• Derek Carter

So What If Nothing Happens?

Let me start by saying that I firmly believe a stimulus deal or multiple deals will get done. I think the deal or deals will be significant in nature and wide reaching with a major focus on small business. I do not know anyone that feels confident about when we will see a deal reached at this point. So, what should small businesses be doing now as it relates to all the legislation that is in play today?


Be patient! We could pretend that you have a choice in the matter, but you really do not. Let’s break down some of the major issues business owners are waiting on.


PPP Forgiveness


On August 10, the SBA opened their portal to begin accepting PPP forgiveness applications from lenders. Ahead of the release lenders made it known they would not be accepting PPP forgiveness applications due to the ever-changing PPP forgiveness rules. Their case is strong considering the SBA and Treasury Department issued new FAQ’s and an Interim Final Rule on August 11. There is also overwhelming support to provide automatic forgiveness for a certain subset of loans (not more than $150,000 has been the widely circulated number and is also included in the latest bill Senate republicans released last week).


You really have no choice but to wait. If you did have a choice, I would strongly encourage you to be patient and wait things out. There is a good likelihood that there will be automatic forgiveness for certain loans. I also believe the vast majority of borrowers will be able to submit forgiveness applications without providing any supporting documentation, which may be a huge time saver for small businesses.


Keep in mind that borrowers have 10 months from the last day of their covered period to apply for forgiveness. If you end up with a PPP loan, payments are not due until the SBA has paid the lender for any forgiven amounts or both have concluded you are ineligible for forgiveness. There are also tax consequences to consider. I will speak to that below.


PPP Forgiveness - Tax Deductibility Questions


As of today, expenses used to obtain PPP forgiveness will not be deductible on your tax return. For many businesses, this could result in a large and unexpected tax bill. As I stated above, you have 10 months from the last day of your covered period to apply for forgiveness. You have plenty of time to wait and see how this plays out between Congress and the IRS. We have already been waiting 5 months, what is another couple months?

Most experts believe Congress will step in and make clear their intention as it relates to the deductibility of PPP expenses as defined in the CARES Act. Ultimately Congress will likely override the current IRS opinion, which is explained above. Given the current political climate and the fast-approaching election we may be waiting a long time for a final decision on this major issue.


If Congress does not step in, the number of questions we have on tax deductibility far outweigh what we know. Most business owners will not know about forgiveness until sometime in 2021, how will they file their 2020 tax return? Some business owners could have eligible expenses in both 2020 and 2021, how would that be addressed on the tax return? The questions are significant and numerous.

Patience is the right move here. As a business owner, I would start preparing to file extensions for your 2020 tax returns in early 2021. It is not clear when we will get final answers on deductibility and we have to remember that tax preparers need time to get up to speed on the new rules in play for the 2020 tax year.


Payroll Tax Deferral


The President issued an executive memorandum a couple weeks ago related to deferring a portion of employee FICA taxes. The deferral is set to go into effect September 1 and run through the end of the year. There is also wording in the memorandum asking the Treasury Department to find a way to eliminate the obligation to pay back this deferral.

There is nothing to do now. We all are waiting patiently for the Treasury Department to put out information on how exactly this is to be implemented. We do not even know if this deferral is required or optional at this point. Once we do have final information it will likely take payroll providers several weeks to get their systems updated to accommodate this payroll tax deferral.


Patience, Patience, Patience


There is really nothing left to do as it relates to government related assistance programs. Do not let their inaction stop you from being hyper aware of what is going on in D.C. as it relates to small business. It will be extremely important to understand everything that is ultimately pushed out of D.C. because the impact on your business could be significant.

While you wait patiently on D.C., continue to focus on your business. Dial in your operations, enhance your business culture, work on an operating budget. Control what you can control.


These crazy times are not going to end anytime soon. Now is the time to plan for the worst and hope for the best. Being prepared for anything will give you a head start on surviving whatever is to come next.


800.571.6119

Solutions

  • White Facebook Icon
  • White LinkedIn Icon
  • White Twitter Icon
  • White Instagram Icon
  • White YouTube Icon

804 Meeting Street Charleston, SC 29403 | 800.571.6119

Copyright 2020 Ceterus  All Rights Reserved