On, Tuesday, March 30, President Biden signed into law a two-month extension of the Paycheck Protection Program one day before the program was set to expire. The extension gives small businesses and nonprofits until May 31, 2021 to apply for a forgivable loan. We encourage businesses and nonprofits that qualify to apply soon as the program is subject to available funds. 

On March, 25, 2021, the U. S. Senate passed a bill to extend the Paycheck Protection Program (PPP) application deadline from March 31 to May 31. The 60 day extension will help small businesses and nonprofits complete the application process or file new applications. As of March 24, 2021, more than 190,000 applications were still held up in the SBA’s PPP platform due to unresolved error codes in the validation checks that were instituted by the SBA  to help prevent fraudulent applications from being funded. As of March 21, 2021, there was approximately $94 billion dollars remaining for the PPP loan program. 

We urge businesses that have not already applied for a PPP loan or a round 2 PPP loan to apply soon. Small businesses and nonprofits can qualify for a second PPP loan if they experience a 25% reduction in gross receipts in any quarter of 2020 relative to the same quarter in 2019. 

Please contact your preparer or the PPP team directly at ppp@wheelercpa.com if you have any questions regarding a PPP loan. 

On March 17th, we received the news that the IRS has pushed back the tax filing and payment deadline for Individuals to May 17^th. While we welcome the additional time during this challenging tax season, this change comes with some important caveats. We currently know the following:

• The filing date for Individual tax returns (Form 1040) has been pushed back to May 17, 2021
• The payment due date for 2020 tax year balances due only has been pushed back to May 17, 2021
• Q1 Estimated tax payments for the 2021 tax year are still due April 15, 2021
• Corporations, trusts, and presumably other filings such as gift tax returns are still due April 15, 2021 unless an extension is requested. Payments for the 2020 tax year are also still due April 15, 2021
• IRA and HSA Contributions are due May 17, 2021 (Confirmed by the IRS on March 24, 2021)
• The state of California has conformed to the federal changes for the filing date and payment date for the 2020 tax year for Individuals – The state also retains the original due dates for Corporations, trusts, Q1 2021 payments and so on – the same as federal.

The IRS is approximately 25-30% behind this year in terms of number of returns processed. We strongly encourage you to continue to send in your tax documentation as soon as possible and no later than April 1, 2021 to give your Wheeler Accountants preparer time to complete your tax filing.

If you expect you will need an extension of time to file beyond the May 17^th due date, please let us know right away. Your tax preparer may also recommend an extension if your specific circumstances warrant it; for example, if you are impacted by any of the new tax laws that we are awaiting further guidance on from the IRS or Franchise Tax Board, or we feel you may benefit from waiting to file in some other capacity.

In general, income from renting a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. You should also keep in mind that the definition of a “vacation home” is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS. Tax rules on rental income from second homes can be confusing, especially if you rent the home out for several months of the year and use the home yourself.

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Just 0.45 percent of taxpayers were audited in fiscal year 2019. Still, with taxes becoming more complicated every year, there is an even greater possibility of confusion turning into a tax mistake and an IRS audit. Avoiding “red flags” like the ones listed below could help.

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If you haven’t contributed funds to an Individual Retirement Account (IRA) for tax year 2020, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the May 17, 2021, due date, not including extensions.

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During 2020, millions of taxpayers were impacted by the COVID-19 pandemic through job loss or reduced work hours. Some taxpayers who faced unemployment or reduced work hours applied for and received unemployment compensation from their state. As a reminder, unemployment benefits are taxable income and must be reported on tax returns.

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Special tax rules may apply to some children who received investment income in 2020 or expect to receive it in 2021. The rules may affect the amount of tax and how to report the income. Here are five important points to keep in mind if your child has investment income:

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On Wednesday, March 3, 2021, the U.S. Small Business Administration (SBA) issued a revised Paycheck Protection Program (PPP) Interim Final Rule (IFR) on loan amount calculations and eligibility. The 32-page document details new rules which allow self-employed individuals who file Form 1040, Schedule C, Profit or Loss From Business, to elect to calculate the owner compensation share of its payroll costs based on either net profit (as reported on line 31 of Schedule C) or gross income (as reported on line 7 of Schedule C). For a vast majority of self-employed individuals using net profit on their Schedule C, will result in a larger loan amount.

Note that this is not retroactive. The SBA and Treasury have ruled that borrowers whose PPP loans already have been approved cannot increase their loan amount based on the new methodology. If you have yet to be approved for a PPP first- or second-draw loan in the current $284.5 billion phase of the program, you will be eligible to apply using gross profit.

If a Schedule C filer has employees, the owner compensation portion of payroll costs may be calculated based on either net profit or gross income minus expenses reported on lines 14 (employee benefit programs), 19 (pension and profit-sharing plans), and 26 (wages (less employment credits)) of Schedule C.

If approved for a loan as a Schedule C filer, borrowers may use their PPP proceeds to cover the following:

• Owner Compensation (if net profit is used) or Proprietor Expenses (business expenses plus owner compensation if gross income used)
• Employee Payroll Costs
• Mortgage Interest Payments
• Business Rent Payments
• Business Utility Payments (for borrowers entitled to claim a deduction for such expenses on their 2019 or 2020 Schedule C, depending on which one was used to calculate the loan amount)
• Interest Payments on any other debt incurred before Feb. 15, 2020 (these are not eligible for PPP loan forgiveness)
• Covered operations expenditures, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C
• Covered property damage costs, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C
• Covered supplier costs, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C
• Covered worker protection expenditures, as defined in Section 7A(a) of the Small Business Act, to the extent they are deductible on Schedule C

The IFR updated eligibility rules to remove restrictions that have prevented PPP loans from being granted to small business owners with prior nonfraud felony convictions or who are delinquent or in default on federal student loan payments. These changes are reflected on the updated PPP borrower forms for first and second draws.

Schedule C filers that report over $150,000 in gross income to calculate their first-draw PPP loan will not be able to claim the safe harbor provided for borrowers that, together with their affiliates, received PPP loans of less than $2 million. This is to mitigate the risk of fraud. The SBA said it is eliminating the safe harbor for these borrowers because they may be more likely to have other available funds to support their business’s operations than Schedule C filers with lower gross income.

The SBA will additionally review a sample of the population of first draw PPP loans made to Schedule C filers with gross income exceeding the $150,000 threshold. The review will assess whether these borrowers complied with all PPP eligibility criteria, including the good faith loan necessity certification.

The SBA guidance and forms release came a day after the AICPA called on Congress to extend the PPP application period by at least 60 days due to ongoing process delays and the need for time to implement the promised loan calculation guidance. No extension has been provided as of the date of this article.

The SBA also released an updated set of FAQs and six updated or new application forms:

• Updated PPP borrower first-draw (Form 2483) and second-draw (Form 2483-SD) application forms.
• New PPP first-draw (Form 2483-C) and second-draw (Form 2483-SD-C) borrower application forms for Schedule C filers using gross income.
• A revised lender application form for PPP loan guaranty (Form 2484)
• A revised PPP second-draw lender application form (2484-SD)

Wheeler Accountants is here to support businesses and nonprofits navigate the various credits and loans available in the latest round of stimulus to maximize all opportunities in these uncertain times. Please contact your preparer or the PPP team at ppp@wheelercpa.com for assistance with a PPP loan application.

Wheeler has the privilege of serving many excellent local restaurants. We are highlighting them here and invite you to incorporate their offerings into your routine as we all continue to navigate the pandemic. What will it be for you—a slice of pizza? A colorful latte?

Slice Project Pizza

300 Main Street, Watsonville, CA, 95076

Monterey Bay Caterers

152 West Lake Avenue, Watsonville, CA 95076

Tacos Moreno

1601 41st Ave Suite W in Capitola

Betty Burgers

Locations in Santa Cruz and Aptos

Oak and Rye

303 N. Santa Cruz Avenue, Los Gatos, CA, 95030

Steamers

31 University Ave, Los Gatos, CA 95030

Halal Guys

Locations in San Jose, Santa Clara, and Sunnyvale

The Halal Guys’ journey began in 1990 with three Egyptian founders. They first started a hot dog cart in New York City, then pivoted to selling halal food to Muslim taxi drivers who at the time had few outlets for authentic halal food in the five boroughs.

Voyager Coffee

Locations in San Jose and Santa Clara

If you need an inspiring cup of coffee, try Voyager! This coffee spot was born out of a desire to usher in a new paradigm within specialty coffee.