Dear Clients, Friends and Fellow Entrepreneurs,
Credit to Hector Garcia, CPA who got us all together group sourcing a document in Google Docs real -time. It was pretty incredible, edits happening simultaneously from all over the country. Here is what we came up with.
As accounting professionals, tax preparers, and members of the small business community, we strive to give the most concise and practical list of items for small business owners and/or taxpayers related to the Federal stimulus package and economic developments from COVID-19. This email contains a lot of information, so here is a quick table of contents of what will be covered:
- IRS Filing Extension to 7/15/2020
- Cash payments to individuals ($1,200 per adult + $500 per child)
- SBA and Disaster Relief Loans for small businesses
- Tax credits, grants, and other helpful resources
- Other Misc. Items
Beware of Tax Scams! Protect yourself by filing ASAP
Individual and Corporate (C-Corporations) tax returns for 2019 have been extended to 7/15/2020. The extension is both to file and pay. Either way, we would suggest filing an extension by 4/15 to extend the time to file through October 15th, 2020; keeping in mind that the payment is still due on 7/15 nonetheless.
With that being said, it is imperative that you file your 2019 tax returns ASAP
if you can. If you file your tax return promptly, you avoid someone trying to
steal your identity by filing it before you.
With all the “free money” being touted by the US Government, tax scams
will be at an all-time high! Do not
worry about whether your 2019 income is higher than 2018 for the purpose of
getting your stimulus check, just file your 2019 ASAP if you haven’t done
so. I will explain more details about
this.
Cash Payments to Individuals
According to the new law, the intention is to give most adult Americans a $1,200 stimulus check to encourage them to stay at home and/or to pay their bills during these difficult times. The check that you may receive is an advance on a tax credit on your 2020 tax return. At the end of 2020, the tax credit will be based on the 2020 income. Here is how it works:
- If you are an individual that makes $75,000 or less in 2020 you will get the full $1,200 refundable credit. There will be a $5 reduction of the credit for every additional $100 you make above the $75,000; the phaseout will totally reduce the credit at $99,000;
- If you are married filing jointly in 2020 and make $150,000 or less, you will get the full $2,400 refundable tax credit. There will be a $5 reduction of the credit for every additional $100 you make above the $150,000; the phaseout will totally reduce the credit at $198,000;
- If you are head of household in 2020 and make $112,500 or less, you will get the full $1,200 refundable tax credit. There will be a phaseout of $5 reduction of the credit for every additional $100 you make above the amount listed above; and
- In addition to that, there will be an additional $500 per child under 18 as of 12/31/2020 added to the credit.
Note: The amount of the payment to be advanced during April 2020, is going based on 2018 or 2019’s tax return information. BUT, since it is considered to be a refundable tax credit for the year 2020; your final income for 2020 will determine real eligibility; so if in 2020 your income is higher, YOU MAY HAVE TO PAY BACK ANY ADVANCE THAT YOU RECEIVE. On the other side of the coin, if you do not get the money upfront, but still qualify because of income levels, you will get it as a tax refund or reduction of your 2020 income tax liability.[1]
Whether you think you qualify for this or not, we still advise that you file your 2019 tax returns with direct deposit information ASAP, so the IRS can have your accurate information. Have you moved in the past year? If you need to change your address with the IRS, fill out Form 8822 and mail it to them ASAP.
Note: we are getting bombarded with questions related to these payments, we do NOT have a mechanism to request the money and/or check payment status or verify eligibility. The only thing we can do is file your tax returns ASAP to have you compliant. There is no direct information from the IRS. For more information, check out their COVID-19 page: https://www.irs.gov/coronavirus
Meanwhile, The New York Times has a really good FAQ article on this. It specifically answers questions about non-filers and folks on social security.
Disaster Relief – SBA Loans for small businesses
This video by Hector Garcia, CPA: https://youtu.be/jSgWMLLE5GE shows some tips to prepare prior to applying for a loan. In a nutshell, you need to have all your latest tax returns filed, your bookkeeping organized and up to date, and a sound business plan as to how the loan will be used.
Download the SBA Disaster loan package and checklist:
Paycheck Protection Program FAQs for Small Business
Depending on the requested loan amount and cash flow requirements, the SBA will offer you the type of loan that seems fitting for your situation (there are two types: 1) “Disaster Relief Loan”, and 2) “Paycheck Protection Loan.”. Right now there is no mechanism to choose the type of loan; however, only the latter may potentially qualify for debt forgiveness. Our suggestion is to start the process and apply for whatever is available via the SBA.gov website (there might be some additional guidance in the near future for applying for the two types of loans separately) – either way, it’s valuable to start gathering the documentation and required information. If you need assistance to get all your accounting data caught up, we are offering special priority service to help expedite the process; we will price it individually based on where your bookkeeping/accounting/tax is currently. We brought in some additional bookkeeping support help for the next few months to accommodate our clients.
Notes on “Debt Forgiveness” from these loans:
There is language in the law that some of these SBA loans will qualify for forgiveness up to the amounts used to pay payroll, keep employees on staff, and pay essential expenses to “keep the doors open they are calling this Paycheck Protection Program (PPP) There is no official federal government website with the specific mechanics on how debt forgiveness will work, or how to apply for this – our guess is those details are coming soon. Our suggestion is to start the application process with the SBA first, then worry about those details later; always get the loan with the intention to pay it back. This PPP loans will be limited to 2.5x your monthly payroll and related costs: direct employee benefits, rent, utilities, and essential payables prior to the covered period. The period that will be reviewed is February 15th through June 30th, 2020. You must have had employees prior to Feb 15th. Right now clean and complete accounting records are of the essence to apply for these loans.
The Office of the Florida Senate has published this FAQ sheet:
http://www.bit.ly/PPPsenate
FAQ Document from the US Chamber of Commerce
This is a great document from The US Chamber of commerce summary in PDF on SBA Loans, Payroll requirements, and debt forgiveness.
Tax Credits, Grants and other helpful resources
For small businesses with employees, there will be a payroll tax credit applied to future 941 forms, that will allow the small business to keep the 6.2% portion of the social security tax paid by the employer. In addition, employers will be able to delay these payments through 2021, essentially giving the small business an interest-free loan on the payroll taxes. The instructions, forms, and/or mechanisms to do this are not yet available from the IRS. If we manage your payroll, rest assured we will be on top of these credits. If you outsource your payroll with a payroll service, make sure you lean on them for the guidance on this and MAKE SURE they are being proactive with this. You should not feel that you need to chase them down for these credits. What we do know, is that you would need to keep your employees and/or not reduce the overall wages in order to get these credits. We also know that this will be an either/or situation where you can either take the payroll tax credit OR the Loan Debt Forgiveness we described above.
Specifically, for government grants, we are not aware of any specific grants or “free money” out there for distressed individuals, communities, or business or at least the ones in which an accountant would have the mechanism to arrange on their client’s behalf. However, these resources might be worth checking out:
- Gusto’s COVID-19 resources master spreadsheet – updated weekly!
- Coursera is offering tons of free and low priced college courses, take advantage of that if this is a “slow” time for you. We believe that education will provide the quickest path to prosperity.
- We know unemployment is sky-rocketing, the silver lining is there are some industries that are booming (such as healthcare, transportation, and food distribution.) Check out Indeed High Demand listings.
Other Misc. Tips and Resources
Be aware of the surge of cyber-attacks and phishing emails roaming around, hackers/scammers know that many people are working from home, connecting to their office computers remotely, and using many new telecommunications apps for the first time. New users are much more susceptible to confusion and/or not knowing which legitimate communication apps to use and what features are appropriate. Do not open emails you do not recognize! Do not download any new apps without consulting a competent IT professional. Scammers want to steal your identity and/or install ransomware on your computers. Google “ransomware” and you will see what we are talking about.
Additionally, beware of “SBA Loan Officers” that contact you, there will be a stream of people claiming to work for the SBA, the Government, or a Lending institution to help you secure a loan or grant linked to the stimulus package that just passed. Do not give your financial info, tax returns, etc. to just anyone. Do not upload those documents to any random website unless you use your Bank’s secure portal or SBA.gov directly.
If you are struggling to make ends meet, proactively call all your vendors and debtors, tell them you are temporarily strapped for cash… or simply say: “do you have any programs to reduce my services to a minimum?”, “How can I pause my services?”, or “How can I defer my payments for the moment?” – You will be surprised how many of your vendors will be flexible and go through great lengths to keep you as a customer!
We apologize in advance that we are NOT going to have all the answers regarding this stimulus package. If you ask a question for which we do not have the answer, we will be brutally honest and tell you. If a new important development arises, we will be proactive with a follow-up email.
Our colleague Hector Garcia, CPA, has produced a few videos to help friends, colleagues, and fellow entrepreneurs make more sense of these times:
- A message from Hector Garcia, CPA: Thinking Beyond COVID-19
- Doing remote work effectively for teams and individuals
- Advice for small businesses and accountants during the COVID-19 economy
- Great interview with Ed Kless about the 5 Key questions to ask yourself or your clients during this time of business interruption
Lastly, no amount of money is worth a life… stay home and stay safe!
Thank you, and don’t forget that you have friends here. You can contact us anytime for any questions and/or to just chat about the issues you might be going through.
Tricia O’Connor, CPA MBA
O’Connor & CO CPAs
Tricia@OConnorCPAFirm.com
303-515-9390 Google # which emails me immediately
