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yes as long as they fall under taxes in the correct sense. Please see below:
The CARES Act states that during the “covered period” – an 8-week stretch beginning on the date a PPP loan originates – the sum of the following “costs incurred and payments made” will be...
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yes as long as they fall under taxes in the correct sense. Please see below:
The CARES Act states that during the “covered period” – an 8-week stretch beginning on the date a PPP loan originates – the sum of the following “costs incurred and payments made” will be eligible for forgiveness:
Payroll costs; Any payment of interest on any mortgage obligation (not including any prepayment of or payment of principal on a mortgage obligation) that was incurred before February 15, 2020, Any payment of rent under a leasing agreement in force before February 15, 2020, Any utility payment, including payment for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020. As PPP borrowers learned the hard way during the application process, the critical term “payroll costs” is poorly defined. Unfortunately, it’s a term we have to contend with again when determining forgiveness, so let’s remind ourselves what is and is not considered a “payroll cost.”
For a business with employees, payroll costs are equal to the sum of:
Salary, wage, commission, or similar compensation; for a partnership, recent guidance from the SBA explains that payroll costs include not only guaranteed payments to a partner, but also any partner’s share of income of the partnership subject to self-employment income. As discussed below, these amounts are subject to a per-employee or per-partner cap of $100,000. Payment of cash tip or equivalent; Payment for vacation, parental, family, medical, or sick leave; Allowance for dismissal or separation; Payment required for the provisions of group health care benefits, including insurance premiums; Payment of any retirement benefit; or Payment of State or local tax assessed on the compensation of employees.
Payroll costs do NOT include:
The compensation of an individual employee — or the self-employment income of a partner in a partnership – in excess of $100,000, as prorated for the covered period; Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code during the covered period; Any compensation of an employee whose principal place of residence is outside of the United States; Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act; or Qualified family leave wages for which a credit is allowed under section 7003 of that same Act. A recent SBA FAQ clarified several points of confusion surrounding the items that are excluded from payroll costs, and this clarification should apply equally when determining the costs eligible for forgiveness. First, the $100,000 per-employee limit applies only to cash compensation, salary or wages. Additional payroll costs allocable to the employee, including employer contributions to defined-benefit or defined-contribution retirement plans, payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and payment of state and local taxes assessed on compensation of the employee may be added to the $100,000 of maximum salary in computing payroll costs.
For a self-employed taxpayer, recent guidance defines payroll costs in a purely mechanical fashion as the net self-employment income reported on a 2019 Form 1040 Schedule C, Line 31.
Putting it all together, a business has eight weeks to spend PPP loan proceeds on payroll cost, mortgage interest, rent and utilities. That amount will be eligible for forgiveness. But there’s a catch. Well, two catches, really.
With most areas of the country continuing to be subject to a shelter-in-place order, the reality is that many businesses have closed their doors. As a result, business owners who rushed to grab a PPP loan will be faced with the realization that to achieve full forgiveness, they will need to pay employees NOT to work. And given the recent increase to unemployment pay, those same employees may prefer not to be paid by their employer, as in many cases, collecting unemployment will prove more lucrative. Given this reality, many business owners were hopeful that they would have flexibility in choosing their 8-week covered period, allowing them to wait out the shelter-in-place order, get their employees back to work, and maximize the payroll that would be incurred during that stretch, and by extension, the subsequent debt forgiveness.
That won’t be the case. The SBA recently clarified that the 8-week period begins on the date the borrower receives the disbursement of the loan, and the bank is required to make the disbursement within 10 days of loan approval. As a result, a business that took out a PPP loan in the past week has to start the clock immediately upon receipt of the funds, regardless of whether their business has even restarted operations.
I know what you’re thinking: “that’s fine…if I don’t have employees to pay, I’ll just use the proceeds to make my huge rent payment in April and May, and that will be forgiven.” And if you read the CARES Act – and only the CARES Act — you would be correct in that belief.
Use your current list of clients and network to gain introductions to new people and businesses. Follow up with all the referrals and information requests and build an online presence that helps when people are searching online for accountants or tax information your information can already be...
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Use your current list of clients and network to gain introductions to new people and businesses. Follow up with all the referrals and information requests and build an online presence that helps when people are searching online for accountants or tax information your information can already be present.
Sticking to a budget and marketing costs Of course, no matter how much you pad your budget, occasional crises happen. When that’s the case, try to figure out how you can offset that cost and bring your budget back on pace. Can you ramp up sales for the month, for example? Cancel an upcoming work...
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Sticking to a budget and marketing costs Of course, no matter how much you pad your budget, occasional crises happen. When that’s the case, try to figure out how you can offset that cost and bring your budget back on pace. Can you ramp up sales for the month, for example? Cancel an upcoming work trip? Decrease your marketing spending? Unforeseen expenses are inevitable, but the more adept you become at predicting and preparing for them, the more stable your business financials will be.