What To Do With Your PPP Loan

$349 billion have been dispersed to small businesses as forgivable loans through the Paycheck Protection Program. Now those businesses have to decide how to use the money. The borrowed funds are restricted to payroll costs, rent, mortgage interest, interest on other loans, and utilities. If you are trying to make sure you receive the maximum amount of loan forgiveness, there are a few things to keep in mind as you spend these funds. Here is what we can infer from the available guidance on PPP loans.

1. Set Up an Audit Trail

You will inevitably have to provide a record of how you spent your money when you apply for forgiveness. One of the best ways to do this is to deposit the funds into a separate business checking account to keep them separate from your other business funds. Only use this account to pay for expenses that qualify for forgiveness. Keep all your payroll records, invoices for health insurance, mortgage statements, a copy of your lease, any canceled checks, and evidence of rent/utilities payments in an electronic file.

2. Pay Attention to the Calendar

From the date the loan is funded and the money is deposited into your account, you have eight weeks to spend the money on forgivable expenses. Even money spent one day outside of the payout period will not be eligible for forgiveness.

3. Restrict Non-Payroll Expenses

No more than 25% of the loan can be used to pay for non-payroll related items. So while you can use the money towards rent, mortgage interest, and utilities, if those costs exceed 25% of the loan amount they will not be eligible for forgiveness.

4. Avoid Overpaying Wages

The maximum amount you can pay each employee and still have it forgiven is $15,385 during the payout period. This amounts to roughly eight weeks of payroll for an employee making $100,000 a year. Group health insurance premiums, retirement benefits, and state unemployment tax are not included in this cap.

5. Hire Back Employees

There are penalties for businesses who made workforce reductions after February 15th. Unless those workforce reductions are restored by June 30th, the amount of the loan that can be forgiven will be reduced. So, if you had to let people go before receiving the loan, it might be worth it to hire those people back before June 30th to maximize the forgiveness you are eligible for.

6. Restore Pay Cuts

There is another penalty stipulation in the law that says if you have cut any individual employee’s pay by 25% of what they earned in the first quarter of 2020, that cut of pay must be restored by June 30th or some of the loan will not qualify for forgiveness. This only applies to employees who did not earn more than $100,000 in 2019.

If you follow the guidelines and keep a detailed and complete record of your expenses, you can maximize the forgiveness of your PPP loan. For businesses lucky enough to acquire this loan, it is a great opportunity to protect your business and your employees during the coronavirus crisis. Veitengruber Law is here to support small businesses as they navigate these new financial obstacles. If you need help deciphering the stimulus loan guidelines, reach out to us at any of the phone numbers listed on our website. We are all working daily, as a team, but from our respective homes. If you need our help, we are ready and able to give it!

Tax Deductions Every Business Owner Needs to Know About

If you are a small business owner, you know the big costs of running a business. Thankfully, most of these expenses can be considered for a tax write-off. The IRS generally considers expenses as deductible if they are “ordinary and necessary” to running the business. This is open to interpretation and will vary from business to business, but there are some common deductions that might apply to your small business. Keep reading to see which tax deductions can apply to your 2019 tax year and which deductions you can implement into your business plan in 2020.

1. Rent and Utilities

If you rent an office, a store, a factory, or any other kind of business property, you can fully deduct the cost of renting the space. Likewise, every dime you spend on utilities, including electricity, phone, internet, water, heat, and sewage, is fully deductible. You can also include any repairs to property or regular maintenance like fresh paint.

2. Car and Truck Expenses

If you use a vehicle to conduct your business, you can deduct the cost of operating the vehicle for business purposes. If you don’t know exactly how much you spent on car-related expenses, you can use the IRS standard deduction at 58 cents per mile for 2019. In order to get this tax write off you will need a record of your business mileage.

3. Salaries and Employee Benefits

Any payments to employees—including bonuses, commissions, contributions to retirement plans, education assistance, or other employee benefit costs—are all tax deductible. This also applies to any freelancers or contract workers you may hire to meet your business needs.

4. Advertising and Marketing

Anything you use to promote your business can count as a write-off. Business cards, t-shirts, billboards, radio spots, boosted social media posts—all 100% tax deductible.

5. Supplies and Expenses

Supplies you need to run your business, from every day office supplies (like printer ink and post-it notes) to items more specific to your business (like tools if you are a mechanic or hair products if you are a stylist) are tax deductible. If you’ve bought new electronics or software that you use for your business, those costs are write-offs as well.

6. Travel

If you or an employee have to travel for the business, you can write off the cost of transportation and lodging for the trip. You must meet the substantiation requirements set out by the IRS to prove the trip was for business purposes so it is a good idea to keep track of any costs you accumulate on your travels. This does not include local and regular commuting.

7. Home Office

If you use a home office to work from home while running your business, you can most likely deduct the expenses for the business use of your home. Keep in mind that this only applies to a home office that is used on a regular basis exclusively for business purposes. This can include mortgage interest, insurance, utilities, repairs, and depreciation. The IRS standard is $5 for every square foot of office space, up to 300 square feet.

8. Insurance

The cost of insurance premiums used to protect your business are deductible. This includes malpractice and liability insurance, fire and flood insurance, and business continuation insurance, among other things. Under specific circumstances, medical insurance for your employees can also be tax deductible.

These are just a few of the write offs and deductions available to small business owners. If you are a small business owner, make sure you are getting the most out of your tax returns this year!