The past 6 weeks has introduced for us new words, concepts and ideas to wrap our minds around to the point of information overload.

If you are feeling the fatigue of it all – you are not alone. However, in this dynamic time, we all still have a responsibility to keep ourselves informed, aware and ready to respond. As your accounting firm, we are looking to inform and help prepare you for things related to your businesses and personal financial lives.

UPDATES – The Coronavirus Aid Relief and Economic Security (CARES) Act

As has been the case for each of the past several weeks, the government stimulus programs are coming into view with actions being taken and new things emerging.

Paycheck Protection Program (PPP) Loans
This week we have seen a number of businesses receive funding under the important and strategic Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loan (EIDL) programs provided by the Small Business Administration (SBA). The rush with completing loan applications and providing the necessary supporting documentation for these loan programs was exhilarating and possibly a bit anxiety producing. As the SBA announced the closure of the loan programs on April 16 due to using up the available funds, the panic set in for small businesses who were left wondering if their application made the cut or not. Shortly thereafter, banks began sending out notifications to applicants of the status of whether your small business was in or out.

For some, there was relief and for others there was disappointment or frustration. And with all the emotion involved here, you have had to keep your team engaged, keep up with your own business cash flow and planning, and continue to prepare for meeting your customers’ needs now and in the future.

There are two important updates for businesses on both sides of the news from last week:

  • For those who obtained their PPP approval and funding there is some important planning that should be done to review your projected spending over the next 8 weeks and to ensure that your employment levels are at the levels necessary to ensure 100% loan forgiveness. Reach out to for a tool we developed to help with this planning.
  • For those who did not make the cut on the initial round of PPP funding, the Senate and House just approved additional monies to the PPP loan program. This means you have another opportunity to obtain this strategic funding to help you maintain or rehire your employee base.

So what’s your next move?

If you already received your PPP loan funding, look at your projected spending for the next 8 weeks to strategically use up the maximum loan forgiveness with the PPP loan.

If you missed out last time, get in touch with your local bank to make sure you are in their queue for submission to the SBA. If you’ve struggled with a response from your bank and are looking for alternatives, here are a couple of great options that have been successful for others:

Other Opportunities beyond PPP and EIDL

There are situations where some small businesses are feeling left out with the programs rolling out from the government. You might be one of the following businesses that find yourself on the outside looking in:

The CARES Act included a provision with some favorable terms allowing for individuals to make an early withdrawal from their Individual Retirement Accounts (IRA) or other qualified retirement plans. This opportunity permits an individual to withdraw up to $100,000 anytime up until December 31, 2020:

  • No 10% early distribution penalty and no mandatory 20% federal income tax withholding.
  • Not a taxable distribution if you repay it within 3 years.
  • You can elect to spread the income and related tax over 3 years.
  • A loan can be taken from your retirement account up to $100,000 or 100% of your vested balance (up from $50,000 or 50% of your vested balance)

Another option to consider, particularly for independent contractors, is to offer to your small business customers that you could do work or continue on with projects as an employee of their company. This could help your small business customer who may be looking for ways to spend their own PPP loan money and by adding a person to their payroll (instead of as a subcontractor), they can use PPP funds.

Unemployment benefits

Many state unemployment compensation websites have caught up and this week have begun accepting initial claims for sole proprietors. The initial claims are largely tied to your overall net profit (total business income less business expenses as reported on your Schedule C on your tax return).

For any S Corporation businesses, your claim for unemployment compensation is tied to your actual W-2 wages. Do not consider any kind of draw as part of your compensation for these claim purposes.

As you consider if unemployment compensation benefits or PPP loan benefits are for you, consider the following:

  • Unemployment is to replace lost earnings, not necessarily lost revenue.
  • Unemployment claims must be made every two weeks and honest disclosure of ability to work (even telework), other income received/earned during the past 2 weeks, and actions taken that are work related.
  • Unemployment compensation is taxable income.
  • PPP loans are 100% forgivable if you maintain your employment levels
  • PPP loans are 100% forgivable if the loan monies are spent on payroll related costs (at least 75%) and rent and/or utilities (not more than 25%)
  • PPP loans are tax-free

However, in fairness, amounts not forgiven from PPP loans must be repaid within 2 years with a 1% interest rate. But with good planning, this can be accounted for early on to give you awareness and the time to not spend some of the PPP funds so that they can be repaid.

Individual stimulus checks (Economic Impact Payments)

Economic Impact Payments have begun appearing in individual bank accounts at this point. All the payments have not been distributed yet, so if you haven’t received your payment, check out one of these options:

IRS website for eligibility and to check my payment

Calculate your stimulus check payment

The character of these payments are an advance on a new Refundable Tax Credit for the 2020 tax year. So, if you somehow do not receive the advance payment (e.g. income too high in 2019, no returns filed for 2018 or 2019), the amounts for your economic impact payments will be “paid” to you with the filing of your 2020 personal tax returns.

A reminder about scams: The IRS will never call you to update your bank or address information. Do not provide this information over the phone or even through an email from an address claiming to be IRS.

Final Thoughts

As we close out another week in the strangely improbable situation we find ourselves, l learned of the Stockdale Paradox from Jim Collins (author of Good to Great). If you can give yourself 7 minutes, Jim shares authentically here in a message from a couple of weeks ago about our uncertain times. I hope this helps to inform and frame your thinking for the days ahead.

Please let us know if you need anything and get in touch with us.