Each week, I will cover the top three things small business owners need to know as they head into the weekend. Here’s this week’s roundup…
PPP Applications
First and second draw PPP applications have been released. The applications follow the guidelines set in the CAA.
As it relates to second draw loans, I have fielded a number of questions related to entities that did not exist for all of 2019 and how they should go about calculating their gross receipts test. The application spells it out for you. To summarize:
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Not in business in Q1 and Q2 of 2019, applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than either Q3 or Q4 of 2019
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Not in business in Q1, Q2, and Q3 of 2019, applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than Q4 of 2019
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Not in business during 2019, applicants must demonstrate that gross receipts in Q2, Q3, or Q4 of 2020 were at least 25% lower than Q1 of 2020
PPP Application Efficiency
If you plan to apply for a second draw loan and need the funds quickly, it will be in your best interest to use the same lender and same data as you did for the first draw loan.
Borrowers that used calendar year 2019 figures to determine their PPP1 loan, plan to use 2019 figures to determine their PPP2 loan, and use the same loan vendor do not have to provide additional documentation to substantiate payroll during the application process. This should help expedite your application.
Keep in mind many borrowers did not use the proper information during the PPP1 process (for better or worse). I would suggest taking another look at the data you used to get your PPP1 loan to ensure it is accurate and fully takes advantage of all rules and requirements that exist today.
State Taxes
Small businesses received great news in the CAA as it related to Federal taxes. In short, federal assistance programs were deemed to be non-taxable, while expenses related to forgiven PPP loans were deemed to be tax-deductible. A clear win for the small business community. The same cannot be said for State taxes.
States look to the federal tax code for guidance, but each State makes decisions on how they will conform with the federal tax code. States generally fall into one of three categories.
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Rolling – Automatically implement federal tax changes as they are enacted. This is generally the most predictable method for taxpayers and tax preparers
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Static (fixed date) – States following this method incorporate tax code changes at a specific moment in time. Some conform each year, while others do not have a set timeline.
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Selective – All bets are off here. States following this method conform selectively. This is by far the most unpredictable circumstance for taxpayers and tax preparers.
Considering the massive changes made in the CAA related to the taxability of various government assistance programs, it is important to understand where your State stands. Follow this link to obtain a free report that provides guidance by State that will help you understand tax implications related to how your State handles conformity with the federal code.
It is always a good idea to talk to your tax preparer related to potential tax issues, but this year it is especially important.
