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We are mailing the 2020 tax organizers during the last week of January. If you do not receive your tax organizer by Friday, February 5th, please give us a call.
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As many of you are aware, there is a second round of PPP loans opening up this week. Below are the highlights for this new program:
- Interest Rate is 1%
- Maturity is 5 years
- Eligibility Requirements:
- Borrower is eligible for a Second Draw PPP Loan only if it has 300 or fewer employees and experienced a revenue reduction in 2020 relative to 2019.
- Second Draw PPP Loan may only be made to an eligible borrower that (i) has received a First Draw PPP Loan, and (ii) has used, or will use, the full amount of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower. IFR clarifies that the borrower must have spent the full amount of its First Draw PPP Loan on eligible expenses under the PPP rules to be eligible for a Second Draw PPP Loan.
- To be eligible for a Second Draw PPP Loan, the borrower must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. A borrower must calculate this revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with the borrower’s gross receipts for the corresponding quarter of 2019.
- The Economic Aid Act does not include a general definition of gross receipts for purposes of determining a borrower’s revenue reduction. Subsection (c)(2) of the IFR defines gross receipts consistent with the definition of receipts in 13 C.F.R. 121.104 of SBA’s size regulations because this definition appropriately captures the type of income that is typically included in a small business’s gross receipts. The IFR specifies that any forgiveness amount of a First Draw PPP Loan that a borrower received in calendar year 2020 is excluded from a borrower’s gross receipts.
- Subsection (c)(2) of the IFR generally defines gross receipts to include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.
- Payroll Costs:
- The maximum loan amount for a Second Draw PPP Loan is equal to the lesser of two and half months of the borrower’s average monthly payroll costs or $2 million
- Unlike First Draw PPP Loans, the Economic Aid Act provides that the relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan is either the twelve-month period prior to when the loan is made or calendar year 2019
- IFR uses “calendar year 2020” to refer to “the twelve-month period prior to when the loan is made.” Calculating payroll costs based on calendar year 2020 rather than the twelve months preceding the date the loan is made will simplify the calculations.
- For borrowers assigned a NAICS code beginning with 72 (Including hotels and restaurants) at the time of disbursement, the Economic Aid Act provides that the maximum loan amount is equal to three-and-a-half (3.5) months of payroll cost
- Documentation Requirements:
- The documentation required to substantiate an applicant’s payroll cost calculations is generally the same as documentation required for First Draw PPP Loans. However, no additional documentation to substantiate payroll costs will be required if the applicant (i) used calendar year 2019 figures to determine its First Draw PPP Loan amount, (ii) used calendar year 2019 figures to determine its Second Draw PPP Loan amount (instead of calendar year 2020), and (iii) the lender for the applicant’s Second Draw PPP Loan is the same as the lender that made the applicant’s First Draw PPP Loan. In such cases, additional documentation is not required because the lender already has the relevant documentation supporting the borrower’s payroll costs.
- For loans with a principal amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019.
- For loans with a principal amount of $150,000 or less, such documentation is not required at the time the borrower submits its application for a loan, but must be submitted on or before the date the borrower applies for loan forgiveness, as required under the Economic Aid Act.
For those businesses who have not experienced at least a 25% reduction in revenue, but have experienced at least a 20% reduction, you may qualify for the Employee Retention Tax Credit (ERTC). This credit has been extended for the 1st and 2nd quarters of 2021. To qualify for this credit, generally, you must show for any quarter of the first half of 2021 in which gross receipts is less than 80% of the same quarter in 2019. If you think you may qualify for the ERTC and need our assistance, please let us know.
If you believe you will qualify for the PPP2 or the ERTC and need assistance with your application, documentation requirements, or credit calculation, you must notify our office as soon as possible to ensure we will be able to accommodate your request in a timely manner. Please note that your request for assistance with your PPP2 applications, document requirements or credit calculations will billed at our standard hourly rate of $185.00 per hour.
We hope you find this information helpful. Please let us know if you need any assistance or have any questions.
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Beginning January 1st, 2021, the standard mileage rates are:
- 56 cents per mile driven for business use
- 16 cents per mile driven for medical, or moving purposes for qualified active duty members of the Armed Forces
- 14 cents per mile driven in service of charitable organizations
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Deductibility of Business Meals
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The recent stimulus legislation included a provision that removes the 50% limit on deducting business meals provided by restaurants in 2021 and 2022 and makes those meals fully deductible. Here are the details:
In general, the ordinary and necessary food and beverage expenses of operating your business are deductible. However, the deduction is limited to 50% of the otherwise allowable expense.
The new legislation adds an exception to the 50% limit for expenses for food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.
The use of the word "by" (rather than "in") a restaurant makes it clear that the new rule isn't limited to meals eaten on the restaurant's premises. Takeout and delivery meals provided by a restaurant are also fully deductible.
It's important to note that, other than lifting the 50% limit for restaurant meals, the legislation doesn't change the rules for deducting business meals. All the other existing requirements continue to apply. Thus, to be deductible:
- The food and beverages can't be lavish or extravagant under the circumstances.
- You or one of your employees must be present when the food or beverages are served.
- The food or beverages must be provided to you or to a “business associate.” This is defined as a current or prospective customer, client, supplier, employee, agent, partner, or professional adviser with whom you could reasonably expect to engage or deal in your business.
If food or beverages are provided at an entertainment activity, either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice, or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.
Please let us know if you would like more information about deducting business meals or any other aspects of the new legislation.
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As an independent contractor, a freelancer or as a self employed person, in the past you have received a 1099-MISC from businesses to which you provided more than $600 in services. Starting with the 2020 tax filing season, you will be receiving Form 1099-NEC.
If you need our office to prepare 2020 1099-NECs, please provide the required information no later than January 18th, 2021.
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Monday through Friday
9 a.m. to 5 p.m.
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