USE LOSSES TO GET REFUNDS FROM PRIOR YEARS - Good News for Small Businesses and Business Owners via the CARES Act



Great news for suffering businesses and their owners. You may suffer losses due the COVID-19 pandemic but via the CARES Act now you may be able to carry back losses to prior years to get refunds and help you stay afloat or at least offset some losses. It is important to know what the tax impact of losses will be to make smart decisions now for your business. Maybe the situation for your business is not as bad as you thought.

The CARES Act provided for changes in what a taxpayer can do with Net Operating Losses (NOLs). The TCJA tax law passed a few years ago eliminated the ability to carryback NOLs altogether and also limited using them to reduce taxable income only up to 80%. Now the CARES Act kind of undid that change and now NOLs can be carried back up to five years and or carried forward to offset 100% of taxable income.

What that means is taxpayers with losses may be able to use those losses to carry-back against prior years tax returns and get refunds and thus improve their cash flow. Look for business owners with losses in 2020 to quickly file those tax returns and then elect to carryback losses to get tax refunds.

You need to be aware of impact of the CARES Act regarding the treatment of NOLs to make good decisions now. To look at numbers for your business and help you make plans in this difficult environment, use my email address below to contact me to arrange a consultation via a phone or Zoom or Skype call.


The CPA Superhero
jeff.jhtaxes@gmail.com
217-923-8007





Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.

Safeguard Your Stimulus Check


Yesterday I saw a car moving slowing ahead of me on the wrong side of the street. I wondered if he had car problems but then why would he be on the left side of the road? Perhaps it is easier to access mailboxes that way? Of course, criminals know that the IRS is sending out stimulus checks (Economic Impact Payments) and they will try to steal yours.

Make sure you check your mail early for your stimulus (Economic Impact Payment) check before robbers can get it.

Many will receive their stimulus checks via direct deposit. Yes, the IRS does have a site that they put up yesterday where you can check on your check or specify your bank account information. However, there were so many people using that site yesterday that most people received error messages when trying to use it. It appears that it also affected other pages on irs.gov.

So be careful and protect your stimulus check from robbers. You can try the IRS site to check on your payment but good luck with that. By all means check your bank accounts to see it arrived there. But also check your mail early.


If you have a business and need help during this crisis there may be loans available to you. For information see my previous posts listed below. To look at numbers for your business and help you make plans in this difficult environment, use my email address below to contact me to arrange a consultation via a phone or Zoom or Skype call. Additionally, I can help you by preparing your 2019 tax return so you will have the documentation you will need to apply for your loan.


The CPA Superhero
jeff.jhtaxes@gmail.com
217-923-8007



Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.

Self Employed Paycheck Protection Program Loans Guidance


The guidance for the Payroll Protection Program loans for Self Employed taxpayers has been released. If you are self employed can you get a Payroll Protection Program loan, how much can you borrow and if so how much of it can be forgiven? Also, what documentation do you need to apply for this loan?

Before we get into the details below, know that the maximum loan amount is equal to 2.5 times your average monthly net self employment income based on line 31 of your 2019 schedule C. The forgivable portion of your loan can go up to 8/52 (8 weeks) of your 2019 net income line 31 of your schedule C.

I know many will have questions about different situations but this should help your get started to figure if you can get this loan and if it makes sense for you.

What Self Employed persons can get the Payroll Protection Program loan? Here is the guidance from the SBA:

You are eligible for a PPP loan if: (i) you were in operation on February 15, 2020; (ii)you are an individual with self-employment income (such as an independent contractor or 5a sole proprietor); (iii) your principal place of residence is in the United States; and (iv)you filed or will file a Form 1040 Schedule C for 2019. However, if you are a partner in a partnership, you may not submit a separate PPP loan application for yourself as a selfemployed individual.
How much can you borrow? Again here is the guidance for self employed persons who do not have employees:

How you calculate your maximum loan amount depends upon whether or not you employ other individuals. If you have no employees, the following methodology should be used to calculate your maximum loan amount:i. Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). If this amount is over $100,000, reduce it to $100,000. If this amount is zero or less,you are not eligible for a PPP loan.ii. Step 2: Calculate the average monthly net profit amount (divide the amount from Step 1 by 12).iii. Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.iv. Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance under an EIDL COVID-19 loan(because it does not have to be repaid).  
What do you need to provide?

Regardless of whether you have filed a 2019 tax return with the IRS, you must provide the 2019 Form 1040 Schedule C with your PPP loan application to substantiate the applied-for PPP loan amount and a 2019 IRS Form 1099-MISC detailing non-employee compensation received (box 7), invoice, bank statement, or book of record that 7 establishes you are self-employed. You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020. 
For a Self Employed Person with employees, how much can you borrow?

If you have employees, the following methodology should be used to calculate your maximum loan amount:i. Step 1: Compute 2019 payroll by adding the following:a. Your 2019 Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value), up to $100,000 annualized, if this amount is over $100,000, reduce it to $100,000, if this amount is less than zero, set this amount at zero;b. 2019 gross wages and tips paid to your employees whose principal place of residence is in the United States computed using 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c- column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips; subtract any amounts paid to any individual employee in excess of $100,000 annualized and any amounts paid to any employee whose principal place of residence is outside the United States; and c. 2019 employer health insurance contributions (health insurance component of Form 1040 Schedule C line 14), retirement contributions (Form 1040 Schedule C line 19), and state and local taxes assessed on employee compensation (primarily under state laws commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms). 8ii. Step 2: Calculate the average monthly amount (divide the amount from Step 1 by 12).iii. Step 3: Multiply the average monthly amount from Step 2 by 2.5.iv. Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid). 
What do you need to provide?

You must supply your 2019 Form 1040 Schedule C, Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation on February 15, 2020. 
How much of your loan can be forgiven?

The amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest. The actual amount of loan forgiveness will depend, in part, on the total amount spent over the covered period on:i. payroll costs including salary, wages, and tips, up to $100,000 of annualized pay per employee (for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses,retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums);ii. owner compensation replacement, calculated based on 2019 net profit as described in Paragraph 1.b. above, with forgiveness of such amounts limited to eight weeks’ worth (8/52) of 2019 net profit, but excluding any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Corona virus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a credit is claimed under section 7004 of  FFCRA;iii. payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business mortgage payments);iv. rent payments on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business rent payments); and 12 v. utility payments under service agreements dated before February 15, 2020 to the extent they are deductible on Form 1040 Schedule C (business utility payments).The Administrator, in consultation with the Secretary, has determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C to eight weeks’worth (8/52) of 2019 net profit. This is most consistent with the structure of the Act and its overarching focus on keeping workers paid, and will prevent windfalls that Congress did not intend. 
What will you need to provide to your lender to get the loan forgiveness?

In addition to the borrower certification required by Section 1106(e)(3) of the Act, to substantiate your request for loan forgiveness, if you have employees, you should submit Form 941 and state quarterly wage unemployment insurance tax reporting forms or equivalent payroll processor records that best correspond to the covered period (with evidence of any retirement and health insurance contributions). Whether or not you have employees, you must submit evidence of business rent, business mortgage interest payments on real or personal property, or business utility payments during the covered period if you used loan proceeds for those purposes.The 2019 Form 1040 Schedule C that was provided at the time of the PPP loan application must be used to determine the amount of net profit allocated to the owner for the eight-week covered period. The Administrator, in consultation with the Secretary,determined that for purposes of loan forgiveness it is appropriate to require self-employed 14 individuals to rely on the 2019 Form 1040 Schedule C to determine the amount of net profit allocated to the owner during the covered period for the reasons described in Paragraph 1.d. above. 

To look at numbers for your business and help you make plans in this difficult environment, use my email address below to contact me to arrange a consultation via a phone or Zoom or Skype call. Additionally, I can help you by preparing your 2019 tax return so you will have the documentation you will need to apply for your loan.


The CPA Superhero
jeff.jhtaxes@gmail.com
217-923-8007



Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.

Tax Advantages: help from the CARES Act - the Paycheck Protection Program Loan (COVID-19 pandemic)



Forgiven PPP Loan Not Taxable Income

A very important aspect of the Paycheck Protection Program Loan is the tax advantage for a business and it owners if they take the loan and have it or a big part of it forgiven is the forgiven portion of the loan will reportedly not be considered taxable income. That means that you can pay your employees for eight weeks after the loan is originated and take a loss even though the money for a big chunk of the loss does not come out of your pocket. Since the forgiven portion of the loan reportedly will not be taxable you can take a loss for the payroll, rent, and utilities the loan was used for.

NOL Carryback Changes

To make it an even better scenario, the CARES Act also reportedly provides that Net Operating Loss (NOL) can once again be carried back five years and now instead of taking down 80% of your taxable income the NOL can take down 100% of your taxable income. Here is the quote from the Tax Foundation:

"Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use NOLs they have to fully offset their taxable income." 

Refunds for Prior 3 Years Personal Tax Returns

If your business may not survive the COVID-19 pandemic you would still want to take the Paycheck Protection Program loan and use it for allowable expenses, qualified payroll, rent, and utilities to get that portion of the loan forgiven. That forgiven loan would not be taxable income to the business but the business would still take the resulting loss. That loss could be passed on to the partners or shareholders who could take the loss on their personal returns. That loss on personal return  could fully offset taxable income for 2020 and any unused portion could be taken back five years to amend returns to reduce taxable income and receive refunds. So while taxpayers who take the loan and have a portion forgiven may not benefit dollar for dollar they may still be able to benefit financially from reductions to taxable income and reduce taxes and in some cases obtain tax refunds.

C-Corporation Losses Limitations

Keep in mind that there is no real benefit from a loss in a C-Corporation other than being able to carry it forward. However, often a business is run through a C-Corporation but profits and losses are funneled out to a management company setup as an S-Corporation. The resulting loss, in this case, for the S-Corporation then flows through to the shareholders personal returns and now can offset other income and even be carried back five years but you can only get refunds on the past three years of personal tax returns.

Benefits to Employees and Their Families

From a non-financial perspective a business could continue to provide for employees and their families by keeping them employed and for the eight week period following the origination of the PPP loan they could provide this payroll in a way that effectively is at no cost to the employer. Even if the business may not survive it could provide benefit to its employees for a couple of months.



There are other things to consider too depending on your circumstances. It helps to have someone you can consult with to run through these things to consider. I am helping many of my clients with these scenarios. If you want my help use my email address below to contact me to arrange a consultation via a phone or Zoom or Skype call.


The CPA Superhero
jeff.jhtaxes@gmail.com
217-923-8007







Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.

Paycheck Projection Plan loans what should you consider?

Like many people you may be looking for assistance for your business due the the COVID-19 pandemic and its affect on your business. Potential help is coming and you may be able to apply for a small business Paycheck Protection Program loan tomorrow April 3, 2020. But what questions should you consider before pursing this option.

Many of my clients are asking these questions and while potentially Free Money sounds really good what else do you need to keep in mind. If you have a payroll intensive business this may be a great deal. However, to what extent can your business generate income at this time and what other non covered expenses will you incur and what does that mean for your cash flow. The loans can be forgiven for using the proceeds for payroll, rent, utilities, and some loan interest. However, most businesses have other expenses to cover. And you have to consider how long you may be experiencing negative cash flow and how much. I wish I could tell you how long this will go on but I can not see exactly what the future holds.

In addition to looking at your cash flow and your capital you should also consider if you manage to get through this disaster what position will your business be in? The idea is will you find yourself with a larger market share and more profits after surviving this disaster and then what will it cost you to survive this. Many businesses that are able to survive this may find themselves in a great position when it is over. Others may drain all their resources trying to survive and wind up failing any way.

Perhaps a bigger question is what if things don't return to "normal"?

There are other things to consider too depending on your circumstances. It helps to have someone you can consult with to run through these things to consider. I am helping many of my clients with these scenarios. If you want my help use my email address below to contact me to arrange a consultation via a phone or Zoom or Skype call.


The CPA Superhero
jeff.jhtaxes@gmail.com
217-923-8007





Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.

Update on the Paycheck Protection Program loans




Like many people you may be looking for assistance for your business due the the COVID-19 pandemic and its affect on your business. Potential help is coming and you may be able to apply for a small business Paycheck Protection Program loan tomorrow April 3, 2020.

There is more information since I initially posted about the Paycheck Protection Program loans and potentially Free Money. But there are still many questions. Even the Treasury seems confused or maybe everybody else is wrong, but the Treasury guidance "Paycheck Protection Program (PPP) Information Sheet" states regarding the loan amount that the "Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount."  Everywhere else I am reading the loan can be 2.5 time your average monthly payroll from the last year. I am also looking to clarify the last year means 2019. I have seen that on the sample application released by the SBA.

The Treasury guidance indicates small businesses should be able to apply for these loans starting tomorrow.

"Starting April 3, 2020, small businesses and sole proprietorships can apply for andreceive loans to cover their payroll and other certain expenses through existing SBAlenders."
The other question I still have is what payroll documentation you will need. I have heard it will be your 941s and I saw in a Forbes post a reference to using 2019 W-2s.  I sent an email this morning to a banker asking if they have some material to clarify these questions. The response I got was be patient they are not sure yet either. They hope to get more information today. It makes senses that the banks that will be making these loans would be the best source for these answers and if you can start applying tomorrow then we should know something really soon. Until then take a look at the  sample application released by the SBA and the Treasury Guidance to get an idea of what you will need to apply and get ready.

One more note, on the sample application released by the SBA I noticed you have to certify that "Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." That is not exactly crystal clear but you might want to be prepared to document why you make this certification in the event the government inquires about years from now.

The other thing to consider is should I take this loan in order to continue operations or do I have better options. I will address this question in my next post.


To look at numbers for your business, use my email address below to contact me to arrange a consultation via a phone or Zoom or Skype call.


The CPA Superhero
jeff.jhtaxes@gmail.com
217-923-8007



Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.



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