in conjunction with the Paycheck Protection Program. The new bill does allow the ERTC to be used in conjunction with PPP, as long as it’s used for wages not paid with PPP funds.
This credit is increased to 70% of qualified wages each quarter and extends the time frame to July 1, 2021. The bill increases the $10,000 credit per quarter, instead of in total.
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