The Payroll Protection Program (PPP) became available for self-employed individuals and sub-contractors on April 10th. However, recent amendments have been made in regards to application and qualification. These changes come in a line of updates to the program since its launch in March. The Small Business Association PPP is now on its second round of funding, and 1099 individuals are still urged to apply for the PPP loan.
Lenders required small businesses to submit their 2019 tax returns along with other key payroll data as part of the original approval process for PPP funds. Form 1099 individuals will need to also submit their 2019 tax return, but specifically, Schedule C, to show profit and loss for the company. Other sources of income may be required for gig work, etc.
Unlike small businesses that typically keep track of payroll each pay period and file taxes timely, people paid via Form 1099 may not be calculating this information until tax time. Getting your finances in order before visiting with your lender is most important to ensure you receive the appropriate level of funding to keep your business alive. Separate guidance exists for businesses created in 2020. Read the FAQs here.
Another problem self-employed individuals face is that their business income typically becomes co-mingled with their personal checking/savings. This creates quite a problem for lenders to verify income and revenue sources specifically for the business. It is best to keep business income separate under the business name. When receiving PPP funds, this would be another great reason to start tracking it properly.
But How Do I Track the PPP Funds?
One way is to create a separate bank account dedicated for the PPP loan. This account is used for the sole purpose of reimbursing the appropriate covered cost over the 8-week period.
Let’s say you receive a PPP loan of $10,000. You decide to set up a separate bank account and corresponding general ledger accounts to hold these funds. The 8 weeks pass and during that time you have been incurring the following qualifying expenses and drawing from the PPP bank account to pay for the following:
$ 8,500 – Payroll Cost *
$ 1,000 – Covered Rent **
$ 500 – Covered Utilities **
After the 8 weeks the PPP bank balance is now $0.00. Perform a bank reconciliation at the end of the 8th week and tie your general ledger account to the bank statement. We’ve provided a useful spreadsheet below to do just this. In this example, bring the following to your lender to apply for loan forgiveness:
(A) PPP loan bank reconciliation
(B) PPP loan bank statements
(C) Payroll registers/reports that tie to the $8,500
(D) Copies of covered rent payments that tie to $1,000
(E) Copies of covered utility invoices that tie to $500
(F) List of employees and compensation levels over the 8-week period.
(G) Lease agreement in place before February 15th 2020.
The CPS Team is available to anyone with questions or needing assistance. Let us know how we can help you: firstname.lastname@example.org
* Covered payroll costs are capped at $100,000 per employee on an annual basis.
** For services and lease agreements in force before February 15th, 2020.
Note: In this example, rent and utilities combined are less than the non-payroll cost limit of 25%.
Note: Different lenders may require different/additional reports for loan forgiveness.
Note: Note: This spreadsheet is a free tool for small businesses and Form 1099 individuals. Be sure to check with your accounting department or CPA for any changes needed to best suite your business.”
Derek M Oxford | CFP®️ | AEP®️
Download the spreadsheet: PPP Reconciliation Schedule
Staying calm during times of crisis is nothing new to those who have worked in the public sector – in fact it is a job requirement. However, we are currently experiencing a worldwide crisis on a scale that most of us have never experienced. The Coronavirus pandemic has changed the world we live in, upending our lives as well as the global financial markets. In addition to the stress of worrying about the health of your loved ones, you have the added stress of worrying about the steep decline in the value of your investments. This is especially troubling for those who are retired or nearing retirement. The best investment strategy in times of extreme volatility is to do what you have been trained to do and remain calm, and don’t even consider changing your investments! We have learned throughout our careers that decisions based on emotion are usually poor decisions that we later regret. The market will recover in time, and though nobody knows how long that will take, history teaches us that it will recover. Don’t let fear drive you to make bad financial decisions.
Required Minimum Distributions (RMD)
The SECURE Act, which took effect on January 1st of this year, changed the age for starting RMD’s from 70-1/2 to age 72 for those who had not yet reached age 70-1/2 prior to that date. Additionally, in response to the Coronavirus crisis, our government passed the CARES Act which provides financial relief on several fronts including suspending the RMD requirement for 2020 for IRAs and defined contribution retirement plans such as 401(k), 403(b), and 457(b). This also applied to inherited IRAs! For CPS managed accounts held at Fidelity, if you are receiving periodic/recurring distributions, these will continue as scheduled unless you contact your advisor and request a change. If within the past 60 days you made a 2020 RMD, you may be able to return the RMD to your account. Talk to your advisor to see if you qualify, and this does not apply to inherited IRAs. Those with accounts held at custodians other than Fidelity should contact your advisor since each custodian is implementing these changes differently.
FRS Investment Plan Members
Required minimum distributions are waived for 2020 for Florida Retirement System Investment Plan members, so RMD payments will not be made automatically for 2020. If you were required to receive an RMD payment, and still want to receive it, you may request that by calling the Investment Plan Administrator at 1-866-446-9377, Option 4, or by logging into MyFRS.com.
IRS Stimulus Payments
You may qualify for a stimulus payment of up to $1,200 (or $2,400 for married couples) authorized by the CARES Act. Direct deposit payments started going out April 9th, and should start arriving in taxpayer accounts by April 14th. Paper checks will take a bit longer, maybe as late as September for some taxpayers. Lower income taxpayers will receive their checks first. Qualification for the stimulus payments are based upon your 2019 tax return, or if you haven’t filed it yet, your 2018 return. The method of payment is also based on the method you received your refund on that return. But what if were not required to file a return for 2018 or 2019? Non-filers who receive Social Security retirement, disability (SSDI), or survivor benefits, or receive Railroad Retirement and Survivor Benefits, don’t need to do anything– the IRS will send your stimulus check by the same method. However, non-filers who receive one of these benefits and have a qualifying child under age 17, can apply for an extra $500 per child. Those who are not required to file a tax return, and do not receive the above listed government benefits, to file for the stimulus payment.
Tax Filing Deadline
As part of the CARES Act, the IRS extended the deadline to file and pay your 2019 income tax until July 15th, 2020. The deadline to make 2019 IRA and HSA contributions is also extended until July 15th, 2020.
Waived Early Distribution Penalty
For those adversely affected by COVID-19, the 10% early distribution penalty is waived on distributions of up to $100,000 (total) from most workplace retirement plans and IRAs. Also, you can choose to pay the federal income tax on the distribution over a 3-year period. However, you should talk to your advisor prior to taking early distributions.
Rick Bernard | MBA
Right now, our world is consumed with the impacts that COVID-19 is having on our health and our economy. So many have lost their jobs and are struggling to make ends meet. You may have experienced a financial hit in recent weeks, and it could mean that you need to reevaluate your own budget. In this time of financial uncertainty, it can be empowering to take control over your finances. Taking action now will relieve stress levels and will set you up for success in the future.
- Building Your Emergency Savings Fund
This season of uncertainty is why an emergency fund is critical. Having three to six months of living expenses is recommended, but if you aren’t there yet, now is the time to make a plan.
You may need to scale back on the non-critical spending, especially if you are currently out of work. You may find that continuing to cut this type of spending out of your budget, even after you are back to work, will help you reach your emergency savings goals quickly and efficiently.
Call your mortgage institution, student loan provider, credit card companies or even your utility services to ask if they can extend your payments. This can prove to be a powerful option. Pushing the pause button will allow you to build up your emergency savings.
- Consider Refinancing Your Loans.
Now, more than ever, may be a good time to look at refinancing your loans. The Federal Reserve lowered interest rates to 0%. When this happens, you may be able to lock in lower payments over 10, 15, or even 30 years due to lower interest rates. If you can find a lender that has low closing costs, the option of refinancing may benefit you. If you need help finding a lender, contact your advisor.
If you have credit card debt, now might be the time to look into consolidating them, if the interest rate is lower than what you are currently paying. Another option is to look for credit cards offering a 0% interest rate to roll over the balance and pay it down more aggressively. You would want to make sure that the rate is set for its entirety and not just a few months. After paying off the card, make it a point to avoid using it. The spending habits are what you want to get control over, so that you don’t find yourself in the same boat again.
- Look for Other Sources of Income
While there are companies that cannot keep their doors open due to the virus, there are many well known organizations that are ramping up hiring. Here is a list of 30 major US Companies currently hiring. If you can pick up some extra work on the side, it can help boost your savings even faster.
- Stay Connected
Actively connecting with people is a great way to collaborate and build relationships. It’s also good for your mental health to stay connected whether that be phone calls or virtual meetings. Look for groups on social media that share in the same interests as you. Follow and comment on posts and like photos that you find interesting. Call or video chat your friends or family. Share your own story and start conversations to get people to share their ideas. Create a space where you can share your skills, values or experiences.
- Do Not Touch Your Investment Balances
It is always recommended to invest consistently, and many people are doing this by contributing to their retirement plans at work. Right now, checking your investment balances daily will send your emotions on a roller coaster ride. There is no successful science to “timing” the market. Instead think of “time in” the market as your strategy. With the markets fluctuating the way that they have the last few weeks, you’re taking advantage of the opportunities to buy more. Think of it this way, when are you more likely to spend money at a department store? When there is a sale or when everything you want is full price? Right now, you are getting the sale price!
The impact of this virus is different for all of us; it looks different and it feels different. Taking control of your finances can be an emotional lifesaver, and we hope that these tips can help to alleviate any stress you are feeling. Most importantly, here at CPS, we hope that you and your family are staying safe and healthy. We’re in this together.
Tamara L Fales
Retirement Plan Advisor
By now, numerous versions of how to apply for the Payroll Protection Program (PPP) or Economic Impact Disaster Loan (EIDL) in relation to COVID-19 have been pushed out either in newsletters, emails, or social media.
The purpose of this article is not to explain the technical details, but to stop and think whether a business should apply for the bridge loans like EIDL, PPP, or take the appropriate tax credit from this pandemic. Let’s quickly explain them again.
The Families First Coronavirus Response Act (FFCRA) is a monumental program for small and midsize employers. The FFCRA will provide a 1:1 credit for the cost of providing paid sick and family leave wages to their employees kept on staff related to COVID-19.
Employee Retention Credit (ERC): a refundable credit for qualified businesses equal to 50% up to $10,000 in qualified wages (March 13-March 31) and 50% of qualified wages paid during the 2nd quarter of 2020 on Form 941, 941-SS or 941-PR. This credit is for those employers that had to partially or fully shut down due to governmental orders, also seen as businesses with a significant decline in gross receipts compared to 2019. A great connection the FFCRA has is that the ERC ties into the already existing Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (FMLA). Those wages paid for the EPSLA or FMLA are fully refundable under the ERC.
For sole-proprietors, the IRS has specific provisions to allow for certain tax credits to apply in relation to the above, but the periods in question will be April 1, 2020 through December 31, 2020. This tax credit is instead applied to self-employment tax rather than wages paid to employees.
This program has a neat provision for an advance of $10,000 to provide economic relief to qualified businesses experiencing a temporary loss of revenue due to the effects of COVID-19. Even though the name says “loan,” this advance does not need to be repaid. Funds have been provided in days; a fair turnaround compared to traditional private loans from banks. Ensure the use of these funds qualifies under the act, but more can be available under the EIDL if necessary. Just understand the loan provisions to pay it back.
This program allows for 2.5x the average monthly gross wages paid during 2019 (or the last rolling 12 months or a seasonal average depending on the business). You must also keep the same average number of full time employees (FTEs) determined on February 15, 2020 through June 30, 2020. At least 75% of the funds need to be used for payroll and the other portion to be used for rent/utilities. If not, the excess becomes a loan at 1% due in two years.
Putting It All Together
For small business owners, what does it all mean? Which program is best? How will they receive the most money or best opportunity to survive during this time? This is where professional advice comes in. Sit down with your CPA, banker, or trusted advisor. Discuss with them about the pros and cons of each program to determine how to proceed. It’s also important to note that the tax credits first touted won’t be available for those businesses that take these special loans or grants. No one is talking about that.
A sole-proprietor with a low wage base may just need the advance of the EIDL to cover outstanding business costs. A business that had to completely close down due to the governmental orders may see that they need the PPP to keep their employees from making more during unemployment with that extra $600 flat weekly pay from the CARES Act vs what the business owner was paying them (hence a need to pay them more to incentivize them to stay loyal). Do not just look at these programs as “free money” because the specifics for their use are well defined.
When the first program for businesses came out, the EIDL seemed like a great loan opportunity at the time. Then, the PPP came out, and it seems like a no brainer. A business owner can lean on a financial professional to make the right decision for their business. No one wants to end up owing money they didn’t anticipate or not receiving as much as they needed because they applied for one over the other.
Contact us for support. Lean on your trusted advisors to help navigate you through a not-so-seemingly easy opportunity. We’re here to help.
Derek M Oxford | CFP®️ | AEP®️
The coronavirus pandemic has captured the world’s attention. There is now an enormous amount of information about the coronavirus and related government programs in the media and on the Internet. Unfortunately, there are already reports of coronavirus-related scams in many parts of the country. Scammers know that this is a stressful time for many of us. Protecting your financial life from scammers is just as important as protecting your health.
Here are some tips to help you avoid potential scams:
Part of the recent CARES Act includes sending tax rebates directly to most Americans to aid them in these difficult times. Remember, the government will not ask you to pay anything upfront to receive your stimulus check. The government will not ask you for your Social Security Number, bank account information, or credit card information over the phone. The IRS expects to start distributing stimulus funds within a few weeks. Anyone who claims they can help you get yours sooner is probably lying. No government agency will call you about your stimulus check. Anyone claiming to need your personal information for this is a scammer and should be avoided.
Many individuals are out of work right now due to the quarantine and stay-at-home orders. If have debt payments coming up and need assistance, your lender may be able to help. It is up to you to contact your lender and discuss your situation with them. Be wary of anyone who contacts you offering assistance, especially if they ask you for your personal information or want to charge you a fee for help with debt relief. Your bank will never call you asking for personal financial information, including your online account passwords.
Finally, anyone pressuring you to make a decision immediately or threatening you about your finances should not be trusted. Like many individuals, you might have needs that must be addressed quickly. Scammers know this and will try to take advantage of the situation. If you aren’t sure whether the person you are talking to or website you’re visiting is legitimate, STOP and contact your trusted financial advisor at CPS, or contact local authorities.
Look Out for Elderly Family Members and Friends
The public health crisis is especially scary for people at risk of serious illness, like the elderly. If you have elderly family members or friends, give them a call and let them know not to trust anyone contacting them offering help over the phone. If you have any questions regarding what resources may be available to you or about potential scams, please contact your advisor at CPS Investment Advisors.
We’re here to help, because we’re all in this together.
Michael Scott | MBA, CFA
Senior Portfolio Analyst
Our CPS Investment Advisors team is here to help all small businesses through the application process. Don’t go at this alone. We’re here for you.
Click HERE to download the checklist and application needed to apply for the Paycheck Protection Program (PPP).
NEW Website PPP Checklist 5-18-2020
The United States Government has recently passed the CARES Act; Coronavirus Aid, Relief, and Economic Security Act. This bill has allocated $350 billion to assist small businesses; to maintain their employees and provide capital to keep operations running amid this pandemic & economic downturn. This initiative is known as the Paycheck Protection Program, which will provide 100% federally guaranteed loans to small businesses.
Small businesses are eligible if you meet certain criteria:
- Few than 500 employees (to include full-time, part-time, and any other status of employee)
- A 501(c)(3) with fewer than 500 employees
- Individuals who operate as a sole proprietor
- Individuals who operate as an independent contractor
- Self-employed individuals who regularly carry on any trade or business
Lenders will be looking at February 15, 2020 as this is the date in which the borrower needed to already be in operation and paying employee salaries and payroll taxes or had paid independent contractors. In the application, small business owners will be asked to certify that the loan request is necessary to support ongoing business practices during the current economic conditions & that the loan proceeds will be used to retain workers, maintain payroll, or make mortgage, lease, and utility payments. If you are self-employed, there is a tax credit for sick leave and family leave. It also allows for emergency paid sick leave for quarantine or testing for COVID-19.
Included in the bill is a payroll tax credit on wages to retain workers. It lets small businesses borrow as much as $10 million with an interest rate no higher than 4%. Payroll could be covered for up to 8 weeks. These loans could cover mortgage or rent payments and utility bills. These are loans backed by the Small Business Administration (SBA) and can be forgiven in the future as long as your company meets the conditions, effectively making your loan a grant. Principal being forgiven and only the interest to be paid. There are minimal requirements, no personal guarantee. The main goal of this initiative is to keep businesses running and paychecks going to employees. It’s best to be in contact with your trusted banker & payroll professional to get the process started as guidelines and payroll calculations could get complicated.
An update to previous info regarding EIDL, disaster loans, is that it allows an emergency grant of $10,000 to be issued even if you don’t end up qualifying for the EIDL. Remember, no double dipping. The EIDL and the PPP loan (which could become a grant) should not be used for similar costs. If you get both, keep records of what was used for payroll, rent, and utilities so that portion of the loan becomes the grant.
Tax Day is now July 15, 2020. The Treasury Department and Internal Revenue Service have recently announced the federal income tax filing is automatically extended from April 15 to July 15. If you are set to get a refund, the IRS urges you to file as soon as possible. Most tax refunds are still being issued within 21 days. There are no additional forms to file or no reason to call the IRS to qualify for this automatic relief. If you need additional time beyond July 15 deadline, then a request to file extension on Form 4868 must be completed. Remember, this also extends the deadline to fund retirement accounts (including health savings accounts) and profit-sharing accounts. If 2019 is looking like a better year than 2020, maybe contributing to your retirement plan for 2019 makes more tax “cents” than holding off to fund later. With recent market declines, now may be a great time to consider funding. Check with your trusted tax professional regarding this planning opportunity.
Payroll Taxes & Social Security
If you’re an employer and your business was affected by coronavirus, you could be eligible for 2020 tax credit equal to 50% of the wages you pay your employees.
The credit will be given for the first $10,000 of salary, including health benefits, paid to each eligible employee, and applies to qualified employee wages from March 13, 2020 through December 31, 2020.
To be eligible, your business had to have shut down during the pandemic, or your gross receipts to have gone down by more than 50% compared to the same quarter last year. If your business has 100 or fewer full-time employees, it doesn’t matter if you shut down or not.
Employers and self-employed people can also defer payment of the 6.2% employer share of the Social Security tax over two years. Half of it will need to be repaid by December 31, 2021 and the other half by December 31, 2022.
A great financial plan is having cash on hand. Being in position to purchase assets when other business owners cannot weather the storm or when assets get depressed in value because nobody wants to own them, are examples of when cash is king. Times like these, being the contrarian, or as Warren Buffet once said, “Being greedy when everyone is fearful.” Be ready to take advantage of the opportunity that presents itself, don’t act emotional instead be proactive. Another idea for a small business owner is to increase cash flow by taking advantage of low interest rates. If you have a mortgage, consider refinancing at historic low rates. It’s always important to have a plan, small business owners should have two, one for their business and one for themselves. If you need help with your financial plan, contact a fiduciary that will put your best interests ahead of their own!
- SBA.gov for all your small business info and to apply for disaster loans.
- Keep a separate file for all things related to COVID-19; copies of applications, check copies, etc. Consider a separate bank account for tracking purposes in the future.
- When filling out the application(s), be sure to use the fillable version and avoid handwriting if at all possible, to avoid any potential delays. If you are required to submit additional docs, be sure to use the SBA forms.
- PPP applications will be ready to submit as early as Friday, April 3, 2020. So, get them prepared and over to your trusted banker for submission.
We don’t know what we don’t know. The process is available, and pieces are in place, but the outline is not completely defined. As we learn more, as the SBA continues to provide guidance, we will continue to update and send out. Contact CPS with your small business questions. Stay safe and don’t touch your face like you haven’t touched your portfolio.
Tony Corrao | CFP®️