Dear Clients and Friends:
Wishing you a joyous New Year, despite these difficult times. We hope 2021 brings you good health, new opportunities and much happiness!
|
|
NEW STIMULUS PACKAGE
After a last minute delay, the President signed The Consolidated Appropriations Act, 2021 (CAA, 2021). The nearly 5,600-page bill contains numerous provisions affecting individuals and businesses. This latest government aid bill has been in the works for months, and below are some of the key points.
Paycheck Protection Program Second Draw
The so-called “PPP Second Draw” is intended to provide smaller businesses that previously received PPP funding a second draw of up to $2 million.
Companies seeking to secure this funding must employ less than 300 employees and must have already used (or intend to use) the full amount of money granted in their first round of PPP funding. They also must have suffered at least a 25% reduction in gross receipts during the first, second, or third quarter of 2020 relative to the same quarter of 2019.
Borrowers may receive a second round of PPP loan funding of up to 2.5 times the average monthly payroll costs in the one year prior to the loan. However, hotel and restaurant borrowers may receive loans of up to 3.5 times average monthly payroll costs.
Much like the first round of PPP loans, the second draw loan may be forgiven for payroll costs of up to 60% and non-payroll costs of 40% spent between eight and 24 weeks from the date of loan disbursement. The new legislation also has expanded the allowable expenses and forgivable uses for PPP loans funded under the second draw. These new expense categories include:
- Money spent on software, human resources, and accounting needs.
- Costs related to property damage due to public disturbances that occurred during 2020 and were not covered by insurance.
- Supplier costs that are essential to the recipient’s operations.
- Personal protective equipment and adaptive investments that help a PPP loan recipient comply with health and safety guidelines related to COVID-19.
Second draw loans under $150,000 now have a simplified revenue certification for the loan forgiveness process.
Clarified Tax Treatment for PPP Loan Forgiveness
The new law clarifies that taxpayers whose PPP loans are forgiven are allowed federal deductions for those expenses paid with the proceeds of a PPP loan. Please note that California tax law does not conform to this change, and therefore those expenses will not be deductible for California income tax purposes. The amount of the PPP loan that is forgiven is also not includible in gross income.
Availability of Funds
The bill requires the SBA to write regulations implementing the PPP no later than 10 days after the bill is signed into law. Once the SBA issues the regulations, the program will officially reopen and run through March 31, 2021.
There are many other provisions in the bill, including increased tax deductions, stimulus payments to individuals, and additional unemployment benefits.
|
|
GRANTS FOR CALIFORNIA SMALL BUSINESSES
The California Small Business COVID-19 Relief Grant Program has announced that it will take applications from California small businesses impacted by COVID-19 starting at 8 a.m. on December 30, 2020, and continuing until 11:59 p.m. on January 8, 2021. Grant awards will be announced beginning the week of January 13, 2021.
The program is not on a “first come, first served” basis. Once applications are received, they will be processed for eligibility. After rounds close, grant awards will be distributed based in the following order of priority: 1) Geographic distributions based on COVID-19 health and safety restrictions; 2) Businesses impacted the most financially based on gross revenue losses; 3) Industry sectors most impacted by the pandemic; and 4) Underserved small business groups (e.g., veterans, low-income or rural communities, and women or minority owned businesses).
Eligible businesses are those with between $1,000 and $2.5 million in annual gross revenues based on their most recently filed tax return, and include sole proprietorships and nonprofits. The grant awards are available for $5,000, $15,000 or $25,000 depending on the amount of revenue reported.
Eligibility is limited to small businesses and nonprofits physically operating in California since June 1, 2019 that have been impacted by COVID-19. Owners of multiple businesses will be considered for only one grant and are required to apply for the business that reported the highest revenue. Applicants will be required to certify eligibility.
The grant funds can be used for a variety of operating costs as long as they are not already covered through grants, forgivable loans or other relief programs for the same period. Eligible costs include payroll and employee benefits, rent, utilities, mortgage principal and interest payments, principal and interest payments on debt incurred before March 1, 2020, costs associated with re-opening business operations after being fully or partially closed due to state-mandated COVID-19 health and safety restrictions and business closures, costs associated with complying with COVID-19 federal, state or local guidelines for reopening with required safety protocols, including equipment, plexiglass barriers, outdoor dining, PPE supplies, testing, and employee training expenses.
The applicant should be prepared to complete the online grant application and will have to self-certify the accuracy of the information. Electronic copies of certain documents will be required to be uploaded initially, and once selected for funding, applicants will be required to provide copies of additional incorporation documents and the entity’s most recent IRS tax exemption letter (for nonprofit applicants). Additional details about the program and how to apply are available at: https://careliefgrant.com.
|
|
NEW 1099 REPORTING REQUIREMENTS
Starting with the 2020 reporting year, nonemployee compensation will be reported in Box 1 on the revived Form 1099-NEC (which was last used in 1982). The 1099-NEC is due to both the IRS and the recipient by January 31, 2021. Previously, nonemployee compensation was reported in Box 7 of Form 1099-MISC.
Additionally, Form 1099-MISC has been redesigned, and box numbers have changed. This form will still be used to report payments other than nonemployee compensation, such as rents, other income payments, medical and health care payments, and payments to an attorney, among others. The 1099-MISC is due the last day of February 2021.
The IRS will no longer share nonemployee compensation information with states, so the California Franchise Tax Board is requiring payors to send a copy of Form 1099-NEC to the FTB directly. The deadline to submit the forms to the FTB is February 28 for paper filers and March 31 for electronic filers.
Remember to collect Form W-9 from potential 1099 recipients before issuing any payment to avoid reporting headaches at the end of the year.
If you have any questions, please contact us. We are here to help.
|
|
Stay Tuned! E-mail Coming Soon to Sign Up for Your TaxCaddy Account
TaxCaddy makes it easier than ever to gather your 1040 tax documents and deliver them to us, communicate with us, answer your questionnaire electronically, and sign documents like the e-file authorization.
|
|
Helpful Links:
Our Dedicated COVID-19 Task Force
Tina Tharp, Judy Hamilton, Kim Spinardi and Jessica Jordan
|
|
|
|
|
|
|
