Pondering the possibility of a company retreat
As vaccination levels rise and major U.S. population centers fully reopen, business owners may find themselves pondering an intriguing thought: Should we have a company retreat this year?
Although there are still health risks to consider, your employees may love the idea of attending an in-person event after so many months of video calls, emails and instant messages. The challenge to you is to plan a retreat that’s safe, productive and enjoyable — and that doesn’t unreasonably disrupt company operations.
Mixing business with fun
First, nail down your primary objectives well in advance. Determine and prioritize a list of the important issues you want to address but include only the top two or three on the final agenda. Otherwise, you risk rushing through some items without adequate time for discussion and formalized action plans.
If one of the objectives is to include time for socializing or recreational activities, great. Mixing business with fun keeps people energized. However, if staff see the retreat as merely time away from the office to party and golf, don’t expect to complete many work-related agenda items. One way to find the right mix is to consider scheduling work sessions for the morning and more fun, team-building exercises later in the day.
Craft a flexible budget
Next, work on the budget. Determining available resources early in the planning process will help you set limits for variable costs such as location, accommodations, food, transportation, speakers and entertainment.
Instead of insisting on certain days for the retreat, select a range of possible dates. Doing so widens site selection and makes it easier to negotiate favorable hotel and travel rates. Keep your budget as flexible as possible, building in a 5% to 10% safety cushion. Always expect unforeseen, last-minute expenses.
The good news is that the hospitality industry is generally trying to rebound from the very difficult downturn it suffered because of the pandemic. So, you may be able to find some special deals offered to “draw out” companies that haven’t held a retreat in a while.
Also, if you wish to truly minimize the health risks, you might want to focus on venues with outdoor facilities, such as farms or golf resorts. You could hold sessions mostly outdoors (weather permitting, of course) where it’s very safe.
Reunite and reenergize
Holding a company retreat this year may be a great way to reunite and reenergize your workforce. As convenient and practical as video meeting technology may be, there’s nothing quite like seeing each other in person. We can help you assess the costs and establish a reasonable budget that supports an enjoyable, productive and cost-effective retreat.
© 2021
The Restaurant Revitalization Fund is now live
The COVID-19 pandemic has affected various industries in very different ways. Widespread lockdowns and discouraged movement have led to increased profitability for some manufacturers and many big-box retailers. The restaurant industry, however, has had a much harder go of it — especially smaller, privately owned businesses in economically challenged areas.
In response, the Small Business Administration (SBA) has launched the Restaurant Revitalization Fund (RRF). It was established under the American Rescue Plan Act (ARPA) signed into law in March. The RRF went live for applications on May 3, and the SBA is strongly urging interested, eligible businesses to apply as soon as possible.
Who’s eligible?
Funds are available for restaurants, of course, but also many other similar types of businesses. Food stands, trucks and carts can apply, as well as bars, saloons, lounges and taverns. Catering companies may also file an RRF application.
In addition, the program is available to snack and nonalcoholic beverage bars, as well as “licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products,” according to the SBA.
For some restaurant-like businesses, on-site sales to the public must comprise at least 33% of gross receipts. These include bakeries; inns; wineries and distilleries; breweries and/or microbreweries; and brewpubs, tasting rooms and taprooms.
How much funding is available?
Under the ARPA, the RRF received a total of $28.6 billion in direct relief funds for restaurants and other similar establishments that have suffered economic hardship and substantial operational losses because of the COVID-19 pandemic.
The dollar amount an eligible business can receive under the RRF will equal its decrease in gross revenues during 2020 compared to gross revenues in 2019 — less the amount of any Paycheck Protection Program (PPP) loans received. Other amounts must be excluded from 2020 gross receipts as well, including:
SBA Section 1112 debt relief,
SBA Economic Injury Disaster Loans,
SBA advances (targeted and otherwise), and
Local small business grants.
Overall, the RFF may provide a qualifying establishment with funding equal to its pandemic-related revenue loss up to $10 million per business and not more than $5 million per physical location. Recipients must use funds for allowable expenses by March 11, 2023.
What will we need to apply?
A timely, properly completed application is critical to acquiring this funding. An applicant business must submit documentation of its 2020 and 2019 gross receipts, as well as at least one of the following:
A federal tax return,
A point of sale report, or
Externally or internally prepared financial statements.
Warning: Internally prepared financials could significantly delay SBA review of your application.
You’ll also need to disclose the amount of any PPP loans you’ve received. However, the SBA’s online application system should provide this information automatically.
Get started now
To get started, register for an account at restaurants.sba.gov. The SBA advises applicants to first download a sample version of the application here. Our firm can help you identify necessary documentation and navigate the process.
© 2021
EIDL loans, restaurant grants offer relief to struggling small businesses
The American Rescue Plan Act (ARPA), signed into law in early March, aims at offering widespread financial relief to individuals and employers adversely affected by the COVID-19 pandemic. The law specifically targets small businesses in many of its provisions.
If you own a small company, you may want to explore funding via the Small Business Administration’s (SBA’s) Economic Injury Disaster Loan (EIDL) program. And if you happen to own a restaurant or similar enterprise, the ARPA offers a special type of grant just for you.
EIDL advances
Under the ARPA, eligible small businesses may receive targeted EIDL advances from the SBA. Amounts received as targeted EIDL advances are excluded from the gross income of the person who receives the funds. The law stipulates that no deduction or basis increase will be denied, and no tax attribute will be reduced, because of the ARPA’s gross income exclusion.
In the case of a partnership or S corporation that receives a targeted EIDL advance, any amount of the advance excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because targeted EIDL advances are treated as such, they’ll be allocated to the partners or shareholders — increasing their bases in their partnership interests.
The IRS is expected to prescribe rules for determining a partner’s distributive share of EIDL advances for federal tax purposes. S corporation shareholders will receive allocations of tax-exempt income from targeted EIDL advances in proportion to their ownership interests in the company under the single-class-of-stock rule.
Restaurant revitalization grants
Under the ARPA, eligible restaurants, food trucks and similar businesses may receive restaurant revitalization grants from the SBA. As is the case for EIDL loans:
Amounts received as restaurant revitalization grants are excluded from the gross income of the person who receives the funds, and
No deduction or basis increase will be denied, and no tax attribute will be reduced, because of the ARPA’s gross income exclusion.
In the case of a partnership or S corporation that receives a restaurant revitalization grant, any amount of the grant excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because restaurant revitalization grants are treated as tax-exempt income, they’ll be allocated to partners or shareholders and increase their bases in their partnership interests.
Just like EIDL advances, the IRS is expected to prescribe rules for determining a partner’s distributive share of the grant for federal tax purposes. And S corporation shareholders will receive allocations of tax-exempt income from restaurant revitalization grants in proportion to their ownership interests in the company under the single-class-of-stock rule.
Help with the process
The provisions related to EIDL advances and restaurant revitalization grants are effective as of the ARPA’s date of enactment: March 11, 2021. Contact us for help determining whether your small business or restaurant may qualify for financial relief under the ARPA and, if so, for assistance with the application process.
© 2021
COBRA provisions play critical role in COVID-19 relief law
During the COVID-19 pandemic, many employees and their families have lost group health plan coverage because of layoffs or reduced hours. If your business has had to take such steps, and it’s required to offer continuing health care coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the recently passed American Rescue Plan Act (ARPA) includes some critical provisions that you should be aware of.
100% subsidy
Under the ARPA, assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums during the period beginning April 1, 2021, and ending on September 30, 2021.
An AEI is a COBRA qualified beneficiary — in other words, an employee, former employee, covered spouse or covered dependent — who’s eligible for and elects COBRA coverage because of a qualifying event of involuntary termination of employment or reduction of hours. For purposes of the law, the subsidy is available for AEIs for the period beginning April 1, 2021, and ending September 30, 2021.
Extended election period
Individuals without a COBRA election in effect on April 1, 2021, but who would be an AEI if they did, are eligible for the subsidy. Those who elected but discontinued COBRA coverage before April 1, 2021, are also eligible if they’d otherwise be an AEI and are still within their maximum period of coverage.
Individuals meeting these criteria may make a COBRA election during the period beginning on April 1, 2021, and ending 60 days after they’re provided required notification of the extended election period. Coverage elected during the extended period will commence with the first period of coverage beginning on or after April 1, 2021, and may not extend beyond the AEI’s original maximum period of coverage.
Duration of coverage
As explained, the subsidy is available for any period of coverage in effect between April 1, 2021, and September 30, 2021. However, eligibility may end earlier if the qualified beneficiary’s maximum period of coverage ends before September 30, 2021. Eligibility may also end if the qualified beneficiary becomes eligible for coverage under Medicare or another group health plan other than coverage consisting of only excepted benefits or coverage under a Health Flexible Spending Arrangement or Qualified Small Employer Health Reimbursement Arrangement.
Other provisions
The ARPA’s COBRA provisions go beyond the subsidy. For example, they stipulate that group health plan sponsors may voluntarily allow AEIs to elect to enroll in different coverage under certain circumstances. In addition, group health plans must issue notices to AEIs regarding the:
Availability of the subsidy and option to enroll in different coverage (if offered),
Extended election period, and
Expiration of the subsidy.
The U.S. Department of Labor is expected to issue model notices addressing all three points.
Further explanation
The COVID-19 crisis has emphasized the importance of health care coverage. Our firm can further explain the ARPA’s COBRA provisions and help you manage the financial risks of offering health care benefits to your employees.
© 2021
New COVID-19 relief law extends employee retention credit
Many businesses have retained employees during the COVID-19 pandemic and enjoyed tax relief with the help of the employee retention credit (ERC). The recent signing of the American Rescue Plan Act (ARPA) brings good news: the ERC has been extended yet again.
The original credit
As originally introduced under last year’s CARES Act, the ERC was a refundable tax credit against certain employment taxes equal to 50% of qualified wages, up to $10,000, that an eligible employer paid to employees after March 12, 2020, and before January 1, 2021. An employer could qualify for the ERC if, in 2020, there was a:
Full or partial suspension of operations during any calendar quarter because of governmental orders limiting commerce, travel or group meetings because of COVID-19, or
Significant decline in gross receipts (less than 50% for the same calendar quarter in 2019).
The definition of “qualified wages” depends on staff size. If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those paid to employees who aren’t providing services because operations were suspended or due to the decline in gross receipts. Qualified wages may include certain health care costs and are capped at $10,000 per employee. These employers could count wages only up to the amount that the employee would’ve been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.
If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are those wages, also including health care costs and capped at $10,000 per employee, paid to any employee during the period operations were suspended or the period of the decline in gross receipts — regardless of whether employees are providing services.
Expansion and extensions
Under the Consolidated Appropriations Act (CAA), signed into law at the end of 2020, the ERC was extended through June 30, 2021. The CAA also expanded the ERC rate of credit from 50% to 70% of qualified wages. The law further expanded eligibility by:
Reducing the required year-over-year gross receipts decline from 50% to 20%,
Providing a safe harbor that allows employers to use previous quarter gross receipts to determine eligibility,
Increasing the limit on creditable wages from $10,000 in total to $10,000 per calendar quarter (that is, $10,000 for first quarter 2021 and $10,000 for second quarter 2021), and
Raising the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees (meaning wages qualify for the credit even if the employee is working).
Most recently, the ARPA further extended the ERC from June 30, 2021, until December 31, 2021. The 70% of qualified wages is also extended for this period, as is the allowance for up to $10,000 in qualified wages for any calendar quarter. This means an employer could potentially have up to $40,000 in qualified wages per employee through 2021.
Valuable break
We can help you determine whether your business qualifies for the ERC and, if so, how much the credit may reduce your tax bill.
© 2021
The latest on COVID-related deadline extensions for health care benefits
The U.S. Department of Labor (DOL) recently issued EBSA Disaster Relief Notice 2021-01, which is of interest to employers. It clarifies the duration of certain COVID-19-related deadline extensions that apply to health care benefits plans.
Extensions to continue
The DOL and IRS issued guidance last year specifying that the COVID-19 outbreak period — defined as beginning March 1, 2020, and ending 60 days after the announced end of the COVID-19 national emergency — should be disregarded when calculating various deadlines under COBRA, ERISA and HIPAA’s special enrollment provisions.
The original emergency declaration would have expired on March 1, 2021, but it was recently extended. Although the agencies defined the outbreak period solely by reference to the COVID-19 national emergency, they relied on statutes allowing them to specify disregarded periods for a maximum of one year. Therefore, questions arose as to whether the outbreak period was required to end on February 28, 2021, one year after it began.
Notice 2021-01answers those questions by providing that the extensions have continued past February 28 and will be measured on a case-by-case basis. Specifically, applicable deadlines for individuals and plans that fall within the outbreak period will be extended (that is, the disregarded period will last) until the earlier of:
One year from the date the plan or individual was first eligible for outbreak period relief, or
The end of the outbreak period.
Once the disregarded period has ended, the timeframes that were previously disregarded will resume. Thus, the outbreak period will continue until 60 days after the end of the COVID-19 national emergency, but the maximum disregarded period for calculating relevant deadlines for any individual or plan cannot exceed one year.
Communication is necessary
The DOL advises plan sponsors to consider sending notices to participants regarding the end of the relief period, which may include reissuing or amending previous disclosures that are no longer accurate. Sponsors are also advised to notify participants who are losing coverage of other coverage options, such as through the recently announced COVID-19 special enrollment period in Health Insurance Marketplaces (commonly known as “Exchanges”).
Notice 2021-01 acknowledges that the COVID-19 pandemic and other circumstances may disrupt normal plan operations. The DOL reassures fiduciaries acting in good faith and with reasonable diligence that enforcement will emphasize compliance assistance and other relief. The notice further states that the IRS and U.S. Department of Health and Human Services concur with the guidance and its application to laws under their jurisdiction.
Challenges ahead
Plan sponsors and administrators will likely welcome this clarification but may be disappointed in its timing and in how it interprets the one-year limitation. Determinations of the disregarded period that depend on individual circumstances could create significant administrative challenges.
In addition to making case-by-case determinations, plan sponsors and administrators must quickly develop a strategy for communicating these complex rules to participants. Contact us for further information and updates.
© 2021
Can your business benefit from the enhanced Employee Retention Tax Credit?
COVID-19 has shut down many businesses, causing widespread furloughs and layoffs. Fortunately, employers that keep workers on their payrolls are eligible for a refundable Employee Retention Tax Credit (ERTC), which was extended and enhanced in the latest law.
Background on the credit
The CARES Act, enacted in March of 2020, created the ERTC. The credit:
Equaled 50% of qualified employee wages paid by an eligible employer in an applicable 2020 calendar quarter,
Was subject to an overall wage cap of $10,000 per eligible employee, and
Was available to eligible large and small employers.
The Consolidated Appropriations Act, enacted December 27, 2020, extends and greatly enhances the ERTC. Under the CARES Act rules, the credit only covered wages paid between March 13, 2020, and December 31, 2020. The new law now extends the covered wage period to include the first two calendar quarters of 2021, ending on June 30, 2021.
In addition, for the first two quarters of 2021 ending on June 30, the new law increases the overall covered wage ceiling to 70% of qualified wages paid during the applicable quarter (versus 50% under the CARES Act). And it increases the per-employee covered wage ceiling to $10,000 of qualified wages paid during the applicable quarter (versus a $10,000 annual ceiling under the original rules).
Interaction with the PPP
In a change retroactive to March 12, 2020, the new law also stipulates that the employee retention credit can be claimed for qualified wages paid with proceeds from Paycheck Protection Program (PPP) loans that aren’t forgiven.
What’s more, the new law liberalizes an eligibility rule. Specifically, it expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.
We can help
These are just some of the changes made to the ERTC, which rewards employers that can afford to keep workers on the payroll during the COVID-19 crisis. Contact us for more information about this tax saving opportunity.
© 2021
Consolidated Appropriations Act, 2021: PPP Loan Related Expenses Tax Deductible and Round Two
Late on Sunday, December 27, 2020 President Trump signed into law a piece of legislation called the Consolidated Appropriations Act, 2021. This 5,500-page bill carried a budget of $900 billion including $300 billion of additional relief to small businesses, another round of direct cash stimulus payments, expanded unemployment insurance benefits, and a variety of funding dedicated to COVID-19 testing and tracing. A signature piece of the CARES Act was the PPP Loan Program. The Consolidated Appropriations Act, 2021 has several provisions that address both the original loan program and rolls out a second round of PPP Loans to certain qualifying small businesses and other organizations.
Taxability of PPP Loan Forgiveness and Deductibility of Related Expenses:
The CARES Act provided that any PPP Loan forgiveness was non-taxable to the recipient. The Internal Revenue Service, however, later issued Notice 2020-32 that indicated that any expenses related to the forgiven PPP Loan were non-deductible, thereby essentially making the PPP Loan forgiveness a taxable event. This new law clarifies both the original position of the CARES Act as to non-taxability of the forgiven loan and makes it clear that all qualifying expenses related to the forgiveness of the original PPP Loan are fully deductible by the business.
Round Two of the PPP Loan Program:
The new Act also creates a $284.5 Billion fund to re-open the PPP loan program for first and second-time borrowers. This program runs through March 31, 2021 and adds some additional restrictions on eligibility.
Business Eligible for New Loans:
Small businesses with less than 300 employees
Business has been in operation on or before February 15, 2020
Business has used, or will use, all the original PPP loan proceeds
Sole-proprietors, independent contractors, self-employed individuals
NEW: Borrowers that returned all or part of a previous PPP loan can reapply for the maximum loan amount
NEW: Borrowers that did not receive the maximum eligible loan can reapply for the additional loan proceeds
NEW: Qualifying 501c6 non-profit organizations, destination marketing organizations, housing cooperatives, local newspapers, and TV & Radio broadcasters
NEW: Businesses must have experienced a 25% or more reduction in Gross Receipts in any one quarter of 2020, as compared to the corresponding quarter in 2019. If not in business during the first three quarters of 2019, the business can compare the first three quarters of 2020 to the fourth quarter of 2019
Maximum Loan Amount:
Most businesses can borrow up to 2.5 times the business average monthly payroll costs incurred in the 12 months preceding the loan or the calendar year
NEW: Hospitality Businesses (Using the NAICS Code 72) can borrow up to 3.5 times the business average monthly payroll costs incurred in the 12 months preceding the loan or the calendar year
NEW: Max Loan amount under this program is capped at $2 Million
Payroll costs include:
Normal gross wages,
Vacation, parental, family, medical & sick leave
Group health care benefits
Retirement benefits
Total payroll costs cannot exceed $100,000 per employee annually
Allowable Uses of Loan Proceeds:
Employee Salaries, excluding compensation in excess of $100,000 per employee
Paid Sick or medical leave
NEW: Group health care benefit costs and insurance premiums, including medical, dental, vision, disability, and life insurance
Mortgage payments
Rent payments
Utility payments
Interest on debt in existence on February 15, 2020
NEW: Covered operations expenditures (Software, cloud computing and other human resources and accounting needs)
NEW: Covered property damage costs (Damage caused by vandalism or looting due to public disturbances in 2020 not covered by insurance)
NEW: Covered supplier costs (Essential operational costs paid to a supplier of goods pursuant to a contract or purchase order in effect prior to or during the covered period)
NEW: Covered worker protection expenses (Operating or capital expenditures necessary to adapt the business activities to comply with DHHS, CDC or OSHA rules to protect employees)
Loan Terms:
Sets a maximum interest rate of 4%
No prepayment fees will apply
Waives both borrower and lender fees
Waives collateral and personal guarantee requirements
Waives credit elsewhere test
Allows complete deferment of loan payments for 6 months but not more than 1 year
Loan Forgiveness Provisions:
Borrowers are eligible for loan forgiveness in the amount spent during either an 8- or 24-week covered period after the origination of the loan on the eligible costs listed above
The borrower must maintain a 60/40 payroll to non-payroll expenditure ratio to receive full forgiveness
This Act repeals the CARES Act provision that requires PPP borrowers to deduct their EIDL Advance from their PPP loan forgiveness amount
Eligible forgiven amounts will be reduced proportionally by the reduction in employees retained as compared to the prior year and reduced by the reduction in pay for any employee beyond 25% of their prior year compensation (i.e., You must maintain the same number of employees and pay them at least 75% of their prior year comp to be eligible for full debt forgiveness)
Any debt forgiven under the terms of this program will be excluded from taxable income and all related expenses will be deductible
Any loans not forgiven or repaid in full after one year will maintain a max term of 10 years at a rate of 4%
This act also creates a new simplified loan forgiveness application for loans under $150,000
This second round of loans will also be administrated by banks, rather than directly through the U.S. Small Business Administration. If you are interested in applying for one of these loans, please contact your local bank representative as soon as possible to discuss the application and funding process
As always, if you have any questions or require any assistance with completing the loan application process, please reach out to your FMD professional advisor at any time.
New law doubles business meal deductions and makes favorable PPP loan changes
The COVID-19 relief bill, signed into law on December 27, 2020, provides a further response from the federal government to the pandemic. It also contains numerous tax breaks for businesses. Here are some highlights of the Consolidated Appropriations Act of 2021 (CAA), which also includes other laws within it.
Business meal deduction increased
The new law includes a provision that removes the 50% limit on deducting business meals provided by restaurants and makes those meals fully deductible.
As background, ordinary and necessary food and beverage expenses that are incurred while operating your business are generally deductible. However, for 2020 and earlier years, the deduction is limited to 50% of the allowable expenses.
The new legislation adds an exception to the 50% limit for expenses of food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.
The use of the word “by” (rather than “in”) a restaurant clarifies that the new tax break isn’t limited to meals eaten on a restaurant’s premises. Takeout and delivery meals from a restaurant are also 100% deductible.
Note: Other than lifting the 50% limit for restaurant meals, the legislation doesn’t change the rules for business meal deductions. All the other existing requirements continue to apply when you dine with current or prospective customers, clients, suppliers, employees, partners and professional advisors with whom you deal with (or could engage with) in your business.
Therefore, to be deductible:
The food and beverages can’t be lavish or extravagant under the circumstances, and
You or one of your employees must be present when the food or beverages are served.
If food or beverages are provided at an entertainment activity (such as a sporting event or theater performance), either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.
PPP loans
The new law authorizes more money towards the Paycheck Protection Program (PPP) and extends it to March 31, 2021. There are a couple of tax implications for employers that received PPP loans:
Clarifications of tax consequences of PPP loan forgiveness. The law clarifies that the non-taxable treatment of PPP loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations. Also, the law makes clear that taxpayers, whose PPP loans or other obligations are forgiven, are allowed deductions for otherwise deductible expenses paid with the proceeds. In addition, the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.
Waiver of information reporting for PPP loan forgiveness. Under the CAA, the IRS is allowed to waive information reporting requirements for any amount excluded from income under the exclusion-from-income rule for forgiveness of PPP loans or other specified obligations. (The IRS had already waived information returns and payee statements for loans that were guaranteed by the Small Business Administration).
Much more
These are just a couple of the provisions in the new law that are favorable to businesses. The CAA also provides extensions and modifications to earlier payroll tax relief, allows changes to employee benefit plans, includes disaster relief and much more. Contact us if you have questions about your situation.
© 2021
Tax responsibilities if your business is closing amid the pandemic
Unfortunately, the COVID-19 pandemic has forced many businesses to shut down. If this is your situation, we’re here to assist you in any way we can, including taking care of the various tax obligations that must be met.
Of course, a business must file a final income tax return and some other related forms for the year it closes. The type of return to be filed depends on the type of business you have. Here’s a rundown of the basic requirements.
Sole Proprietorships. You’ll need to file the usual Schedule C, “Profit or Loss from Business,” with your individual return for the year you close the business. You may also need to report self-employment tax.
Partnerships. A partnership must file Form 1065, “U.S. Return of Partnership Income,” for the year it closes. You also must report capital gains and losses on Schedule D. Indicate that this is the final return and do the same on Schedules K-1, “Partner’s Share of Income, Deductions, Credits, Etc.”
All Corporations. Form 966, “Corporate Dissolution or Liquidation,” must be filed if you adopt a resolution or plan to dissolve a corporation or liquidate any of its stock.
C Corporations. File Form 1120, “U.S. Corporate Income Tax Return,” for the year you close. Report capital gains and losses on Schedule D. Indicate this is the final return.
S Corporations. File Form 1120-S, “U.S. Income Tax Return for an S Corporation” for the year of closing. Report capital gains and losses on Schedule D. The “final return” box must be checked on Schedule K-1.
All Businesses. Other forms may need to be filed to report sales of business property and asset acquisitions if you sell your business.
Employees and contract workers
If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in full personal liability for what’s known as the Trust Fund Recovery Penalty.
If you’ve paid any contractors at least $600 during the calendar year in which you close your business, you must report those payments on Form 1099-NEC, “Nonemployee Compensation.”
Other tax issues
If your business has a retirement plan for employees, you’ll want to terminate the plan and distribute benefits to participants. There are detailed notice, funding, timing and filing requirements that must be met by a terminating plan. There are also complex requirements related to flexible spending accounts, Health Savings Accounts, and other programs for your employees.
We can assist you with many other complicated tax issues related to closing your business, including Paycheck Protection Plan (PPP) loans, the COVID-19 employee retention tax credit, employment tax deferral, debt cancellation, use of net operating losses, freeing up any remaining passive activity losses, depreciation recapture, and possible bankruptcy issues.
We can advise you on the length of time you need to keep business records. You also must cancel your Employer Identification Number (EIN) and close your IRS business account.
If your business is unable to pay all the taxes it owes, we can explain the available payment options to you. Contact us to discuss these issues and get answers to any questions.
© 2020
Reopening concepts: What business owners should consider
Reopening concepts: What business owners should consider
A widely circulated article about the COVID-19 pandemic, written by author Tomas Pueyo in March, described efforts to cope with the crisis as “the hammer and the dance.” The hammer was the abrupt shutdown of most businesses and institutions; the dance is the slow reopening of them — figuratively tiptoeing out to see whether day-to-day life can return to some semblance of normality without a dangerous uptick in infections.
Many business owners are now engaged in the dance. “Reopening” a company, even if it was never completely closed, involves grappling with a variety of concepts. This is a new kind of strategic planning that will test your patience and savvy but may also lead to a safer, leaner and better-informed business.
When to move forward
The first question, of course, is when. That is, what are the circumstances and criteria that will determine when you can safely reopen or further reopen your business. Most experts agree that you should base this decision on scientific data and official guidance from agencies such as the U.S. Department of Health and Human Services and Centers for Disease Control and Prevention (CDC).
But don’t stop there. Although the pandemic is, by definition, a worldwide issue, the specific situation on the ground in your locality should drive your decision-making. Keep tabs on state, county and municipal news, rules and guidance. Plug into your industry’s experts as well. Establish strategies for expanding operations or, if necessary, contracting them, based on the latest information.
Testing and working safely
Running a company in today’s environment entails refocusing on people. If employees are unsafe, your business will likely suffer at some point soon. Every company that must or chooses to have workers on-site (as opposed to working remotely) needs to consider the concept of COVID-19 testing.
Employers are generally allowed to test employees, but there are dangers in violating privacy laws or inadvertently exposing the company to discrimination claims. The CDC has said that routine testing will likely pass muster “if these goals are consistent with employer-based occupational medical surveillance programs” and “have a reasonable likelihood of benefitting workers.” Consult your attorney, however, before implementing any testing initiative.
There’s also the matter of working safely. If you haven’t already, look closely at the layout of your offices or facilities to determine the feasibility of social distancing. Re-evaluate sanitation procedures and ventilation infrastructure, too. You may need to invest, or continue investing, in additional personal protective equipment and items such as plastic screens to separate workers from customers or each other. It might also be necessary or advisable to procure or upgrade the technology that enables employees to work remotely.
Move forward cautiously
No one wanted to do this dance, but business owners must continue moving forward as cautiously and prudently as possible. While you do so, don’t overlook the opportunity to identify long-term strategies to run your company more efficiently and profitably. We can help you make well-informed decisions based on sound financial analyses and realistic projections.
© 2020
Global Leadership During COVID-19 With FMD Partner Brian Hunter
As the world continues to adjust to the impact of COVID-19, there is a lot to consider. The Business Development Academy recently interviewed FMD Managing Partner Brian Hunter on a global panel. Brian also serves as the global chair of Integra International, a worldwide association of 130 independent accounting and consulting firms. You can find the full video below, as well as a timeline of when Brian speaks.
Brian’s three biggest takeaways are as follows:
1. The importance of pivoting
These are unprecedented times, requiring businesses of all shapes and sizes to adapt in ways they likely wouldn’t have predicted. Whenever possible, look at this time as an opportunity to get creative and evolve as a business. It can feel frustrating to abandon or rewrite your business plan but approaching it from a creative perspective may provide the boost your business has been looking for.
2. Creatively staying connected
At the end of the day, humans are social creatures, and we are all lacking the level of connection that we are used to. This is an opportunity to reach out to people (virtually) and build and maintain connections. We are all in this together, making it a great opportunity to provide feedback to one another.
3. Balancing compassion and productivity
As Brian put it, “The companies that balance compassion and productivity will be the real winners here”. It’s important to remember that COVID-19 is causing a disruption in almost every business around the world. Instead of worrying about a decline in productivity, use this time to be compassionate, and remember that we are all just people trying to navigate this confusing time. There are things we can’t control right now, but there is also a lot that we can control. By focusing on that, we will get through this unique time together.
Watch the video below for more great insight from Brian and other global leaders. Below is a timeline of when Brian speaks:
2:08 – Brian’s introduction & background on Integra International
6:10 – Brian talks about the importance of pivoting
18:40 – Brian talks about keeping virtual events engaging & continuing building relationships
31:10 – Brian discusses the transformation from accountant to trusted advisor
42:09 – Brian shares the importance of balancing compassion and productivity
48:30 – Brian discusses his outlook on COVID-19 recovery
SBA reopens EIDL program to small businesses and nonprofits
SBA reopens EIDL program to small businesses and nonprofits
Just last week, the Small Business Administration (SBA) announced that it has reopened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program to eligible applicants still struggling with the economic impact of the COVID-19 pandemic.
The EIDL program offers long-term, low-interest loans to small businesses and nonprofits. If your company hasn’t been able to procure financing through the Paycheck Protection Program (PPP) — or even if it has — an EIDL may provide another avenue to relief.
Program overview
Applicants must be businesses with 500 or fewer employees, sole proprietors, independent contractors or certain other small entities. EIDL funds come directly from the SBA and provide working capital up to certain limits.
The loans have terms of up to 30 years and interest rates of 3.75% for businesses and 2.75% for nonprofits. The first payment is deferred for one year. Plus, the Coronavirus Aid, Relief and Economic Security (CARES) Act has temporarily waived requirements that applicants must have been in business for one year before the crisis and be unable to obtain credit elsewhere. A borrower of $200,000 or less doesn’t need to provide a personal guarantee.
Recipients must use EIDL proceeds for working capital necessary to carry a business until resumption of normal operations and for expenditures needed to alleviate specific economic hardships related to the pandemic. These may include fixed debts (such as rent or mortgage), payroll, accounts payable and other bills that could’ve been paid had the disaster not occurred and aren’t already covered by a PPP loan.
EIDL proceeds may not be used to refinance indebtedness incurred before the COVID-19 crisis or to pay down loans owned by the SBA or other federal agencies. Loan funds also cannot be used to pay federal, state or local tax penalties, or any criminal or civil fine or penalty. (Other limitations apply.)
Emergency grants
Under the CARES Act, EIDL applicants may request an Emergency Economic Injury Grant, also referred to as an “EIDL advance,” of up to $10,000. The grant is to be paid within three days and must be used to:
Provide paid sick leave to employees unable to work because of COVID-19,
Retain employees during business disruptions or substantial shutdowns,
Meet increased costs to obtain materials unavailable because of supply chain disruptions,
Make rent or mortgage payments, or
Repay other obligations that cannot be met because of revenue losses.
Recipients of an emergency grant don’t have to repay it — even if the business is eventually denied an EIDL. However, in April, the SBA announced that it has implemented a $1,000 cap per employee on EIDL advances up to the $10,000 maximum. Thus, an applicant with three employees would receive an advance of only $3,000.
Equally valuable
The EIDL program may not have received as much attention as the PPP, but it’s equally valuable to small businesses and nonprofits striving to remain operational during the ongoing public health and economic crisis. We can help you determine whether you’re eligible and, if so, complete the application process.
© 2020
Overview of the CARES Act and Paycheck Protection Program with Partner Vincent Gotko
Overview of the CARES Act and Paycheck Protection Program with Partner Vincent Gotko
Recently, our partner Vincent Gotko presented to the Birmingham Bloomfield Chamber about legislation passed due to COVID-19. Gotko’s presentation focused on the CARES Act recently signed in to law.
Viewers can learn more about how the CARES Act impacts businesses and individuals, as well as get more information on the Paycheck Protection Program. This program was passed on March 27, 2020. The intended purpose of the fund is to continue paying employees. Loan forgiveness options are available. More information and an overview of the program can be found here:
https://www.youtube.com/watch?v=javRS5uO5r8
Another important topic impacting many businesses is employee tax credits for employers. This includes the employee retention credit, credit for required paid sick leave, and credit for required paid family leave. The last two are part of a separate act passed just before the CARES Act. More information about these credits and how to use them can be found here: https://www.youtube.com/watch?v=FGta8BfFsow
You can find a summary of COVID-19 legislation here: https://www.youtube.com/watch?v=EPnFl5GP58I
This video goes over individual provisions regarding special rules for the use of retirement funds: https://www.youtube.com/watch?v=Oy0uKCovJj8
This video provides more information on the changes to charitable contribution deduction rules: https://www.youtube.com/watch?v=grls5L5csPQ
If you want to learn more about the modifications for net operating losses impacting businesses, click here: https://www.youtube.com/watch?v=-m4PGZvFOBE
This video covers the delayed payment of employer payroll taxes:
https://www.youtube.com/watch?v=SbZftbeD-0k
For more information about the importance of hiring a CPA and how CPAs can help during this time, click here: https://www.youtube.com/watch?v=vZqw-QzO67c
More information about Fenner, Melstrom & Dooling, PLC can be found here: https://www.youtube.com/watch?v=4e5Rysy4Vrg
For more information and to better understand the full picture, Mr. Gotko’s full presentation can be viewed here: https://www.youtube.com/watch?v=iOsJnfEh8dQ.
If you need more assistance determining how these new laws and programs impact you and your business, a trusted Fenner, Melstrom & Dooling, PLC advisor would be happy to answer your questions. Fill out the form on our contact page or give us a call, and we will help you determine your plan moving forward. These are unique times, but we are getting through it together!
FMD is monitoring the progress of this bill closely and we will post and update as soon as we know more. In the meantime, please continue to visit our website for continuing updates on all COVID-19 related matters.
H.R. 7010 Passes U.S. Senate Without Revision - Paycheck Protection Program Flexibility Act of 2020 (PPPFA)
H.R. 7010 Passes U.S. Senate Without Revision - Paycheck Protection Program Flexibility Act of 2020 (PPPFA)
Late in the day on June 3, 2020, the U.S. Senate passed H.R. 7010 by unanimous consent with virtually no changes to the bill passed six days earlier by the U.S. House of Representatives. It is anticipated the President will sign the bill into law as soon as possible.
As we highlighted in our previous post, the most significant provisions of this new bill are as follows:
1. Extends the covered period from 8 weeks to 24 weeks from date of loan origination or December 31, 2020, whichever comes first. (Loan recipients who received a PPP loan prior to the enactment of this bill may elect to retain their original 8-week covered period.)
2. Replaces the June 30, 2020 “safe harbor” rehire date with the December 31, 2020 date.
3. Eliminates the proportional reduction of forgiveness if:
A. an employer can document in good faith they are unable to re-hire the same, or equally qualified, employees they had on February 15, 2020 on or before December 31, 2020, or
B. the employer is able to document an inability to return to their same level of business activity at or before February 15, 2020 due to compliance with guidance issued by the Secretary of Health & Human Services, the Director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration during the period March 1, 2020 to December 31, 2020, related to the COVID-19 pandemic.
4. Reduces the amount of PPP Loan proceeds required to be spent on payroll related costs from 75% down to 60%.
5. Establishes the repayment deferral period for unforgiven PPP loan proceeds to end when the amount of loan forgiveness is remitted to the lender (presumably by the SBA).
6. Extends the repayment period of any unforgiven PPP loan amounts from 2 years to a minimum of 5 years.
7. Requires loan repayments to begin 10 months after the last day of the covered period if no application for forgiveness is filed with the lender.
8. Allows PPP loan recipients to be eligible to participate in the payroll tax payment deferral provisions of the CARES Act.
Although the bill was not changed by the Senate, we have seen the U.S. Small Business Administration make many interesting interpretations of various provisions of the PPP Loan Program and the proposed forgiveness calculations since the CARES Act was passed. It is anticipated we will see a new round of Frequently Asked Questions (FAQs) and Interim Final Rules to provide additional guidance on this bill.
FMD is monitoring the progress of this bill closely and we will post and update as soon as we know more. In the meantime, please continue to visit our website for continuing updates on all COVID-19 related matters.
U.S. House of Representatives Passes H.R. 7010 to Modify PPP Loan Forgiveness Calculation (Paycheck Protection Program Flexibility Act of 2020)
U.S. House of Representatives Passes H.R. 7010 to Modify PPP Loan Forgiveness Calculation (Paycheck Protection Program Flexibility Act of 2020)
On May 28, 2020, the U.S. House of Representatives passed H.R. 7010 that provides several modifications to the calculation of PPP loan forgiveness and repayment terms. The bill passed with an overwhelming 417 to 1 vote.
The bill is now in the U.S. Senate for review and debate, so it is not law yet; however, it is clear from the House vote that the legislature is listening to small business owners who are struggling to meet the 8-week covered period spending and re-hire provisions. This 8-week period is particularly challenging for businesses located in states where mandatory stay at home orders are still in place and for those industries that operate where customers and employees interact in close physical proximity (i.e. restaurant/bars, gyms, salons, tattoo shops).
The significant provisions of the new bill are as follows:
1. Extend the covered period from 8 weeks to 24 weeks from date of loan origination or December 31, 2020, whichever comes first.
2. Extend the June 30, 2020 “safe harbor” rehire date to December 31, 2020.
3. Eliminate the proportional reduction of forgiveness due to an employer’s inability to re-hire enough full-time equivalent (FTE) employees due to shutdown orders on or before December 31, 2020.
4. Reduce the amount of PPP Loan proceeds required to be spent on payroll related costs from 75% to 60%.
5. Extend the repayment deferral period of unforgiven loan proceeds from 6 months to 1 year.
6. Extend the repayment period of any unforgiven PPP loan amounts from 2 years to a minimum of 5 years.
7. Require loan repayments to begin 10 months after the last day of the covered period, if no application for forgiveness is filed.
8. Allow PPP loan recipients to be eligible to participate in the payroll tax payment deferral provisions of the CARES Act.
The above provisions will likely be modified by the Senate but are a good indication of where the actual final law may end up.
FMD is monitoring the progress of this bill closely, and we will post an update as soon as we know more. In the meantime, please continue to visit our website for continuing updates on all COVID-19 related matters. www.fmdcpas.com
Budgeting and Money during COVID-19 with FMD Partner Daniell R. Patterson
FMD Partner Daniell Patterson recently had the opportunity share in a discussion with Randall Denha of Denha & Associates, PLLC and Jonathan Dwoskin of The JONDwoskin Experience. In this segment, Patterson provides insight and advice for getting through the current market and uncertainty of the Coronavirus pandemic era.
Below are some key takeaways from the discussion.
How should the average American be budgeting during this crisis especially if they are living paycheck-to-paycheck, now and for the next six months?
COVID-19 has caused everyone to re-evaluate fixed costs and overhead structure, personally and professionally.
SLOW DOWN. Clients should take things slow and not make quick decisions just because the crisis is happening fast; stick to your plan.
Each individual and business should do their best to conserve cash and eliminate non-essential expenses.
Take time to put together a simple monthly budget to better understand where your money is going. Look at your recurring charges such as subscription services and consider pausing them. These discretionary costs will often be a quiet drain on your accounts.
Talk to your creditors about deferring payment. It is important to advocate for yourselves and most creditors are being very receptive right now. SBA loans will give a 6-month forbearance automatically, where they are making your loan payment for you, providing some quick relief.
Reframe your mindset. Asking for help or relief from creditors shouldn’t be shameful. This isn’t a reflection on you as an individual, this is the situation that COVID-19 has created.
Many people have fear about money and a crisis like this spurs that fear and keeps people from an abundant mindset. In a market like this, how do you advise clients to grow their relationship with money?
It’s important to realize that every situation is unique, and so everyone will react differently. Some people may feel that this is a time to be aggressive and take advantage of opportunities, while others will slow down and re-evaluate the situation.
We all want to be able to see a horizon at the end of all of this. It is challenging to live with the uncertainty of not knowing what will happen or how long this situation will last.
The Importance of a CPA
It is important to have trusted mentors in your life. CPAs often find themselves as the quarterback in their client relationships. A large part of the value a CPA provides to their clients comes from the network of qualified and trusted individuals that they bring to the relationship as well as the real-world experience of working with clients.
CPAs are able to help clients understand the nuances of this time such as how to complete the PPP loan application and request for forgiveness.
CPAs help you do the work up front so that your business can be as profitable and successful as possible. This helps produce a strong financial statement at the end of the year.
By examining your financial statements, CPAs are able to help you retain as much as you can through saving money on taxes, and structuring your business properly for the highest ROI. Often it’s not necessarily how much money you make, it’s how much you retain and invest in the future.
Subchapter V: A silver lining for small businesses mulling bankruptcy
Subchapter V: A silver lining for small businesses mulling bankruptcy
Many small businesses continue to struggle in the wake of the coronavirus (COVID-19) pandemic. Some have already closed their doors and are liquidating assets. Others, however, may have a relatively less onerous option: bankruptcy.
Although bankruptcy obviously isn’t an optimal outcome for any small company, there may be a silver lining: A new bankruptcy law — coupled with an under-the-radar provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act — has made the process quicker and easier. It may even allow you to retain your business.
New law made better
The law in question is the Small Business Reorganization Act of 2019. That’s right, it was passed just last year and took effect on February 19, 2020, about a month before the pandemic hit the country full force.
The Small Business Reorganization Act added a new subchapter to the U.S. bankruptcy code: Subchapter V. Its purpose is to streamline the reorganization process for smaller companies and, in some cases, improve their odds of recovery.
When signed into law, Subchapter V applied only to companies or proprietors with less than about $2.7 million in debt. However, under the CARES Act, this amount has been temporarily increased to $7.5 million in debt. (Additional details apply; contact a bankruptcy attorney for a full explanation.)
Potential improvements
For small-business owners, Subchapter V could improve the bankruptcy process in several ways:
You may be able to keep your company. Under a Chapter 11 reorganization, business owners typically don’t receive an equity stake in the reorganized company until all debts are repaid. Subchapter V creates a pathway for owners to retain their equity if their disposable income is distributed to creditors over a certain period (generally three to five years) in a “fair and equitable” manner.
You may not need creditors’ approval to proceed. Small-business bankruptcies have long been stymied when one group of creditors object to the reorganization plan. Under Subchapter V, once a bankruptcy court approves the plan, the reorganization may proceed without creditors’ approval.
You may incur fewer costs and get it done more quickly. Subchapter V offers the opportunity to reduce the documentation and level of detail required under a traditional Chapter 11 proceeding. In turn, this can make the process less costly and more expeditious.
Prudent path
Given the extreme and sudden nature of this year’s economic downturn, bankruptcy has unfortunately become an option that many embattled small businesses will need to consider. Our firm can help you assess your company’s financial position and choose the most prudent path forward. Contact a trusted FMD advisor today.
© 2020
COVID-19: SBA Disaster Declaration Makes Loans Available
COVID-19: SBA Disaster Declaration Makes Loans Available
3/21/2020
The U.S. Small Business Administration is offering small businesses and non-profit organizations located in Michigan and other designated states and territories Economic Injury Disaster Loans (EIDL). These loans are low interest federal disaster loans for working capital that come directly from the U.S. Treasury – not thorough a sponsoring bank. A complete list of all designated disaster areas is posted on the SBA website.
Qualifying Businesses Are:
Businesses directly affected by the disaster.
Businesses that offer services directly to affected businesses.
Other businesses indirectly related to the industry that are likely to be harmed by the disaster.
Non-Qualifying Businesses Are:
Agricultural enterprises as defined in Section 18(b)(1) of the Small Business Act.
Religious Organizations.
Charitable Organizations.
Gambling Concerns/Casinos & Racetracks.
Criteria for Approval:
Business must have an “acceptable credit history”.
Business must be deemed to have the ability to repay the loan.
Physically located in a declared county.
Proof that business is suffering working capital losses due to the declared disaster.
Eligible businesses and non-profits can qualify for loans up to $2 million.
Interest rates for disaster loans are 3.75% for small businesses and 2.75% for Non-Profit Organizations with terms up to 30 years.
Loan funds can be used to pay other fixed debts, payroll, trade accounts payable, and other bills that could have been paid on the normal course of business had the disaster not occurred.
Loans are not intended to pay for “Lost Sales/Profits” or Expansion.
Collateral:
Loan more than $25,000 will require collateral.
SBA will take real estate as collateral when available.
Loans will not be declined for lack of collateral but will require borrowers to pledge whatever is available.
How do I Apply?
Applicants go directly to the SBA’s Disaster Assistance Program site at: https://disasterloan.sba.gov/ela/
There is no cost to apply.
Max unsecured Loan is $25,000.
Complete SBA Loan App (SBA Form 5).
Complete Tax Information Authorization (IRS Form 4506T).
Provide copies of the most recent Federal Income tax return filed for the applicant.
Provide a schedule of applicant liabilities (SBA Form 2202).
Provide a personal financial statement for business owners/principal’s (SBA Form 413).
Other info may also be requested during the application process.
Electronic on-line filing will expedite the process vs. submitting paper applications.
SBA Customer Service Line: 1-800-877-8339
As always, if you have any questions or require any assistance with completing the loan application process please reach out to your FMD professional advisor at any time. Please check back frequently to this page for COVID-19 updates from FMD.
Integra International & FMD Are Here For You
Integra International & FMD Are Here For You
3/19/2019
Our Managing Partner, Brian J. Hunter, is the Global Chair for Integra International. His timely update is below.
As the COVID-19 pandemic scenario unfolds, the level of economic uncertainty increases.
Now is the time for us to work together to weather the storm ahead.
Integra-International is here for you.
As members we need to stick together to:
Help navigate through the disruption
Respond to the changing dynamics and
Be ready to emerge from the crisis ready to seize opportunity.
Primarily, we urge you to take precautions to protect the health and welfare of your employees and your families.
Secondly, we remind you that our collective success depends on the survival of our own clients. Our clients need us now more than ever.
As firms, we need to consider developing alternative procedures to manage current work-loads and retain quality service delivery.
Here are some key drivers to remain operational:
Act fast and decisively.
Move towards ‘remote working’.
Get set-up to host virtual meetings.
Keep in constant contact with your customers.
Maintain employee morale.
Your employees are the face of your firm, and they will play a key role in the survival of your organization.
We will continue communicating with you through our news alerts. Please check back frequently to this page for COVID-19 updates from FMD. If you have any questions or concerns, do not hesitate to reach out to your FMD professional.