Individuals with significant assets who want to transfer wealth to heirs tax-free, as well as minimize estate taxes, should take advantage of proven tax strategies such as gifting and direct payments to educational institutions; however low interest rates and a volatile stock market are creating additional opportunities. Let’s take a look at some of the strategies available:
The SBA filed its 19th Interim Final Rule (IFR), scheduled to be published on Friday June 19th, focusing on revisions made from Paycheck Protection Program Flexibility Act (Flexibility Act) signed into law on June 5th. Also released yesterday, was a revised Loan Forgiveness Application and EZ Version. Significant updates are highlighted below:
Owner Compensation:
OR
This means there will be full forgiveness for any self-employed, freelancers, or independent contractor who took the maximum loan amount based on 2.5 times their 2019 monthly income.
As with most SBA/Treasury guidance, we receive some answers, however we are left with other questions. The guidance mentions “owner compensation replacement for individuals with self-employment income who file a Schedule C or F”, however it doesn’t mention the owner-employees (S-Corp owners) and also doesn’t mention general partners. Based on the revised Schedule A on the application, it appears that owner-employees, self-employed individuals, and general partners would all be subject to the $20,833 cap.
Employee Compensation:
OR
Also included in either the 8 or 24 week period is covered benefits for employees, including:
Non-payroll expenses:
Loan forgiveness amounts for non-payroll expenses have also been extended to 24 weeks. This includes:
The incurred or paid rule is still applicable.
Applications for Loan Forgiveness:
The SBA released two new applications, a revised full loan application and EZ Version.
The new EZ version applies to borrowers that:
OR
OR
EZ application is simpler with less documentation. Details regarding the use of the new EZ application can be found in the instructions for the application form.
$146B still remains from the second round of funding for the PPP Loan program. Businesses must apply by June 30, 2020.
Also, as of Monday, June 15, 2020, the Economic Injury Disaster Loans (EIDL) application opened again to all businesses. The loans are capped at $150,000 and can be used in conjunction with PPP Loan as long as the proceeds are not used for the same expenses. Terms are up to 30 years at 3.75% (2.75% for nonprofits).
As always, the PPP Team is here to answer any questions via ppp@wheelercpa.com, and additional PPP Loan Forgiveness Resources are available here.
On June 11, 2020, the Small Business Administration and the U.S. Department of the Treasury released their latest guidance in the form of Paycheck Protection Program – Revisions to First Interim Final Rule (the Revised Interim Final Rule). This Revised Interim Final Rule amends the SBA’s initial interim final rule posted on April 2, 2020. The changes are to conform with the Paycheck Protection Program Flexibility Act of 2020 (the Flexibility Act) that was signed into law on June 5, 2020.
Key takeaways from the new guidance include:
The definition of “covered period” for a PPP loan is amended to begin on February 15, 2020, and end on December 31, 2020 (originally to end on June 30, 2020). This amendment is effective as of March 27, 2020, and applies to the definition of “covered period” that governs loan use, loan eligibility, and related requirements, however it does not alter the meaning of “covered period” that governs loan forgiveness, which is addressed by a different provision of the Flexibility Act.
The 24-week loan forgiveness covered period begins on the date of loan disbursement. All loans made on or after June 5, 2020, will have a 24-week loan forgiveness covered period. Borrowers who received their PPP loan before June 5, 2020, will have the option of the original eight-week covered period in the CARES Act, or may use the newly enacted 24-week covered period.
The guidance states that a maximum of 40% of the loan may be used for non-payroll costs. The guidance provides that, in situations where less than 60% of the loan proceeds are used for payroll costs, the borrower will only receive partial forgiveness. This ensures that 60% of the forgiven amount is used for payroll costs.
The regulations provide an example of a borrower who received a PPP loan in the amount of $100,000, but who only spent $54,000 on payroll costs. The borrower would receive a maximum of $90,000 ($54,000/60%) of loan forgiveness, with $54,000 in payroll costs constituting 60% of the forgiveness amount, and $36,000 in non-payroll costs constituting 40% of the forgiveness amount.
For borrowers who submit their loan forgiveness application within 10 months after the end of the covered period, no payment of principal or interest is due until the SBA remits the forgiven amount to the lender (or informs the lender that no loan forgiveness is allowed).
If the borrower does not submit a forgiveness application within 10 months after the end of the covered period, the borrower must begin making payments toward principal and interest at the end of that 10-month period.
For loans made before June 5, 2020, the loan matures in two years, however the borrower and lender may mutually agree to extend the maturity to five years (talk to your lender about options). Loans made on or after June 5, 2020, will have a five-year maturity date.
When applying, borrowers will continue to make certifications including among other things that funds received will be used to “retain workers and maintain payroll,” but also importantly that they understand that “knowingly” using funds for unauthorized purposes may mean the federal government will hold the borrower liable “such as for charges of fraud.”
This recent guidance only addresses a few key items that the SBA and Treasury needed to immediately address. As we continue to see with PPP loan guidance, there is still much more to come. Below is a constant question that we have been receiving since the PPP Flexibility Act was signed into law on June 5, 2020:
Q: Now that the covered period is 24 weeks, will the $100,000 cap be changed as it currently only allows for $15,385 per individual?
A: The law seems to be indicating that the salary amount is to be prorated for the covered period. Since the covered period under the PPP Flexibility Act is extended from 8 weeks to 24 weeks, we believe the new cap on salaries should increase from $15,385 to $46,155. This will have to be clarified by the SBA in the next version of the application, so we will need to wait until then to make any final determinations.
On June 3, 2020, the Senate passed the House version of the Paycheck Protection Program Flexibility Act of 2020 (the PPP Flexibility Act). It is expected to be signed into law by President Trump. The Act was passed to fix several issues created by the Small Business Administration (SBA) and Treasury when implementing guidance under the Paycheck Protection Program.
Most notably, this bill:
We will need to wait until the President signs the PPP Flexibility Act into law and the SBA and Treasury interprets the Act before we can provide additional guidance to our clients.
Wheeler Accountants is excited to announce Sandra Baron as our employee of the quarter. Sandra joined our firm less than one year ago, and quickly proved her dependability through a willingness to support her colleagues and identify obscure solutions to their problems. In a quarter filled with unpredictable new challenges, Sandra has stepped forward into a leadership position for our administrative team. When her peers have questions, she always offers her expertise. When a new project presents itself, Sandra is always one of the first involved.
We are proud to have Sandra as a member of our team!
by Evan Benevento
Like almost every industry, farmers and ranchers are not immune from the negative effects of the COVID-19 pandemic and economic shutdown. Producers of specialty crops, especially those that partnered with food service customers are seeing declining revenues. In order to provide some economic relief to those that produce our food, the USDA has set up the Coronavirus Food Assistance Program (CFAP) which will provide up to $16 billion in direct payments to farmers.
Producers of specified agricultural commodities who have suffered a five percent-or-greater price decline as a result of the COVID-19 pandemic and who face substantial marketing costs for inventories are eligible for CFAP payments. The list of eligible commodities includes: Apples, Blueberries, Broccoli, Cauliflower, Lettuce (Iceberg and Romaine), Raspberries, Spinach, and Strawberries. A full list of eligible commodities and CFAP payment rates can be found here: https://www.farmers.gov/cfap. Note: If you are a producer of aquaculture products, nursery products, or cut flowers the USDA wants to hear from you about prices and the effects of COVID-19. Contact your local USDA service center which can be found here: https://offices.sc.egov.usda.gov/locator/app.
Due to our location in the Pajaro Valley and neighboring Salinas Valley we will be focusing only on specialty crops for this post, and there are up to three categories of payments for specialty crops:
Not all specialty crops will qualify for all categories of payments. The USDA has indicated that they will request documentation from producers to substantiate claims on a case-by-case basis and some details are yet to be determined.
For category one crops, the USDA is expecting producers to maintain records, such as a bill of sale, documenting the price received for the crop.
For category two, the producer must obtain documentation such as a letter from the buyer explaining non-payment or other record that validates the non-payment claim. Only crops that have met contractual obligations of delivering crop to the buyer but have not been paid will qualify.
Category three payments are for crop shipments that did not leave the farm by April 15, 2020, (for example, were harvested but sitting in crates on the farm), or mature crops that were unharvested by that date (for example, disked) due to lack of buyers, and which have not been and will not be sold. If you are unable to provide adequate documentation of pounds of crops spoiled or acres disked you may not qualify for payment.
There is a payment limitation of $250,000 per person or entity for all commodities combined. Applicants who are corporations, limited liability companies or limited partnerships may qualify for additional payment limits where members actively provide personal labor or personal management for the farming operation (400 hours test). Producers will also have to certify that they have less than $900,000 of Adjusted Gross Income unless at least 75 percent or more of their income is derived from farming, ranching or forestry-related activities. Eligible producers will be able to apply beginning May 26, 2020, and the application and additional information can be found here: https://www.farmers.gov/cfap.
The Coronavirus pandemic has caused unprecedented disruption across industries and has negatively affected producers of our nation’s food supply. Through the USDA CFAP program, eligible farmers can receive direct payments for losses due to the pandemic. This program can benefit many local farmers and ranchers, even those who have never participated in a farm program before, and may be worth the time commitment for the application process.
Wondering if you’re eligible for a CFAP direct payment or need assistance preparing for or completing the application? We’re here to help! Please call 831-726-8500 or contact email@wheelercpa.com.
If you’ve lost your job you may have questions about how it could affect your tax situation. Here are some answers:
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Businesses that have been impacted financially by COVID-19 may be able to take advantage of a new, refundable tax credit called the Employee Retention Credit. The credit is designed to encourage businesses to keep employees on their payroll and is worth 50 percent of qualifying wages up to $10,000 that are paid by an eligible employer.
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