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The PPP Loan Forgiveness Fog; Finding Our Way….

Is PPP Loan forgiveness on your horizon? When we talk with small business owners, the conversation quickly moves to the hot topic of PPP forgiveness. We have been helping our clients apply for forgiveness, and it seems the only thing for certain, is the uncertainty. Even applying for forgiveness in late 2020, we may not hear the results until well into 2021. No doubt, tax return preparers can count on a record number of extensions in the spring.


There is some good news, though.


If you have a bookkeeping service (like Wellness Capital Management for example) that maintains your books every week versus once a month or worse yet, once a year, you are in a much better position to know where you stand on forgiveness eligibility. This will also help your tax preparer to determine the effect PPP forgiveness may have on your state and federal taxes. Many of our clients have been able to apply for and receive state grants thanks to up-to-date financial records. So important!!


For those businesses that received less than $50,000 in PPP funds, there is a simple, one-page application to fill out to apply for loan forgiveness. This form is the 3508-S. Some banks have developed a secure web portal to submit this form and any required documentation. Some banks are still trying to figure it out. The chaos is not their fault exactly, the banks just don’t have a lot of guidance from the SBA on how to put these packets together. Your lender doesn’t have the final say on forgiveness. The SBA does.


Perhaps you remember that Congress extended the “spend down” period for PPP borrowers from 8 to 24 weeks. This gave businesses a lot more time to make sure the PPP funds were used for eligible expenses. The new rules also allow 10 months after the end of the 24-week period to apply for forgiveness. More time should mean a better chance to spend funds properly and ensure loan forgiveness.


Practically speaking, though, what can a business do to prepare? Most of our clients are seeing the checklist from their lender of what they need to support their forgiveness claim and calling us in a panic. The truth is that banks are asking for things that should be easily accessible. Common required items include quarterly federal Form 941, quarterly state unemployment filings, and a list of individual employees’ wages. They also request a payroll summary report for the affected period, or bank statements and receipts showing eligible rent, mortgage interest, or utility expenses.


While many of our clients seem eager to apply for forgiveness right away, tax professionals like Tony Nitti at RubinBrown, are encouraging businesses to wait out the entire 24-week period. It seems like we are all holding out hope that Congress will address the “hearsay” that maybe loans under $150,000 will be automatically forgiven and that maybe the IRS’s stand on non-deductibility of forgiven expenses will change. Up to now, the rules surrounding the PPP and EIDL loan programs have changed constantly since their initial introduction.


You should be aware that even though a forgiven PPP loan is NOT considered taxable income, the associated forgiven expenses are also NOT deductible- effectively making the PPP “grant” (forgiveness) taxable. And we still don’t know which year those non-deductible expenses will be non-deductible, in 2020? or 2021? So back to square one. We just aren’t sure of a lot on the forgiveness front. Confused yet? We don’t blame you.


But wait, there’s help! We hope you get help analyzing the use of your PPP funds, gathering forgiveness and documentation for your lender. If you need assistance catching up your bookkeeping so you can make sound and informed financial decisions, it’s not too late. As always, we are here to help. Please contact us for a free initial consultation.


Be well and stay safe. We will get through this.

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