Did you miss out on the first two opportunities to receive your tax-free Paycheck Protection Program (PPP) cash because you didn’t have a reliable accounting firm in Columbia, MD?
- Many did miss out.
- Why, you ask?
- One of the primary reasons – the word “loan.”
- Who wants a loan? No one! Well, almost no one.
- But who wants a cash gift, tax-free?
If you too want it, read on for the details. But first, you should know that the big picture works like this:
- You obtain your PPP tax-free monies from a lender with the help of a CPA firm In Columbia MD (it’s called a “loan,” but watch that word disappear as you read this blog).
- You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies); and other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection. Need a Tax Accountant in Columbia MD, to help you with the classification of expenses? we’re just a call away
- Apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 percent or more of the money on payroll (and yourself if you are self-employed or a partner in a partnership).
- Deduct the expenses you paid with the PPP loan monies forgiven.
New Money on the Table
The new COVID-19 stimulus act sets aside $35 billion for first-time PPP applicants, with $15 billion of that made in loans for first-time applicants with 10 employees or fewer or made in amounts less than $250,000 to businesses in low-income areas.
The new deadline of March 31, 2021, replaces the expired deadline of August 8, 2020.
The monies available in this new round of PPP funding are on a first-come, first-served basis. Don’t procrastinate. Get your application for your first-time PPP monies in place now. Our accounting and tax preparation firm in Columbia, MD can help you.
Your accountants In Maryland can help you prepare and claim the monies on payroll (including pay to you, if that applies); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.
You or your Tax Accountant apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 percent or more of the money on payroll (yourself if you are self-employed or a partner in a partnership).
- The first piece of good news is that the new, favorable PPP rules in the recent stimulus law apply as if they were in the CARES Act enacted a little more than nine months ago, on March 27, 2020.
- The second piece of good news is that numerous changes made by the Small Business Administration that affect the loan application and forgiveness process have been clarified during the past nine months.
- The third piece of good news is that the lenders have a better idea of what they are doing, so you can spend less time applying for your free PPP money.
- The fourth piece of good news? Our Columbia Maryland CPA firm can and will help you from start to end. Contact us today
What’s the Limit on My Cash Infusion?
You have a $10 million limit on your initial PPP loan. For most small businesses, that’s not likely to come into play. If it does, you’ll need an excellent accounting Firm In Columbia, MD, to back you.
In general, the real limit is 2.5 times your business’s defined or deemed 2019 payroll. The deemed payroll for a proprietorship is based on the owner’s Schedule C net profit, on line 31 of the 2019 Schedule C. For partners, it is based on a more complicated calculation of 2019 self-employed income, as adjusted. Need help understanding the limits? Give our CPA In Columbia MD, a chance to help.
As of January 14, 2021, in the IFR issued on January 6. The treasury exercised its authority under section 1109 of the CARES Act to allow borrowers of first draw PPP loans to use 2019 or 2020 to calculate their maximum loan amount.
Example. Susan has a 2019 defined payroll for PPP purposes of $1,200,000, or $100,000 a month. She operates a dental practice. Her PPP cash infusion is $250,000 ($100,000 x 2.5).
Make sure to check the links above for your specific limits, as they vary for C corporations, S-corporations, proprietorships, and partnerships. We at Sigma would love to take the burden off your shoulder. Contact our Accounting Firm In Columbia, MD, for fantastic service.
What Do I Have to Spend the Money On?
Under the new rules, you pick a spending period between eight weeks from the origination date of the loan and 24 weeks from that date.
To achieve 100 percent forgiveness, you must use 60 percent or more of the monies for defined payroll during this period. A Tax Accountant in Columbia MD like Sigma can help you achieve 100 forgiveness.
Example. You obtain $100,000 in first-draw PPP monies. You spend the entire $100,000 during the 11 weeks immediately following the date you received the loan—$65,000 for payroll and $35,000 for other covered expenses. You qualify for 100 percent forgiveness.
In addition to payroll, covered expenses include the following:
- Interest on mortgage obligations
- Operations expenditures
- Property damage
- Supplier costs
- Worker protection
What If I Spend Less Than 60 Percent on Payroll?
Let’s say you obtain a $100,000 loan but use only $48,000 (48 percent) for payroll. The PPP rules limit your total loan forgiveness to $80,000 ($48,000 ÷ 60 percent). That’s still a great deal.
Keep the big picture in view. It works like this:
- You obtain your PPP tax-free monies from a lender.
- You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies because you operate as a corporation); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.
- You apply for loan forgiveness, and you achieve 100 percent loan forgiveness when you spend 60 percent or more of the money on payroll (including pay to yourself if you are self-employed or a partner in a partnership).
- You deduct the expenses that you paid with the PPP loan monies that were forgiven.
- You will not find a better deal than the PPP. If you are eligible for initial PPP monies, get your application in place now.
You will not find a better deal than the PPP. If you are eligible for the intimal PPP monies, get your application in place now with the help of a leading tax and small business accountant like Sigma. Contact us today.