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One of the aspects of the PPP program involves forgiveness of the loan, meaning you don’t have to pay it back. I will tell you there were a lot of unanswered questions about the forgiveness portion of this loan. So my initial advice to you is to focus on getting the loan first. Then worry about the forgiveness. We will have a couple of months for all of the details about the forgiveness to be ironed out and there are parts of the law that says the SBA will provide guidance on it later. So be aware that some of these questions are just not able to be answered yet.
First, when you would like to apply for forgiveness, this will be at the end of an eight week period. After you received the loan, you will return to the bank or lender and ask them what information is required from what we can see so far, the payroll reports will be required and this will probably be more of a detail style because it won’t be for a full quarter. You’ll want to be able to provide backup of each payroll that was run during that eight week period. You’ll also need to show documentation for every expense we expect. This will be a big requirement is the documentation, the receipts for every expenditure that is allowed to be paid out of that money should be on hand to match up along with the proof of payment. Please make sure you have a good system of tracking expenses and documenting if you would like to be forgiven for the debt.
Again, the covered period will be eight weeks from when the loan was dispersed. There will be a lot more guidance. As I said, as we get closer to the time of forgiveness, many of these details are still left up to interpretation. What expenses can be included in the forgiveness. Again, payroll costs. As we previously defined interest on mortgage obligations, they had to be in place before February 15th of 2020 rent on laces before that date, and also utility payments that were in service before that date. Utilities would include electricity, gas, water, transportation, telephone, and internet access.
How will the percentage of forgiveness be interpreted? Now this so has, again, this is one of the biggest areas was some unanswered questions, but here’s how we think it’s going to work. Based on how the law is written, you’re going to determine a fraction and that will be anywhere from zero to 1% or 100% the average number of full-time equivalent employees per month employed by the eligible recipient during that eight week covered period divided by the average number of full-time equivalents per month employed by the eligible recipient during the period of February 15, 2019, to June 30th, 2019 or if you were a seasonal or new business, you will use the January and February of 2020 dates.
Let’s talk about a little example with that. So as far as we understand at this point staffing, let’s say that this was the staffing from February to June of 2019 they had Bob and Mary were full-timers, and then they had Sue and Jacob who were 20 hours each part-time. Now Sue and Jacob together equate to a full-time equivalent. If in 2020 they get the loan May 1st and we go through the period of May and June, and they have Bob and Mary and they now have Wilma working for 35 hours. That would be considered a full-time equivalent by this company standards. So they would have three in the prior period and three in the current period, that would equate to 100% forgiveness on the loan. And our second scenario, after they get back up and running, just Bob and Mary, the owners of the company are working there, aren’t able to hire any other workers in their business. Whereas in the prior year, they had soon Jacob each working 20 hours. That would mean that they now have two full-time equivalents divided by three in 2019 so that would be 66.67% forgiveness. Now, what is forgiveness? Forgiveness is you no longer have to pay the debt, and in this situation, it is not taxable.
Donna Bordeaux, CPA with Calculated Moves
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