Bobby’s Blog

29 May

Important Info for Any Business Owner Who Received a PPP Loan

If you are a business owner who successfully applied for, and received, a loan through the Paycheck Protection Program, it is critically important to stay on top of those loan funds to ensure you comply with the program and remain eligible for loan forgiveness. Unfortunately, compliance can be extremely challenging since it seems like the rules governing the PPP program are constantly changing.

Tip No. 1 – You Have 8 Weeks to Spend the PPP Funds

If you received a PPP loan, it is important to understand that you cannot simply set that money aside. You need to utilize those funds for qualifying purposes within 8 weeks (i.e. 56 days). The proverbial clock starts to run on the date you received the loan. That is why I strongly recommend you circle the date you received the PPP funds and ensure to exhaust them within 56 days.

Tip No. 2  – You Need to Adhere to the 75/25 Rule

The 75/25 rule for PPP funds means that you need to expend at least 75 percent of your loan on payroll costs. This includes the cost of salaries, wages, vacation benefits, parental leave benefits, health benefits, etc.  It is also important to note that payments made to independent contractors do not qualify as acceptable payroll costs.

Tip No. 3 – You Need to Retain Your Staff

In order to maintain your eligibility for PPP loan forgiveness, you are required to maintain the number of employees on your payroll. It is also important to know that a new exemption was created that allows you to include employees who were previously furloughed and rejected your offer of re-employment. To qualify for this exemption, there needs to be evidence of a written offer to rehire that was conveyed in good faith to the employee, you must have offered to rehire the employee at their same salary/wage rate and the same number of hours, and you need to document the employee’s rejection of your re-employment offer.

Tip No. 4 – You Need to Maintain Detailed Records to Improve Your Chances of Loan Forgiveness

If you have not kept good financial records in the past, that needs to change and change quickly when you received a PPP loan. Why? Because you need to supply detailed records to qualify for loan forgiveness. As a result, make sure to track all eligible expenses over the eight week period beginning when you receive the loan funds. Your lender will likely want these documents in digital format, so make sure to save financial records in PDF or other digital format.  The documents necessary to apply for PPP loan forgiveness include:

  • Payroll reports from your payroll provider
  • Payroll tax filings (i.e. IRS Form 941)
  • Income, payroll, and unemployment insurance filings from your state
  • Documents that substantiate your contributions to retirement and health insurance plans
  • Documents that substantiate your eligible interest, rent, and utility payments

Tip No. 5 – Do Not Give Up Hope If Your Loan Forgiveness Application is Initially Denied

Considering the fluidity of the PPP program and the ever-changing rules and regulations, it is important not to get discouraged if your loan forgiveness application is denied. You should follow up with your lender to see if they will allow you to submit additional documentation to reevaluate your loan forgiveness request. Worst case, your loan balance will continue to accrue interest at 1 percent over the course of a 2-year repayment period. It is also important to know that there is no prepayment penalty. You have the option to pay off the outstanding balance at any time with no additional fees.

Tip No. 6 – Be Nimble and Ready for Change

As mentioned earlier, the rules surrounding the PPP program seem to be changing by the minute and the uncertainty surrounding the implementation of the program does not appear to be going away any time soon. For example, the U.S. House of Representatives recently passed a bill called the Paycheck Protection Flexibility Act (i.e. H.R. 7010). This legislation would extend the loan forgiveness period from 8 weeks to 24 weeks. In addition, it would lower the percentage of funds needed to be used exclusively on payroll costs from 75 percent to 60 percent. The Senate is working on its own bill that would double the covered period of PPP spending from 8 weeks to 16 weeks. However, the Senate’s bill, as of 5/29/20, would not change the 75 percent payroll cost requirement, according to the Journal of Accountancy.

Have Questions? Contact InSight Law

We are staying on top of the new guidance issued by the Small Business Administration, lending institutions, and Treasury Department. If you are feeling overwhelmed and unsure of whether your PPP loan will qualify for forgiveness, we understand and are here to help. Contact our office today.  

29 May

Coronavirus Pandemic Highlights the Importance of Clear Health Care Directives

CNN published a heart wrenching article by Louis Foglia that detailed his father’s last days and tragic passing as a result of COVID-19. Foglia’s article provided an immersive experience into the intense stress, anxiety and uncertainty that accompanies having a loved one in the hospital struggling to stay alive due to the Coronavirus. Foglia’s father battled the Coronavirus for 31 days but ultimately succumbed to the deadly virus.

I strongly encourage you to take the time to read Foglia’s article from start to finish. It both encapsulates the life and memory of his father while also highlighting the immense importance of certain estate planning documents while someone is nearing the end of their life. For example, Foglia discusses the venture into his family home to try and locate a copy of his father’s Health Care Directive and Last Will and Testament.

While reading Foglia’s article, I got the sense that estate planning and end-of-life care was never a topic of discussion between Foglia and his father. Foglia describes the need to go through his father’s papers in the hopes of locating the aforementioned medical directive and will. Unfortunately, many families wind up in the same boat and are forced to expend valuable time and resources trying to locate estate planning and health care documents.

Lesson

It is important to not only create a clear medical directive and estate plan, but to ensure the individual you selected to manage your estate knows where these vital documents are located.  

Foglia’s article also captures the anxiety and guilt associated with reading his father’s estate documents and realizing that his medical care may have already gone against his wishes. For example, Foglia’s father expressly stated in his medical directive that he did not want to be supported by a ventilator or hooked up to a feeding tube for any length of time. By the time Foglia located this directive, his father had been connected to both for close to two weeks.

Lesson

Talk about your estate plan and medical directive with your loved ones, especially the individual you’ve entrusted to manage your estate. They should not be surprised or tasked with deciphering an ambiguous statement or directive. When you have the discussion beforehand, it saves your loved ones from having to endure unnecessary stress, pain, and guilt.

Another important aspect of Foglia’s story is the reference to a Do Not Resuscitate (DNR) order. Fortunately, Foglia’s father had taken the time to draft a directive that addressed this very important issue of whether or not resuscitative measures should be deployed.

Lesson

Make sure your estate plan and medical directive contain a clear statement about whether or not a DNR order should be utilize for your care.

My deepest condolences go out to Mr. Foglia. I empathize with his experience since I lost my father years ago to a debilitating illness and encountered similar issues and challenges when attempting to manage his affairs and health care decisions near the end of his life. The stress and anxiety induced by that experience is one of the reasons why I devoted myself to practicing in trust and estate law.

None of us can avoid death, but we all have the ability to take proactive steps that can help reduce unneeded stress and anxiety for our loved ones when we near the end of our journey on this Earth. That is why I implore you to take action and draft an estate plan sooner rather than later. If the Coronavirus pandemic has taught us nothing else, it is that life is precious.

19 May

Tips on How the CARES Act Offers Important Tax Incentives and Planning Opportunities

The historic $2.2 trillion CARES Act contains an array of favorable provisions for individual taxpayers, but many of those provisions are only available in 2020. Nevertheless, there are also a number of lesser-known provisions that can be utilized for effective long-term financial planning and tax benefits.

Withdrawing Funds from Your IRA Without Enduring Harsh Tax Penalties

The CARES Act allows eligible individuals to take up to $100,000 of distributions from their Individual Retirement Account (IRA) or employer-sponsored retirement plan (e.g., 401k) during 2020 and receive the following relaxed tax rules:

  • Exempt from the 10 percent early withdrawal penalty that would otherwise apply to individuals who withdraw funds from their IRA who are younger than 59 1/2.
  • Individuals have the option to include all of the income from the distribution in 2020 income, or have it split evenly over three years (2020 thru 2022).
  • You can repay the withdrawal any time during a three-year period rather than the normal 60 day rule. If the distribution is repaid, you can file an amended return to claim a refund of income tax attributable to the amount you repaid.

Treat Retirement Account Withdrawal as the Last-Ditch “Break Glass in Case of Emergency” Option

Making a withdrawal from your retirement plan should be viewed as the last resort if all other options have been completely exhausted. Why? Because withdrawing funds from your retirement account is effectively robbing yourself in the future. The withdrawal also carries significant tax implications (i.e. income tax would be owed on the amount you withdraw from your retirement account).

Taking Out a Loan from a Qualified Retirement Plan

The CARES Act expands the overall loan amount an individual can take on their employer-sponsored retirement plan. In fact, the CARES Act doubles the loan amount from $50,000 to $100,000 up to a 100% of your plan balance. Please be advised that this loan needs to be repaid in five years in order to avoid being subject to income tax.

Required Minimum Distribution Rules Waived Temporarily

A provision in the CARES Act waived required minimum distributions for 2020. However, the waiver only applies to defined contribution plans, which include the following:

  • 401(k);
  • 401(a);
  • 403(a);
  • 403(b);
  • Governmental 457(b);
  • SEP IRA;
  • SIMPLE IRA; and
  • Traditional IRA.

However, it should be noted that the waiver does not apply to defined benefit plans.

If you already took your required minimum distribution in 2020, you may be able to return it if you do so within 60 days of the withdrawal. However, this option is only available if you have not made any other indirect rollovers in the past calendar year. In addition, this option is not available to non-spousal beneficiaries of inherited IRAs who have taken already taken their required minimum distribution in 2020.

Updates to Charitable Contribution Rules

Another lesser-known provision of the CARES Act is the suspension of the 60 percent adjusted gross income limitation on the deductibility of qualified cash contributions to publicly supported charities. This is a provision offering significant tax benefits, particularly in reducing your overall taxable income.

However, it is important to note that qualified contributions do not include contributions to donor advised funds, supporting organizations and private foundations that are subject to the 30 percent limitation.

Speak to an Experienced Estate & Financial Planning Attorney

We know this is a difficult and stressful time for everyone. The InSight Law team is here to help in any we can. If you are considering a withdrawal from your retirement plan, taking a loan from your retirement account, making a contribution to a charity, etc. take the time to schedule a call with a member of our team.

16 May
10 Apr

How Can I Get a Paycheck Protection Program Loan?

One of the key provisions of the landmark CARES Act is the Paycheck Protection Program. Congress allocated $350 billion to this program enabling the Small Business Administration to provide loans to small business owners. The loans are fully guaranteed by the federal government.

If you are interested in applying for a loan through the Paycheck Protection Program, here is the application in a fillable PDF format. 

Objective of the Paycheck Protection Program

The primary objectives of the Paycheck Protection Program include:

  1. Provide assistance to businesses so they can retain their employees; and
  2. Help businesses cover near-term operating expenses during the Coronavirus pandemic.

Who is Eligible for a Loan Through the Paycheck Protection Program

In evaluating the eligibility of a borrower through this program, a financial institution is required to consider two prerequisites: (i) whether the borrower was operational as of February 15, 2020 and (ii) whether the borrower had employees or independent contractors for whom the borrower paid. If these two prerequisites are met, the following business entities and individuals are eligible for a loan through the Paycheck Protection Program:

  • A small business with fewer than 500 employees (includes all employees full-time, part-time, and any other status)
  • A small business that otherwise meets the SBA’s size standard
  • A 501(c)(3) with fewer than 500 employees
  • An individual who operates as a sole proprietor
  • An individual who operates as an independent contractor
  • An individual who is self-employed who regularly carries on a trade or business
  • A Tribal business concern that meets the SBA size standard
  • A 501(c)(19) Veterans Organization that meets the SBA size standard

Special eligibility may apply if:

  • If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
  • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply

Traditional Requirements for a Business Loan are Waived

Under the Paycheck Protection Program, some of the traditional requirements put in place by the SBA have been waived for this loan program. Specifically, these loans are available with:

  • No personal guaranties of shareholders, members or partners
  • No collateral
  • No proving recipient cannot obtain funds elsewhere
  • No SBA fees (may still have to pay lender processing fee)
  • No prepayment fee

What can the loans can be used for?

1. Payroll costs, with the following inclusions and exclusions:

Includes: compensation to employees, such as salary, wage, commissions, cash, etc.; paid leave; severance payments; payment for group health benefits, including insurance premiums; retirement benefits; state and local payroll taxes; and compensation to sole proprietors or independent contractors (including commission-based compensation) who earn up to $100,000 in 1 year, prorated for the covered period;

Excludes: individual employee compensation above $100,000 per year, prorated for the covered period; certain federal taxes; compensation to employees whose principal place of residence is outside of the US; and sick and family leave wages for which credit is allowed under the Families First Act;

2. Other expenses include:

  • Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Payments of interest on mortgage obligations;
  • Rent/lease agreement payments;
  • Utilities; and
  • Interest on any other debt obligations incurred before the covered period

In evaluating eligibility of borrowers, a lender must consider whether the borrower was operating on February 15, 2020 and had employees or independent contractors for whom the borrower paid.

How Much Can I Get in a Loan?

Loans through the Paycheck Protection Program are designed to cover roughly 2.5 months of payroll, using a calculation of the average monthly payments during the last year period before the loan is issued. For example, if your annual payroll payment was $1.2 million, you can ask for a loan of up to $250,000 ($1,200,000/12 = $100,000, $100,000 X 2.5 = $250,000). However, it is important to note that you cannot obtain a loan larger than $10 million under this program.

Payroll Costs Covered Through the Paycheck Protection Program

Covered payroll costs for employers include:

  • The sum of payments of any employee compensation, including salary, wage, commission or similar compensation;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for dismissal or separation;
  • Payments made to cover group health care benefits including insurance premiums;
  • Payments made into retirement benefit programs; and
  • Payment of state or local tax assessed on the compensation of the employee.

What if I am a Sole Proprietor, Independent Contractor, or Self-Employed?

You are eligible for a loan through this program. Allowable payroll costs are the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.

Are there loan fees?

There are no borrower or lender fees for participation

What are the Typical Loan Terms?

  • Up to one year deferral of principal and interest payments.
  • Loans are available for up to a 10-year term (amortized) at an interest rate not to exceed 4 percent.

Is there loan forgiveness?

Generally, yes, but the loan forgiveness is not automatic. Borrowers must proactively apply for forgiveness with the lender servicing the loan. Here are some other key factors you need to know about getting your Paycheck Protection Program loan forgiven:

  • The forgiven amount will be equal to the amount actually paid for payroll costs, salaries, benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan. Additional wages paid to tipped employees under Section 3(m)(2)(A) of the Fair Labor Standard Acts may also be forgiven.
  • The forgiveness amount is subject to reduction if there is a workforce reduction or a reduction in the salary or wages of an employee.
  • The loan forgiveness Incentivizes companies to retain employees by reducing the amount forgiven proportionally by any reduction in employees retained compared to the prior year.
  • To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
  • Reductions in workforce, salaries and wages that occur from February 15, 2020 to April 26, 2020 will be disregarded for purposes of reducing the forgiveness amount so long as the reductions are eliminated by June 30, 2020.
  • The forgiven amounts are not taxable as income to the borrower
Paycheck Protection Program Info

10 Apr

How Can I Get a Paycheck Protection Program Loan?

One of the key provisions of the landmark CARES Act is the Paycheck Protection Program. Congress allocated $350 billion to this program enabling the Small Business Administration to provide loans to small business owners. The loans are fully guaranteed by the federal government.

If you are interested in applying for a loan through the Paycheck Protection Program, here is the application in a fillable PDF format. 

Objective of the Paycheck Protection Program

The primary objectives of the Paycheck Protection Program include:

  1. Provide assistance to businesses so they can retain their employees; and
  2. Help businesses cover near-term operating expenses during the Coronavirus pandemic.

Who is Eligible for a Loan Through the Paycheck Protection Program

In evaluating the eligibility of a borrower through this program, a financial institution is required to consider two prerequisites: (i) whether the borrower was operational as of February 15, 2020 and (ii) whether the borrower had employees or independent contractors for whom the borrower paid. If these two prerequisites are met, the following business entities and individuals are eligible for a loan through the Paycheck Protection Program:

  • A small business with fewer than 500 employees (includes all employees full-time, part-time, and any other status)
  • A small business that otherwise meets the SBA’s size standard
  • A 501(c)(3) with fewer than 500 employees
  • An individual who operates as a sole proprietor
  • An individual who operates as an independent contractor
  • An individual who is self-employed who regularly carries on a trade or business
  • A Tribal business concern that meets the SBA size standard
  • A 501(c)(19) Veterans Organization that meets the SBA size standard

Special eligibility may apply if:

  • If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
  • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply

Traditional Requirements for a Business Loan are Waived

Under the Paycheck Protection Program, some of the traditional requirements put in place by the SBA have been waived for this loan program. Specifically, these loans are available with:

  • No personal guaranties of shareholders, members or partners
  • No collateral
  • No proving recipient cannot obtain funds elsewhere
  • No SBA fees (may still have to pay lender processing fee)
  • No prepayment fee

What can the loans can be used for?

1. Payroll costs, with the following inclusions and exclusions:

Includes: compensation to employees, such as salary, wage, commissions, cash, etc.; paid leave; severance payments; payment for group health benefits, including insurance premiums; retirement benefits; state and local payroll taxes; and compensation to sole proprietors or independent contractors (including commission-based compensation) who earn up to $100,000 in 1 year, prorated for the covered period;

Excludes: individual employee compensation above $100,000 per year, prorated for the covered period; certain federal taxes; compensation to employees whose principal place of residence is outside of the US; and sick and family leave wages for which credit is allowed under the Families First Act;

2. Other expenses include:

  • Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Payments of interest on mortgage obligations;
  • Rent/lease agreement payments;
  • Utilities; and
  • Interest on any other debt obligations incurred before the covered period

In evaluating eligibility of borrowers, a lender must consider whether the borrower was operating on February 15, 2020 and had employees or independent contractors for whom the borrower paid.

How Much Can I Get in a Loan?

Loans through the Paycheck Protection Program are designed to cover roughly 2.5 months of payroll, using a calculation of the average monthly payments during the last year period before the loan is issued. For example, if your annual payroll payment was $1.2 million, you can ask for a loan of up to $250,000 ($1,200,000/12 = $100,000, $100,000 X 2.5 = $250,000). However, it is important to note that you cannot obtain a loan larger than $10 million under this program.

Payroll Costs Covered Through the Paycheck Protection Program

Covered payroll costs for employers include:

  • The sum of payments of any employee compensation, including salary, wage, commission or similar compensation;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for dismissal or separation;
  • Payments made to cover group health care benefits including insurance premiums;
  • Payments made into retirement benefit programs; and
  • Payment of state or local tax assessed on the compensation of the employee.

What if I am a Sole Proprietor, Independent Contractor, or Self-Employed?

You are eligible for a loan through this program. Allowable payroll costs are the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.

Are there loan fees?

There are no borrower or lender fees for participation

What are the Typical Loan Terms?

  • Up to one year deferral of principal and interest payments.
  • Loans are available for up to a 10-year term (amortized) at an interest rate not to exceed 4 percent.

Is there loan forgiveness?

Generally, yes, but the loan forgiveness is not automatic. Borrowers must proactively apply for forgiveness with the lender servicing the loan. Here are some other key factors you need to know about getting your Paycheck Protection Program loan forgiven:

  • The forgiven amount will be equal to the amount actually paid for payroll costs, salaries, benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan. Additional wages paid to tipped employees under Section 3(m)(2)(A) of the Fair Labor Standard Acts may also be forgiven.
  • The forgiveness amount is subject to reduction if there is a workforce reduction or a reduction in the salary or wages of an employee.
  • The loan forgiveness Incentivizes companies to retain employees by reducing the amount forgiven proportionally by any reduction in employees retained compared to the prior year.
  • To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
  • Reductions in workforce, salaries and wages that occur from February 15, 2020 to April 26, 2020 will be disregarded for purposes of reducing the forgiveness amount so long as the reductions are eliminated by June 30, 2020.
  • The forgiven amounts are not taxable as income to the borrower
Paycheck Protection Program Info