COVID-19 Relief Archives - MGO CPA | Tax, Audit, and Consulting Services

Businesses must navigate year-end tax planning with new tax laws potentially on the horizon

The end of the tax year is fast approaching for many businesses, but their ability to engage in traditional year-end planning may be hampered by the specter of looming tax legislation. The budget reconciliation bill, dubbed the Build Back Better Act (BBBA), is likely to include provisions affecting the taxation of businesses — although its passage is uncertain at this time.

While it appears that several of the more disadvantageous provisions targeting businesses won’t make it into the final bill, others may. In addition, some temporary provisions are coming to an end, requiring businesses to take action before year end to capitalize on them. As Congress continues to negotiate the final bill, here are some areas where you could act now to reduce your business’s 2021 tax bill.

Research and experimentation

Section 174 research and experimental (R&E) expenditures generally refer to research and development costs in the experimental or laboratory sense. They include costs related to activities intended to uncover information that would eliminate uncertainty about the development or improvement of a product.
Currently, businesses can deduct R&E expenditures in the year they’re incurred or paid. Alternatively, they can capitalize and amortize the costs over at least five years. Software development costs also can be immediately expensed, amortized over five years from the date of completion or amortized over three years from the date the software is placed in service.

However, under the Tax Cuts and Jobs Act (TCJA), that tax treatment is scheduled to expire after 2021. Beginning next year, you can’t deduct R&E costs in the year incurred. Instead, you must amortize such expenses incurred in the United States over five years and expenses incurred outside the country over 15 years. In addition, the TCJA requires that software development costs be treated as Sec. 174 expenses.

The BBBA may include a provision that delays the capitalization and amortization requirements to 2026, but it’s far from a sure thing. You might consider accelerating research expenses into 2021 to maximize your deductions and reduce the amount you may need to begin to capitalize starting next year.

Income and expense timing

Accelerating expenses into the current tax year and deferring income until the next year is a tried-and-true tax reduction strategy for businesses that use cash-basis accounting. These businesses might, for example, delay billing until later in December than they usually do, stock up on supplies and expedite bonus payments.

But the strategy is advised only for businesses that expect to be in the same or a lower tax bracket the following year — and you may expect greater profits in 2022, as the pandemic hopefully winds down. If that’s the case, your deductions could be worth more next year, so you’d want to delay expenses, while accelerating your collection of income. Moreover, under some proposed provisions in the BBBA, certain businesses may find themselves facing higher tax rates in 2022.

For example, the BBBA may expand the net investment income tax (NIIT) to include active business income from pass-through businesses. The owners of pass-through businesses — who report their business income on their individual income tax returns — also could be subject to a new 5% “surtax” on modified adjusted gross income (MAGI) that exceeds $10 million, with an additional 3% on income of more than $25 million.

Capital assets

The traditional approach of making capital purchases before year-end remains effective for reducing taxes in 2021, bearing in mind the timing issues discussed above. Businesses can deduct 100% of the cost of new and used (subject to certain conditions) qualified property in the year the property is placed in service.
You can take advantage of this bonus depreciation by purchasing computer systems, software, vehicles, machinery, equipment and office furniture, among other items. Bonus depreciation also is available for qualified improvement property (generally, interior improvements to nonresidential real property) placed in service this year. Special rules apply to property with a longer production period.

Of course, if you face higher tax rates going forward, depreciation deductions would be worth more in the future. The good news is that you can purchase qualifying property before year-end but wait until your tax filing deadline, including extensions, to determine the optimal approach.

You can also cut your taxes in 2021 with Sec. 179 expensing (deducting the entire cost). It’s available for several types of improvements to nonresidential real property, including roofs, HVAC, fire protection systems, alarm systems and security systems.

The maximum deduction for 2021 is $1.05 million (the maximum deduction also is limited to the amount of income from business activity). The deduction begins phasing out on a dollar-for-dollar basis when qualifying property placed in service this year exceeds $2.62 million. Again, you needn’t decide whether to take the immediate deduction until filing time.

Business meals

Not every tax-cutting tactic has to be dry and dull. One temporary tax provision gives you an incentive to enjoy a little fun.

For 2021 and 2022, businesses can generally deduct 100% (compared with the normal 50%) of qualifying business meals. In addition to meals incurred at and provided by restaurants, qualifying expenses include those for company events, such as holiday parties. As many employees and customers return to the workplace for the first time after extended pandemic-related absences, a company celebration could reap you both a tax break and a valuable chance to reconnect and re-engage.

Stay tuned

The TCJA was signed into law with little more than a week left in 2017. It’s possible the BBBA similarly could come down to the wire, so be prepared to take quick action in the waning days of 2021. Turn to us for the latest information.

Don’t forget to factor 2022 cost-of-living adjustments into your year-end tax planning

The IRS recently issued its 2022 cost-of-living adjustments for more than 60 tax provisions. With inflation up significantly this year, mainly due to the COVID-19 pandemic, many amounts increased considerably over 2021 amounts. As you implement 2021 year-end tax planning strategies, be sure to take these 2022 adjustments into account.

Also, keep in mind that, under the Tax Cuts and Jobs Act (TCJA), annual inflation adjustments are calculated using the chained consumer price index (also known as C-CPI-U). This increases tax bracket thresholds, the standard deduction, certain exemptions and other figures at a slower rate than was the case with the consumer price index previously used, potentially pushing taxpayers into higher tax brackets and making various breaks worth less over time. The TCJA adopts the C-CPI-U on a permanent basis.

Individual income taxes

Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket increases by $325 to $650, depending on filing status, but the top of the 35% bracket increases by $16,300 to $19,550, again depending on filing status.

The TCJA suspended personal exemptions through 2025. However, it nearly doubled the standard deduction, indexed annually for inflation through 2025. For 2022, the standard deduction is $25,900 (married couples filing jointly), $19,400 (heads of households), and $12,950 (singles and married couples filing separately). After 2025, standard deduction amounts are scheduled to drop back to the amounts under pre-TCJA law unless Congress extends the current rules or revises them.

Changes to the standard deduction could help some taxpayers make up for the loss of personal exemptions. But it might not help taxpayers who typically used to itemize deductions.

Alternative minimum tax

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability is greater than your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. For 2022, the threshold for the 28% bracket increased by $6,200 for all filing statuses except married filing separately, which increased by half that amount.

The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts for 2022 are $75,900 for singles and heads of households and $118,100 for joint filers, increasing by $2,300 and $3,500, respectively, over 2021 amounts. The inflation-adjusted phaseout ranges for 2022 are $539,900–$843,500 (singles and heads of households) and $1,079,800–$1,552,200 (joint filers). Amounts for separate filers are half of those for joint filers.

Education and child-related breaks

The maximum benefits of certain education and child-related breaks generally remain the same for 2022. But most of these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

The MAGI phaseout ranges generally remain the same or increase modestly for 2022, depending on the break. For example:

The American Opportunity credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the American Opportunity credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGI in excess of $80,000 ($160,000 for joint returns). The maximum credit per eligible student is $2,500.

The Lifetime Learning credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the Lifetime Learning credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGI in excess of $80,000 ($160,000 for joint returns). The maximum credit is $2,000 per tax return.

The adoption credit. The phaseout ranges for eligible taxpayers adopting a child will also increase for 2022 — by $6,750 to $223,410–$263,410 for joint, head-of-household and single filers. The maximum credit increases by $450, to $14,890 for 2022.

(Note: Married couples filing separately generally aren’t eligible for these credits.)

These are only some of the education and child-related breaks that may benefit you. Keep in mind that, if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible to claim one on his or her tax return.

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. For 2022, the amount is $12.060 million (up from $11.70 million for 2021).

The annual gift tax exclusion increases by $1,000 to $16,000 for 2022.

Retirement plans

Not all of the retirement-plan-related limits increase for 2022. Thus, depending on the type of plan you have, you may have limited opportunities to increase your retirement savings if you’ve already been contributing the maximum amount allowed.

Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2022:

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
For a spouse who participates, the 2022 phaseout range limits increase by $4,000, to $109,000–$129,000.
For a spouse who doesn’t participate, the 2022 phaseout range limits increase by $6,000, to $204,000–$214,000.
For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2022 phaseout range limits increase by $2,000, to $68,000–$78,000.

Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $6,000 contribution limit (plus $1,000 catch-up if applicable and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may be beneficial if your MAGI is also too high for you to contribute (or fully contribute) to a Roth IRA.

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

For married taxpayers filing jointly, the 2022 phaseout range limits increase by $6,000, to $204,000–$214,000.
For single and head-of-household taxpayers, the 2022 phaseout range limits increase by $4,000, to $129,000–$144,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for both traditional and Roth IRAs.)

2022 cost-of-living adjustments and tax planning

With many of the 2022 cost-of-living adjustment amounts trending higher, you have an opportunity to realize some tax relief next year. In addition, with certain retirement-plan-related limits also increasing, you have the chance to boost your retirement savings. If you have questions on the best tax-saving strategies to implement based on the 2022 numbers, please give us a call. We’d be happy to help.

Applying the R&D Tax Credit to Telemedicine Software

During the pandemic, telemedicine services provided important solutions to a system in crisis. They helped ease the burden on health care facilities and staff and offered individuals the care they needed. While in-person visits may have been a preference in the past, COVID-19 demonstrated the convenience and effectiveness of telemedicine for both patients and care providers. Though the health crisis has abated in many areas of the United States, caring for patients remotely through telemedicine will continue to provide important health resources, and valuable opportunities for software developers.

Tax incentives for telemedicine tools

Health care professionals are incorporating tablets, chat capabilities, and other mobile solutions to diagnose more patients in a shorter amount of time and across geographical boundaries. This demand for innovation presents opportunities for software companies, and the development of these technologies is being encouraged by Federal and state Research and Development (R&D) Tax Credits.

About the R&D tax credit

Enacted in 1981, the Federal R&D Tax Credit allows a credit of up to 14 percent of eligible spending for new and improved software products.

To qualify as an R&D activity, one must meet each of the following criteria:

• Technological in nature. Activities must be based on hard science.
• Qualified purpose. Activities must be intended to develop a new or improved product or process.
• Technological uncertainty. Activities must be aimed at eliminating uncertainty with respect to the development of a product or process.
• Process of experimentation. Activities must involve a systemic or iterative approach of evaluating different alternatives to eliminate ambiguity.

Eligible costs include:
• Employee wages
• Supplies
• Contract research expenses

Software companies developing platforms to enable and improve remote health care may be able to take advantage of the R&D Tax Credit as a dollar-for-dollar tax saving for the work that they are already doing.

Software activities that may qualify for a tax credit
If your company is investing in developing telemedicine platforms, you may be able a claim an R&D Tax Credit. Though each situation is unique, development activities for the following products may qualify:

Tools that allow physicians to view medical images and other data on mobile devices such as smartphones, tablets, and other electronic devices
Application programming interfaces and capabilities to transfer information electronically and view electronic medical files
Cloud-based platforms to enable health care providers to directly engage patients in an easy-to-use virtual care environment that is HIPAA compliant
Platforms with the capabilities of linking physicians and pharmacies to allow physicians to submit a prescription electronically
Wearable devices with sensors to provide continuous monitoring of patients and automated treatment for health conditions
Virtual therapy platforms for online counseling
Medical data cloud storage solutions and data security

How we can help

The pandemic put our current telemedicine capabilities to the test, and patients gave these innovations a passing grade. But we have yet to experience the true power of telemedicine. As the innovation continues and popularity grows, we can be certain of even more widespread acceptance of telemedicine. And as the need continues to increase, it appears that the various tax credits for research and development will be available to help support the work of those who develop technology in the health care sector.

MGO professionals bring over 25 years of R&D Tax Credit experience to help you identify, analyze, file, and defend your claim. We provide a no-cost eligibility analysis to determine if these tax incentives are appropriate to your situation.

About the author

Michael Silvio is a partner at MGO. He has more than 25 years of experience in public accounting and tax and has served a variety of public and private businesses in the manufacturing, distribution, pharmaceutical, and biotechnology sectors.

$432 Billion in COVID-19 Relief Slated for State, Local, and Tribal Governments

Throughout the COVID-19 pandemic, state, local, and Tribal governments have been on the frontlines, organizing and providing essential medical care and navigating the endless complications created by shutdowns in their communities. Until now, these government agencies have received aid to directly support COVID-19 responses, but not address disastrous budget deficits, looming layoffs and other emerging issues.

That all changed on March 11, when President Biden signed the American Rescue Plan Act of 2021 into law. The bill allocates $432 billion in direct financial support to U.S. territories, states, and local and tribal governments. In the following, we highlight how the bill affects state, local, and Tribal governments, and breakdown the details of key provisions.

American Rescue Plan of 2021: Impact on State, Local and Tribal Governments

The American Rescue Plan of 2021 contains wide-ranging programs designed to support state, local, and Tribal governments through the financial crises resulting from the COVID-19 pandemic. These include active support for COVID-19 response and planning, funds for in-state capital improvement projects, emergency housing support, and much more.

Much of the relief funding is allocated and disbursed automatically using metrics that include population, economic conditions, and unemployment rates. While each program has different disbursement details, broadly speaking, payments are delivered in two or more installments, the first coming within a 60-day window following the bill becoming law, and future installments through 2022 and beyond.

Other programs will require state and local authorities to apply for grants based on specific needs.

One of the highlights of the revised funding and plan is looser restrictions on how funds from the Coronavirus State Fiscal Recovery Fund can be utilized. The accepted uses include:
• Funding government services that have been curtailed due to decreases in tax revenue caused by the pandemic.
• Aid to households, small businesses and nonprofits, and impacted industries like tourism, hospitality and travel.
• Making “necessary investments” in water, sewer, or broadband infrastructure.

While potential uses have been broadened, all programs require stringent rules for intended use, tracking and reporting.

Highlights of the American Rescue Plan of 2021

Coronavirus State Fiscal Recovery Fund

Sec. 9901, SSA-Sec. 602

50 States and the District of Columbia receive $195.3 billion in aid:

$25.5 billion will be split evenly among each state and the District of Columbia, with each state and the District of Columbia receiving $500 million in aid.
$168.55 billion distributed based on each state’s share of total unemployed workers over the period of October 2020 to December 2020.
District of Columbia receives additional $1.25 billion.
Tribal governments receive $20 billion (further discussion to come).
U.S. territories receive $4.5 billion.
U.S. Treasury receives $50 million to cover costs of administration of the fund.

Coronavirus Local Fiscal Recovery Fund

Sec. 9901, SSA-Sec. 603

Local governments to receive $130.2 billion in aid to be split among counties, metropolitan cities, and non-entitlement units of local government:

Counties receive $65.1 billion in population-adjusted payments, with additional adjustments for Community Development Block Grant (CDBG) recipients.
Metropolitan cities receive $45.57 billion.
Non-entitlement units of local government receive $19.53 billion, distributed by individual states and funded by the U.S. Treasury. Each jurisdiction receives population-adjusted payments based on such jurisdiction’s share of the state population.

Coronavirus Capital Projects Fund

Sec. 9901, SSA-Sec. 604

$10 billion available for states, territories, and Tribal governments to support critical capital projects directly enabling work, education and health monitoring in response to COVID-19:

Each state receives $100 million.
U.S. territories receive $100 million to be split among them.
Tribal governments and the state of Hawaii receive $100 million to be split among them.
Remainder of funds to be allocated to states based on population.

NOTE: The Treasury Department will establish an application process for grants from the fund within 60 days of enactment of the law.

Local Assistance and Tribal Consistency Fund

Sec. 9901, SSA-Sec. 605

$2 billion for eligible revenue-sharing counties and tribal governments:

Eligible revenue-sharing counties will receive $750 million allocated based on economic conditions for each FY 2022 and FY 2023.
Eligible tribal governments will receive $250 million allocated based on economic conditions for each FY 2022 and FY 2023.

NOTE: Payments from this fund may be used for any governmental purpose other than a lobbying activity and will remain available until September 30, 2023.

Other State, Local, and Government Funding Sources

Additional federal government programs have received funding earmarked to support recovery efforts in states, Tribes, and territories. These funds can be applied for via grant applications depending on each government agency’s circumstances.

Homeowner Assistance Fund

Sec. 3206

$10 billion allocated to states, territories, and tribes through grants to prevent homeowner mortgage defaults, foreclosures, and displacements.

Funds may be used to reduce mortgage principal amounts, assist homeowners with housing payments and other aid needed to prevent eviction, mortgage default, foreclosure, or the loss of utility services.

Funds may also reimburse state and local governments that have provided similar assistance since January 2020.

Each state, along with the District of Columbia and Puerto Rico, will receive at least $50 million. Additional amounts will be set aside for other U.S. territories and tribes.

States, territories, and Tribes receiving funding will have to set aside at least 60% of their allocation to assist homeowners who make less than 100% of the local or national median income.

Homelessness Assistance and Supportive Services Program

Sec. 3205

$5 billion allocated to state and local governments to provide supportive services for homeless and at-risk individuals. Permitted fund uses include tenant-based rental assistance, housing counseling and homeless prevention services, and acquiring non-congregate shelter units.

Low-Income Home Energy Assistance Program (LIHEAP) and Water Assistance Program

Sec. 2911
Sec. 2912

$4.5 billion allocated to fund the LIHEAP program, and $500 million provided in state grants to assist low-income households with drinking water and wastewater services.

FEMA Disaster Relief Fund

SEC. 4005

$50 billion to reimburse state and local governments for the costs of ongoing COVID-19 response and recovery activities, and other emergencies.

Funding to remain available through FY 2025.

Final thoughts

With billions of dollars in aid becoming available to state, local and tribal government agencies, the use of these funds is going to be tracked very closely by federal regulators. If you have any questions about how funds can be utilized, and how to track and report this use, MGO’s dedicated State and Local Government team can help. Contact Us.

California Small Business COVID-19 Relief Grant Deadline Extended

The State of California Small Business COVID-19 Relief Grant Program, which offers grants of $5,000 to $25,000 to eligible small businesses and nonprofits adversely affected by the pandemic, has extended the deadline for the first round of applications to January 13th, 2020.

Start a grant application here: https://careliefgrant.com/partners/county/

Basics of the COVID-19 relief grant program

The program, which allocates $500 million in financial relief to small businesses and nonprofits that have been impacted by the COVID-19 pandemic, was first announced by Gov. Newsom and the California state legislature on November 30th, 2020.

All California-based small businesses (including sole proprietors, home-based businesses, and independent contractors) and not-for-profits with a yearly gross revenue of $2.5 million or less, and have been in operation since at least June 1, 2019, may be eligible for the grant. It is worth noting that applicants with multiple business entities/franchises/locations, etc. are not eligible for multiple grants and are only allowed to apply once using their eligible small business with the highest revenue.

Grant awards by entity revenue

The grant award ranges from $5,000 to $25,000 based on your operation’s annual gross revenue as reported in the most recent federal tax return.

Gross Annual Revenue – Grant Award
$1,000 to $100,000 – $5,000
Greater than $100,000 up to $1,000,000 – $15,000
Greater than $1,000,000 up to $2,500,000 – $25,000

The award is a true grant, not a loan that has to be forgiven. The funds are intended to be used as working capital for your business’s operating expenses – payroll, rent, loan payments, COVID-protective measures, etc.

Award selection process

The grants are not issued on a “first-come, first-served” basis; rather all applications will be assessed following the close of each application round. The program prioritizes distribution based on key factors, including:

Geographic distribution based on COVID-19 health and safety restrictions;
County status and regional stay-at-home orders;
Industry sectors most impacted by the pandemic;
Underserved small business groups:
- e.g., majority-owned and run by women, persons of color, or veterans, or located in low-to-moderate income and rural communities.

The Small Business COVID-19 Relief Grant Program will be offered in two “Rounds” – with the first Round running from December 30, 2020 to January 13, 2021 at 11:59pm. Everyone who applies during a Round will be given equal consideration. Awards will be announced after each Round closes. The timing of the second and final Round is to be determined.

If you apply in the Round 1 and are not successful, your application will be carried over for consideration in Round 2 without the need to reapply. Businesses can only receive one grant even though there will be two Rounds.

For more information, visit careliefgrant.com

Forging a Path Forward: Understanding the Impact of the Paycheck Protection Program Flexibility Act

On June 5th, 2020, the Paycheck Protection Program Flexibility Act (PPFA) was signed into law, providing additional flexibility in the forgiveness and repayment terms of this popular Paycheck Protection Program created by the CARES Act.

In the following we will describe many of the key changes and what they mean for PPP loan borrowers.

Key points from the Paycheck Protection Flexibility Act (PPFA)

PPP loan use “covered period” extended to 24 weeks

The “covered period” during which PPP loans can be used has been extended from eight weeks to 24 weeks, from date of loan origination. Loan recipients may choose to maintain the eight week timeline. There is a hard cap of December 31, 2020.

What it means: The original eight-week period PPP loans were to be used in has proven insufficient as the economic fallout from the COVID-19 pandemic has continued for many businesses. The extended deadline is meant to help businesses maximize the forgiveness potential of the loans. The ability to adhere to the original eight-week deadline is also notable, as businesses that have recovered will be able to seek forgiveness when they are ready.

Payroll expenditure requirement lowered to 60%

Borrowers now need to use 60% of funds to support payroll to meet forgiveness requirements. The prior level was 75%. However, the 60% limit now becomes a cliff, meaning at least 60% of funds MUST be used on payroll or there is no loan forgiveness.

What it means: One of the biggest criticisms of the original PPP loan terms was the 75% usage requirement for maintaining payroll, as many businesses had other pressing needs (rent/lease payments, supplier payments, utilities, etc.) superseding or directly connected to the need to maintain payroll levels. Lowering the payroll threshold to 60% is useful, while also reemphasizing the purpose of the loans being for maintaining payroll through implementing the “cliff” dynamic.

Deadline for restoring full workforce extended to 24 weeks

Borrowers now have 24 weeks, or a hard deadline of December 31, 2020, to meet the forgiveness condition of restoring workforce levels to pre-pandemic levels. Previous deadline was June 30, 2020.

What it means: As the economic fallout from the COVID-19 pandemic continues, this is a very welcome change, as many borrowers are not yet near former operational levels. This makes returning workforce to pre-pandemic levels nearly impossible for many borrowers.

More exceptions for restoring workforce forgiveness condition

If a PPP borrower cannot restore prior workforce levels due to the inability to find qualified help, or have not restored prior business operations to pre-pandemic levels, their loans remain eligible for forgiveness.

What it means: Previous guidance allowed borrowers to exclude from payroll calculations employees who turned down ‘good faith’ offers to be rehired at pre-pandemic hours and wages. Creating two further exceptions makes sense as many businesses may not be able to return to previous workforce levels, possibly for years to come. Businesses seeking these exclusion will need to be able definitively document these conditions when seeking forgiveness terms through their lender.

PPP borrowers have five years to pay back loans

PPP loans can be extended to five years if borrower and lender agree. The previous timeline was two years. Loans extended to five years will maintain the 1% interest rate.

What it means: Additional flexibility in repayment terms is another welcome change as economic conditions remain difficult for many businesses.

PPP borrowers can delay payroll taxes

PPP loan recipients are now eligible for the payroll tax deferral created by the CARES Act. Previously, receiving PPP loans disqualified businesses from the payroll tax break.

What it means: In the CARES Act legislation that created the PPP program, there were tax credits and incentives designed to help struggling businesses. One essential option was the ability to defer the deposit and payment of the employer’s portion of social security taxes that otherwise would be due between March 27, 2020, and Dec. 31, 2020. Employers could instead to deposit half of deferred payments by the end of 2021 and the other half by the end of 2022.

Support for maximizing PPP loan forgiveness

The Payroll Protection Program Flexibility Act provides much needed flexibility to businesses that have taken loans out in the face of unprecedented economic disruption. These changes to terms represent a moving target for businesses seeking to use funds as directed, in many cases increasing complexity. But overall these changes are welcome and ultimately create expanded opportunities for maximizing PPP loan forgiveness.

If you have any questions about PPP loans, forgiveness terms, or related issues, our dedicated team is ready to provide guidance. Please do not hesitate to reach out to us with any questions: contact us.

Forging a Path Forward: Maximizing Paycheck Protection Program Loan Forgiveness

With the announcement that the Payroll Protection Program (PPP) has been funded a second time, many small businesses that did not receive funding the first time through are rushing to fill out applications and get much needed emergency funding through the Small Business Administration’s program.

For companies that have already received PPP funding, or expect to in this second wave, now is the time to focus on meeting the conditions for maximal loan forgiveness. In the following we will discuss what the PPP loans are intended for, how to use them for those purposes, and finally, how to document that use when applying for forgiveness.

The basics of PPP

In response to the widespread economic fallout of the COVID-19 pandemic, federal legislators introduced the CARES Act, a historically large economic stimulus program. For many businesses, both large and small, the standout from the program was the creation of the Paycheck Protection Program, which offers forgivable loans designed to help struggling businesses retain employees and make other necessary operational costs.

The popular PPP ran out of funds within two weeks of launch – with many small businesses still desperately in need of funds. The program has since been funded a second time, and there may be future waves of funding, depending how long current stay-at-home orders are maintained and the resulting economic distress.

Loans are being disbursed by approved lenders. You can find a complete list of approved vendors here.

You can access the PPP loan application here.

How PPP funds are to be used

The PPP funds have been made available by federal legislators with the primary purpose of helping employers maintain staffing levels and pay for other costs essential to continued operation for the eight week benefit period that begins when the loan is made.

Qualified expenses for PPP loans include:

Payroll costs, which include:
- Salary, wages, and commissions, up to a maximum annualized amount of $100,000 per employee.
- Note: Severance pay and bonuses are subject to the annualized cap and should be included in payroll costs.
Group health benefits, retirement benefits, medical or sick leave, and any state or local taxes assessed on employee compensation.
- Note: Not applicable if tax credits under FFCRA are taken.
Interest on mortgage obligations that originated before February 15, 2020.
Rent on lease agreements that were in force prior to February 15, 2020.
Utilities, including electricity, water, gas, telephone/internet, and transportation that were placed into service prior to February 15, 2020.

A sample of frequently cited costs that DO NOT qualify as PPP expenses include:

Payments made toward the principal portions of mortgages or other debts;
Accounts payable;
Life insurance payments;
Payments of interest on debts established after February 15, 2020;
Rent on lease agreements established after February 15, 2020.

Conditions for PPP loan forgiveness

Perhaps the most appealing aspect of the PPP loan program is the offer of forgiveness – up to 100% of the borrowed amount – if you meet specific criteria:

At least 75% of loan proceeds are used to cover the qualifying costs associated with maintaining payroll over the eight-week period that begins the day the loan is made;
Employee headcount levels are maintained;
Compensation levels for employees earning $100,000 or less are maintained; and
No more than 25% of the total loan amount is used on qualified, non-payroll expenses, including utilities, rent, etc.

Accessing PPP Loan Forgiveness

The lenders providing PPP loans will be responsible for determining loan forgiveness. To receive loan forgiveness, borrowers must apply to their lender. Requirements for forgiveness will include:

A formal application;
Documentation verifying employees and pay rates for the applicable 8 week period;
Documentation supporting other qualified, covered expenses;
Certification that presented information is true and accurate.

Lenders may require additional documentation, and will determine levels of forgiveness on a case-by-case basis.

Approach to maximizing loan forgiveness – document, document, document

Obviously, the first and most important rule for PPP loan forgiveness is to strictly follow all requirements for how funds can be used within the eight-week period following receiving the loan. But beyond that, an equally essential step is the ability to provide necessary documentation to lenders on how the funds were used to secure forgiveness. Following are some steps for optimizing documentation and record-keeping.

Create an Eight Week Budget Plan
Planning the use of funds will not only help make sure funds are directed to qualified PPP expenses, but will also help make sure the funds are used appropriately within the allotted eight week period.

Track Qualifying Expenses
Keep distinct records of all qualifying expenses PPP funds are used for. Whether a simple Excel spreadsheet or a function of your ERP, tracking expenses will help provide a visual of your organization’s progress, and can be shared with lenders following the eight week period as supplementary documentation.

Utilize Third Party Documentation Whenever Possible
Since payroll costs are at the center of the use of PPP funds, if you use a third party payroll provider, include their reports in your documentation. Similarly for other expenses, save all receipts and other documentation provided by utilities, etc.

Establish Employee Headcount
Maintaining staff numbers is a central component to PPP loan forgiveness. Depending on your organization, you may have time cards or an electronic timekeeping system. Provide copies of the timecards or reports from your timekeeping system to establish you’ve maintained headcount levels.

Rent, Leases and Mortgage Loans
Some lenders may require you to provide copies of rent, lease, and mortgage loan agreements to validate commitments that were in place prior to February 15, 2020. Be prepared to provide copies of these documents when applying for forgiveness.

Communicate with your Lender Ahead of Time
Lenders will have different requirements for establishing PPP loan forgiveness. Maintain an open line of communication with your lender to fully understand the documentation they will need. That way there will be no surprises when it comes time to apply for forgiveness.

Final thoughts

It is important to remember that PPP funds that do not ultimately qualify for forgiveness will convert into low interest loans. With that in mind, it is probably not in your organization’s best interest to bend over backward, altering payroll systems or other operations, to meet PPP forgiveness requirements.

There are a great many technical accounting issues, tax implications, and other complexities surrounding accessing, utilizing, and securing forgiveness for PPP loans. MGO has a dedicated team focused on navigating the various economic stimulus programs enacted to combat the COVID-19 pandemic. To schedule a consultation, please contact us here.

Forging a Path Forward: Maximizing Paycheck Protection Program Loan Forgiveness

The basics of PPP

Loans are being disbursed by approved lenders. You can find a complete list of approved vendors here.

You can access the PPP loan application here.

How PPP funds are to be used

Qualified expenses for PPP loans include:

Payroll costs, which include:
- Salary, wages, and commissions, up to a maximum annualized amount of $100,000 per employee.
- Note: Severance pay and bonuses are subject to the annualized cap and should be included in payroll costs.
Group health benefits, retirement benefits, medical or sick leave, and any state or local taxes assessed on employee compensation.
- Note: Not applicable if tax credits under FFCRA are taken.
Interest on mortgage obligations that originated before February 15, 2020.
Rent on lease agreements that were in force prior to February 15, 2020.
Utilities, including electricity, water, gas, telephone/internet, and transportation that were placed into service prior to February 15, 2020.

A sample of frequently cited costs that DO NOT qualify as PPP expenses include:

Payments made toward the principal portions of mortgages or other debts;
Accounts payable;
Life insurance payments;
Payments of interest on debts established after February 15, 2020;
Rent on lease agreements established after February 15, 2020.

Conditions for PPP loan forgiveness

Perhaps the most appealing aspect of the PPP loan program is the offer of forgiveness – up to 100% of the borrowed amount – if you meet specific criteria:

At least 75% of loan proceeds are used to cover the qualifying costs associated with maintaining payroll over the eight-week period that begins the day the loan is made;
Employee headcount levels are maintained;
Compensation levels for employees earning $100,000 or less are maintained; and
No more than 25% of the total loan amount is used on qualified, non-payroll expenses, including utilities, rent, etc.

Accessing PPP Loan Forgiveness

The lenders providing PPP loans will be responsible for determining loan forgiveness. To receive loan forgiveness, borrowers must apply to their lender. Requirements for forgiveness will include:

A formal application;
Documentation verifying employees and pay rates for the applicable 8 week period;
Documentation supporting other qualified, covered expenses;
Certification that presented information is true and accurate.

Lenders may require additional documentation, and will determine levels of forgiveness on a case-by-case basis.

Approach to maximizing loan forgiveness – document, document, document

Final thoughts

CARES Act Assistance: Accessing Funding for State and Local Governments

With every state and local government institution doing their best to manage adversity during the COVID-19 pandemic, federal lawmakers have made support available through the CARES Act and related economic stimulus packages.

To assist our state and local government clients during these unprecedented times, MGO is offering support designed to help you understand and access funding options, manage regulatory complexity, and institute financial best practices.

Support accessing CARES Act funding

Assistance with identification of eligible funding provisions within the CARES Act.
Training of applicable personnel regarding CARES Act provisions and requirements.
General Advisory Services related to CARES Act provisions and requirements.
Assistance with preparation of initial appropriation requirements, if applicable.
Process and procedure development for CARES Act funding provision requirements by source, including:
- Governance
- Document Retention
- Procurement
- Timelines & Scope
- Reporting and Other
Assistance with preparation of ongoing reporting requirements by funding provision.
Preparation of cash flow and revenue projections resulting from the impact of COVID-19.
Identification of methods to address budget gaps resulting from the impact of COVID-19.

For more information, please contact your MGO advisor directly, or email our team at [email protected]

Forging A Path Forward: CARES Act Loan and Tax Benefit Guidance

As the coronavirus (COVID-19) pandemic continues to have widespread economic impacts, small businesses, nonprofits, and similar organizations have been hit hard.

To help combat the economic fallout from the pandemic, the federal government has introduced sweeping legislation to provide emergency relief via loan and grant programs and tax breaks, credits and other incentives.

Sources of relief include:

SBA Economic Injury Disaster Loans (EIDLS)
SBA Paycheck Protection Program (PPP)
Families First Coronavirus Response Act (FFCRA) Tax Credits
CARES Act Employee Retention Tax Credit
CARES Act Employer Tax Payment Deferral

Millions of dollars of emergency relief is now available to qualifying organizations, some of which is eligible for 100% forgiveness. Unfortunately application processes are complex and time-sensitive, strict usage rules determine what can be forgiven, and changes to tax code are complex.

MGO has created the attached one-page summary to provide basic details on what your organization may be eligible for, and the levels of relief available.

Download PDF

If you need assistance applying for loans, or applying tax incentives, please do not hesitate to reach out to our team.