Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 1, 2020

The SBA’s ‘Economic Injury Disaster Loan’

To Our Clients and Friends:

This newsletter will focus on the role of the Small Business Administration (SBA) in the economic recovery.

I’m qualified and licensed to read tax law and make conclusions. SBA’s ‘Economic Injury Disaster Loan’ is not tax law. I may not be as ill-informed as a layman, but reading and studying these laws is a daunting task.

The Good News

• The SBA’s ‘Economic Injury Disaster Loan’ and the ‘Paycheck Protection Program Loans’ are easy to get.
• These loans are for both commercial businesses and nonprofits, including churches.
• Some loans can be made without personal guarantees
• Loan payments can be deferred for six-months
• The PPP Loan (discussed below) may be forgivable in part or in whole.
• No prepayment penalties (which could be important in loan forgiveness planning).

The news that concerns me

• The program is so new that the SBA’s own website has incorrect information.
• The rules are evolving.
• These loans ‘may be forgivable’ but how they are to be forgiven is, according to the law, to be determined later by the SBA, so we have a ‘trust the government’ scenario. Somehow that makes me nervous.
• The personal guarantee v. the no personal guarantee is a snapshot of how these ‘Economic Injury Disaster Loans’ will work.
  • Each loan will be a unique negotiation
  • The rules for one loan will likely be very different from the terms of a nearly identical loan depending upon vague and ill-defined criteria.
  • In government language, “vague and ill-defined criteria” are often referred to as Rules and Regulations.
  • The “Rules and Regulations” have yet to be written; that worries me a lot!

Section I: The Emergency EIDL Grant
The Economic Injury Disaster Loan program, also known as the EIDL program has two parts.

• The primary part is the loan itself, which I will cover in Section II.
• There is also an ‘expedited’ EIDL Grant.

The EIDL Grant
All who apply for an EIDL loan will be eligible for up to a $10,000 emergency grant to be issued within 3 days of the application being received.

The EIDL Grant Application
This application is easy!

Go to: https://COVID19relief.sba.gov/#/

This is the online application; as I said above, it is easy.

On the last page of this 4-page application, list me as a person to whom the SBA can talk to. List my fee for this advice as zero. That way I can talk to the SBA about your EIDL Grant, and, I assume, your EIDL Loan.

Forgivable
Up to $10,000 of this grant is forgivable.

In order to be forgiven, the EIDL Grant must be used appropriately for:

• Paid sick leave
• Maintaining payroll
• Meeting increased costs of materials due to an interrupted supply chain
• Business rents or mortgage payments
• Other obligations that cannot be paid due to lost revenues

Section II: The Economic Injury Disaster Loan (EIDL)
The $10,000 Grant discussed in Section I is part of this program, but the application and substance of the EIDL is very different.

Not forgivable
The EIDL Loan is not forgivable!

EIDL Loan Program
The purpose of the EIDL Loan is:

• To provide small businesses with working capital loans of up to $2-million.
• To offer low interest rates:
  • 3.75% interest rates on commercial loans
  • 2.75% interest rates on Churches and other nonprofits
• This loan is 100% based on credit score
• Smaller loans of less than $200,000 can be approved without personal guarantees
• There are no early payment penalties
• There is a 30-year amortization period.

The EIDL Loan terms are generous, but the loan must be repaid. The only forgiveness related to this loan is to go out-of-business with no personal guarantees.

Section III: The PPP Loan or ‘Paycheck Protection Program Loan’.
The purpose of the loan is to encourage businesses to retain employees through the COVID-19 crisis. This loan may be partially forgivable.

Who Qualifies
The rules on who qualifies for this loan are generous.

• A business with less than 500 employees
• Independently owned franchises with less than 500 employees
• “Accommodation and Food Services,” if each location has less than 500 employees
• Sole proprietors, independent contractors, self-employed individuals, farmers, etc.
• §501(c)(3) nonprofits. This includes churches!
• AND You must have been in business since 02-15-2020 and paid taxes on your employees or independent contractors.

How much can you borrow?

• 2.5 times average monthly payroll for the previous year, up to $10 million.
• Payroll costs are capped at $100,000 for each employee
• For example, if your average monthly payroll for 2019 was $30,000, then you can borrow up to $75,000 ($30,000 x 2.5).

What are the terms of the loan?

• Payments are deferred for at least 6 months and possibly up to a year.
• The interest rate will not exceed 4%
• The loan will be for 10 years
• The SBA will guarantee the loan; no collateral is required.
• There is no prepayment penalty

How can you use the loan?

• You can use the funds to:
  • Retain workers: 75% of loan proceeds must be used for payroll!
  • Maintain payroll
  • Business Mortgage payments
  • Business Rent and Lease payments
  • Utility payments
• You must certify that the PPP Loan will be used to support ongoing operations of the business due to the current economic conditions.
• The loan can only be used for expenses incurred between 02-15-2020 and 06-30-2020. Very Short Term!!

Tell me more about PPP Loan forgiveness!

• Only expenses incurred between 02-15-2020 and 06-30-2020 are subject to forgiveness.
• Borrowers, upon receiving PPP Loan proceeds, must immediately hire back furloughed employees and expend funds on payroll costs.
• Payroll costs
• Payments on interest of any business mortgage obligations
• Business rents
• Utilities
• ***** Document, Document, Document *****
  • Keep detailed verification of exactly when and how these funds were used. This is a case where poor bookkeeping can and will hurt you – bad!
  • Be Careful!!

Steve’s Note: having some or all of the ‘PPP Loan’ forgiven will depend in large part upon our ability to prove that these funds were used for the purposes as described above.

Where can you apply for the PPP Loan?

• The bank you normally use is very likely already approved by the SBA.
• Additional lenders will be approved.

There are strings attached
It’s the government. Of course there are strings attached!

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 1, 2020

Small Businesses and Social Distancing

To Our Clients and Friends:

The curfew order
A curfew order shutting down ‘non-essential’ small businesses is in effect nationwide. To the best of my knowledge small businesses in Tuscaloosa are in full compliance with these orders. That’s good!

The curfew orders are not voluntary.

Do not lose your business licenses
Law enforcement officers are actively visiting non-compliant small businesses. These officers have the power to permanently revoke business licenses. Thankfully this has not happened in Tuscaloosa but it is happening.

Essential businesses are allowed to stay open
This is not a ‘free-pass’ for essential businesses. We are required to follow certain public health standards and rules.

Our CPA firm is an essential business; even so, we must comply with certain public health standards as does Publix, Lowe’s, and the other essential businesses.

Public health officials in Tuscaloosa and Mayor Maddox have made it crystal clear to me and our CPA firm that we must do better.

Virtual Meetings Only
Mayor Maddox and our public health officials are insisting that as many of our client meetings as possible be done via US Mail, e-mail and by virtual means. They are very serious.

This will not be a hardship for us; our CPA firm has clients in 35 states and 25 foreign counties. We know how to do this. We can take care of you!

Do Not Delay!!!
Do not delay in getting your 2019 tax returns done! Much of the COVID-19 stimulus and tax relief is based on 2019 tax returns and financial data. Especially important: many of the “forgiveness” features related to COVID-19 SBA loans, likewise, depend upon 2019 tax returns. Do Not Delay!

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

March 31, 2020

The 5th COVID-19 Newsletter

To Our Clients and Friends:

We asked a local bank for clarification on how a business applies for the Payment Protection Program (PPP) Loan. They have been very helpful but the message the bank is sending is that this is a new and “evolving” program. I do know that the bank is “selling” these loans hard because they make money processing these SBA loans with zero risk to the bank.

Following is what the bank told us
The final qualifying guidelines and application process for the Small Business Administration’s Payment Protection Program (PPP) Loan have not been published. We are asking interested parties to begin the process of gathering information that might be necessary for submitting a request. NO GUARANTY, NO COLLATERAL.

Along with the list of financial and business-related information below, an SBA Borrower Information Form is attached. While we expect the application for the PPP loan to be streamlined. Please take some time to review the information the SBA has historically required for their guarantee loans.

SBA needs the following information to determine if your business qualifies for the PPP loan and to calculate your maximum loan amount:

1. SBA Borrower Information Form (See Attached):
2. Financial Information
   1. Most Recent Business Tax Return (2018 or 2019), or YTD 2019 P&L and Balance Sheet if taxes not done.
   2. YTD Profit & Loss and Balance Sheet dated 02-15-2020

3. Business Ownership/Authorization Documents (Articles of Incorporation, Licenses, etc.)
4. Brief description of how COVID-19 has impacted your business
5. Payroll and Employee Related Expenses:
   1. Payroll reports by month (in total and by employee) for 2019, indicating which employees are full-time and which are part-time
   2. Payroll reports by pay period (in total and by employee) for January-March of 2020, indicating which employees are full-time and which are part-time.
   3. Compensation to any one employee in excess of $100,000 for the prior 12 months
   4. Copies of quarterly 941 reports and state unemployment reports for all of 2019 and Q1 2020
   5. Copy of 2019 940 report
   6. 2019 W-2s for all employees
   7. Payments for group health insurance premiums, from April 1, 2019 to March 31, 2020
   8. Payments to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation from April 1, 2019 to March 31, 2020
   9. 1099s for 2019 for independent contractors that would otherwise be an employee of your business. Do NOT include 1099s for services.
   10. Document the sum of all retirement plan funding that was paid by the Company Owner (do not include funding that came from the employees out of their paycheck deferrals).
       1. Include all employees, including company owners.
       2. 401K plans, Simple IRA, SEP IRAs.

Steve’s Note: The point of this SBA program is employment retention. Detailed payroll data will be required by employee, by pay period, by month, by quarter and by year. This data will need to reconcile with the payroll tax returns as filed. If they do not reconcile, payroll tax reports will need to be amended. I know how to do this stuff, but, frankly, Liz knows how to do it much better that I do. I might pass this task over to Liz.

Sincerely,

Steve Richardson, CPA

Newsletter from
Steve Richardson & Company, Certified Public Accountants

March 30, 2020

To Our Clients and Friends:

As promised, I’m reading as fast as I can.  This letter deals with the business tax relief measures in the Coronavirus Aid, Relief, and Economic Security Act.

Employee retention credit for employers

A major concern of congress is the prospect of massive layoffs related to the coronavirus response.  Congress has been generous!

This is the heart of the bill.  This is how congress intends to accomplish its will to assist American small businesses.  The rest of the law is nice but mostly window dressing.

This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.

That needs repeating, “Half of employee’s wages can be paid by the US government with tax credits.”

BUT: If you take the SBA Loan that allows for a potential forgiveness, this credit is unavailable! (The Small Business Interruption Loans under Sec. 1102 of the Act.)

Eligible employers

The credit is available to employers, including non-profits (Churches), whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

There are exceptions!

The credit is not available to employers receiving Small Business Interruption Loans under Sec. 1102 of the Act.

Wages paid to which employees?

100 or fewer employees

For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed.

More than 100 employees

For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.

There is a wage-cap

The term “wages” includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.

$10,000 in wage credits may not be enough to accomplish congressional goals.

So far – so good

Delay of payment of employer payroll taxes

Oops; this is not so good.  Falling behind in payroll taxes is a sure recipe for disaster!  I strongly advise that all payroll taxes be paid when due.

Repeal of taxable income limitation for net operating losses (NOLs)

This is a ‘temporary’ repeal.  The point of this law is to make the net operating losses carry-backs more valuable.  I like this law.  If you lose money in 2020, you can take that loss as a tax deduction on an amended 2018 tax return.  Good.

Deductibility of interest expense temporarily increased

The value of interest expense deductions is, ‘temporarily’ increased.  Not bad but do not incur a lot of debt for the deduction.  The interest and the debt will do far more harm than good in the long run.

The Payroll Credit

The 50% payroll tax credit is the heart of this tax bill.  Let’s hope it is enough.

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

March 30, 2020

Business Tax Provisions

Coronavirus Relief Package

To Our Clients and Friends:

As promised, I’m reading as fast as I can. This letter deals with the business tax relief measures in the Coronavirus Aid, Relief, and Economic Security Act.

Employee retention credit for employers
A major concern of Congress is the prospect of massive layoffs related to the coronavirus response. Congress has been generous!

This is the heart of the bill. This is how Congress intends to accomplish its will to assist American small businesses. The rest of the law is nice but mostly window dressing.

This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.

That needs repeating: “Half of employee’s wages can be paid by the US government with tax credits.”

BUT, if you take the SBA Loan that allows for a potential forgiveness, this credit is unavailable! (The Small Business Interruption Loans under Sec. 1102 of the Act.)

Eligible employers
The credit is available to employers, including non-profits (churches), whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater-than-50% reduction in quarterly receipts, measured on a year-over-year basis.

There are exceptions!
The credit is not available to employers receiving Small Business Interruption Loans under Sec. 1102 of the Act.

Wages paid to which employees?

For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed.

For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.

The term “wages” includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.

$10,000 in wage credits may not be enough to accomplish Congressional goals.

Delay of payment of employer payroll taxes
Oops; this is not so good. Falling behind in payroll taxes is a sure recipe for disaster! I strongly advise that all payroll taxes be paid when due.

Repeal of taxable income limitation for net operating losses (NOLs)
This is a temporary repeal. The point of this law is to make the net operating loss carry-backs more valuable. I like this law. If you lose money in 2020, you can take that loss as a tax deduction on an amended 2018 tax return. Good.

Deductibility of interest expense temporarily increased
The value of interest expense deductions is temporarily increased. Not bad, but do not incur a lot of debt for the deduction. The interest and the debt will do far more harm than good in the long run.

The Payroll Credit
The 50% payroll tax credit is the heart of this tax bill. Let’s hope it is enough.

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

March 27, 2020

The CARES Act

Dear Friends and Clients:

Essential Services
The City of Tuscaloosa and Mayor Maddox consider CPA firms to be ‘essential services’. CPAs will play an important role in the efficient distribution of COVID-19 economic benefits. Our clients need us; we are here for you!

When people are out of work, tax refunds become very important. Too many people in our society live paycheck to paycheck. Some of our trade and craftsmen are self-employed or otherwise exempt from unemployment benefits. People are already going hungry; it is going to get worse. Many small businesses will disappear forever. This crisis is going to hurt – badly. What are we going to do? Unfortunately, I do not have good answers.

COVID-19 is frightening.
I have read estimates that the economic shut down in the USA is costing the economy one-trillion dollars a month! Wow! The post COVID-19 economic recovery could take five or six years.

The post COVID-19 world will not be the same.

The new law is 800 Pages!
I can’t pretend that I’ve read all 800 pages. This law is a beast; I mean to say, it is complicated. There is a lot I do not know.

The ‘I do not know’ part will cause me to write more newsletters. I plan to write follow-up newsletters for individuals, small businesses, and for the church and not-for-profit sector.

The CARES Act
On March 25, by unanimous vote, the Senate passed the third of four coronavirus relief laws (CARES Act, H.R. 748, ‘The Act’)

A few additional tax provisions were included in the bill that will prove helpful. These provisions are related to:

• the non-taxability of certain loan forgiveness,
• advance refunding of certain tax credits, and
• the suspension of certain aviation taxes

I will write more about these as I know more. The non-taxability of loan forgiveness and advanced refunding of certain tax credits could prove very helpful. I’m even okay with the suspension of certain aviation taxes; we do need to keep the commercial air carriers flying.

Individual recovery rebates/credits
The crux of the CARES Act is COVID-19 relief direct to individuals.

Under the CARES Act, an eligible individual is allowed an income tax credit for 2020 equal to the sum of:

• $1,200 ($2,400 for eligible individuals filing a joint return) plus
• $500 for each qualifying child of the taxpayer (the child tax credit).

The credit is refundable.

As rapidly as possible
These are complicated calculations that relate to the 2020 tax year. The law indicates that the IRS will do these calculations and send money out “as rapidly as possible” – whatever that means.

There is good news
Most eligible individuals won’t have to take any action to receive an advance rebate from the IRS. This includes many low-income individuals who file a tax return to claim the refundable earned income credit and child tax credit.

Direct Deposit
The IRS may make the rebate electronically to any account to which the payee authorized, on or after January 1, 2018, the delivery of a refund of federal taxes or of a federal payment.

IRS Notification
No later than 15 days after distributing a rebate payment, the IRS must mail a notice to the taxpayer’s last known address indicating how the payment was made, the amount of the payment, and a phone number for reporting any failure to receive the payment to IRS.

More Good News!
Tax credits are complex, data-driven calculations. The IRS will make errors. The Act has a Get-Out-Jail-Free card! If the taxpayer received an advance rebate during 2020 that was less than the credit to which the taxpayer is entitled for 2020, the taxpayer will be able to claim the balance of the credit when filing the 2020 return. If, on the other hand, the advance rebate received was greater than the credit to which the taxpayer is entitled, the taxpayer won’t have to pay back the excess. That is because the 2020 credit can’t be reduced below zero.

I hope this means what I think it means. I think it means this: if the IRS calculates a larger credit than you are entitled to, you do not have to pay it back! Cool!

No 10% additional tax for coronavirus-related retirement plan distributions
This does not mean that you should withdraw all your retirement savings! Please don’t!!

A coronavirus-related distribution is any distribution (subject to certain dollar limits) made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan to a qualified individual. A qualified individual is one:

• who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC),
• whose spouse or dependent (as defined in Code Sec. 152) is diagnosed with such virus or disease by such a test, or
• who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.

A qualified individual should be most of us.

Oh, yeah: the distribution can’t be more than $100,000, and the income tax on the qualified distributions can be paid over three tax years.

RMD requirement waived for 2020
Need I say more?

$300 above-the-line charitable deduction
Theoretically this is to encourage charitable giving in these bleak times. I think it’s silly. I mean, $300! Give me a break. Make it $3,000 or even $30,000 and now we can make a difference.

There are other changes to the tax code designed to enhance charitable giving but, frankly, these relate to wealthy people. My wealthy clients most often customize their annual giving plans with my direct assistance.

Student Loans!
This is a hot-button issue. The law allows for an employer to pay up to $5,250 per year on an employee’s student loans under an educational assistance program for the employee’s education – tax free! Unfortunately this does not include the student loans or education of employee spouses or dependents.

Not too bad, but not nearly enough, either.

More to come
This is only one of four major bills related to the COVID-19 crisis. I will release additional information as I am able to study the materials.

Best regards,
Steve Richardson, CPA