If you are one of the many business owners who was able to secure a Paycheck Protection Program (PPP) loan you are undoubtedly aware that these loans are forgivable if you disbursed the full loan proceeds for allowable expenses (payroll, payroll tax expenses, business rent, business utilities) and if you meet certain other criteria. This means the loans become grants and you do not have to pay them back!
However the forgiveness is not automatic. You have to ask for it by filing a PPP Loan Forgiveness Application. Each lender is handling the application process as they see fit. Most are setting up an online portal to allow borrowers to prepare and submit the applications electronically. Contact your lender to find out how they are handling it if they have not already sent you an email.
Thankfully, for most truly small business borrowers the process seems as though it will be pretty simple. Most of my clients will be able to file the short form (form 3508 ez) and submit it along with some additional documentation. This documentation may include payroll records to ensure that you have met the payroll and employee retention requirements, as well as proof of payment of business rent and utility expenses. For self-employed individuals the documentation would also include proof of “draw” payments to yourself.
You will have the option of choosing either an 8-week or 24-week period (starting on the day you received the loan proceeds) to show you made the required disbursements. I suggest that you choose the 8-week period as long as you have disbursed the full amount of the PPP loan proceeds for allowable expenses within the 8-week period. The shorter 8-week period will mean that there will be less additional documentation to submit. If you were not able to disburse the full loan proceeds for allowable expenses (payroll, payroll tax expenses, business rent, business utilities) within 8 weeks, then choose the longer 24-week period.
Once the loans are forgiven the loan proceeds become income, but the income is not taxable. If you do your own accounting, make sure you categorize the income differently than your regular business income to ensure that you do not mistakenly end up paying taxes on it. Otherwise make sure whoever prepares your books understands that this income is not taxable and needs to be treated differently.
Be aware that the rules regarding these loans are changing regularly so keep your eyes open for future posts or emails from me that may contain important information. The application deadline is December 31, 2020, however I suggest getting the application submitted ASAP to give you time to correct any errors or submit any additional information the lender may require, as well as for your own peace of mind.
Of course I am available to help you in any way I can and am always available via my cell at (732) 822-6890. I am also back in my office in Monmouth Beach and can be reached there are (732) 222-4422.
I help clients reduce taxes, increase profitability, meet reporting requirements and save valuable time. Contact me to find out how!