Jan. 19, 2021 COVID Round Tables (Part 5)

Returning today is Gene Marks from the Marks Group PC. He is an author, a speaker on small business expertise, and a CPA. He has presented at Scaling New Heights. He was one of our guests on the Round Tables back in March for the CARES Act when we were trying to figure out what was happening with coronavirus relief, and previously spoke at our January 5 Round Tables. He writes regularly for The Hill, the Philadelphia Inquirer, Forbes, Entrepreneur Magazine, and The Guardian, and appears regularly on MSNBC, CNBC, Fox Business and Fox News. He’s the author of six books on business management and comes to us today compliments of our friends at Patriot Software, a leading payroll provider which works with QuickBooks Integrated Payroll.

Joe Woodard: My client’s work is performed at its client site, which is shut down. Does that qualify as a shutdown for the client? So the client can't work because its customer is shut down.  

Gene Marks: I had that situation, where we had several clients that were shut down because of rules in Pennsylvania. I couldn't do the work from there, because we're in the county business. We did the work remotely. But just because those businesses were shut down, that had no impact on my business being shut down. So there was no shutdown for me. 

Joe Woodard: Maybe your business goes dormant, but is not shut down. 

If your bank is not letting you change your first PPP loan, then can you use another lender if you need to add payroll expenses? That's an interesting question. 

Gene Marks: It’s set up so that you can go back to your original lender to adjust your original loan. But if that original lender won't adjust it for you, it seems like you're going to be out of luck. You can't change it unless that lender transfers the loan to another lender, which is complicated and highly unlikely. If the lender isn't going to agree to make those changes, then you'll have to try to apply for a second loan, if you think you're eligible. 

Joe Woodard: What about businesses that were not operating until the fall of 2020? The business spent the closed time from June to September upgrading its rental space. There were insufficient revenues to run its payroll. Does the business still qualify for the first PPP loan as business was suppressed because of COVID-19 restrictions. I think your answer was that the business had to run a payroll in order to qualify for a PPP loan. 

Gene Marks: There are some people who might have incorporated or started their business in 2019 but didn’t begin operations, lease space or hire anybody until June 2020. They're asking, “Did we start before?” because you're not allowed to even apply for a second round if you didn't start before February 15, 2020. There again, the rulings are vague on what that means. We've been telling our clients, “You might have filed the paperwork, but when you began operations was when cash started going out of your business.” 

Joe Woodard: If an entity applied for and received an EIDL loan, but did not receive the $10,000 grant, can they apply for the grant separately or refile for the EIDL? My answer would be that the grant would serve as an advance on the EIDL and if you get an EIDL, the grant would be subtracted from the loan proceeds. If you were not approved for the EIDL, then it converts to a grant. Therefore there's no action required for your clients. 

Gene Marks: Correct. 

Joe Woodard: Does it really matter what year you pick up the tax-free income on the tax return, especially as a PPP loan under $150,000 will definitely be forgiven. So why not just pick up the tax-free income as an M-1 adjustment? 

Gene Marks: I think that whatever year that you pick it up it's a non-taxable event. So it will be an M-1 adjustment and and no IRS auditor is likely to question that. 

People get really caught up in which period loans and forgiveness should be accounted for. But from a tax standpoint, it's really irrelevant, because again, both the forgivable expenses and the forgiveness of the loan are non-taxable. The only time that it becomes an issue from a tax standpoint is for your state. And we're still waiting to hear from a lot of different states as to whether PPP loans and deductible expenses for forgiveness will be deductible for state purposes. So just be aware that you might have be more cognizant of what period you report them in if your state is going to be tough about you deducting those expenses. 

Joe Woodard: If a sole proprietor had a loss and Schedule C, line 31 is negative, that person should file for unemployment, but what would unemployment be based on if your Schedule C, line 31 is negative? 

Gene Marks: Each state has different rules. So the states do look at Schedule C, but they also give you the ability to apply based on other types of documentation. For example, what payments you might have received from customers or clients or whatever to justify it. Some states even let you just represent it by showing bank statements to back it up. So it depends on your own state. 

Let’s talk about the NOL carryback. It's a big deal. If your clients lost money in 2020 (for 2018 and 2019 too), you want to step up and file the returns quickly because of the CARES Act.  On a one-time basis, the CARES Act is allowing you to carry back losses five years. Normally you’re not allowed to do that. But you have to file the returns to claim the carryback. If your clients had any earnings and paid taxes in those years, they can get that money back. By putting their returns at the very front of the queue, getting them filed and then carrying back that loss, your clients can get that money back in their bank accounts. It's an instant way to get a lot of gratitude from your clients. But it’s a one-time deal. 

Joe Woodard: That is huge. Is 2.5 times income or $20,833 the maximum loan forgiveness for a single-member LLC, or is it for both PPP loans combined? There's a maximum loan forgiveness of either 2.5 times income or $20,833. 

Gene Marks: Yes. $100,000 per year annualized.  

Joe Woodard: Is that both PPP loans combined, or per PPP loan? 

Gene Marks: Per PPP. This is a question that was asked on the last round table. Joe, you and I went back to check it because people are asking, “Do you combine the PPP loans for the forgiveness? If you have $250,000 in forgiveness, what if I got two loans for $100,000 each? Do I no longer qualify? According to the SBA, each PPP loan is its own entity. Your payroll calculation is made separately for each loan. And the forgiveness is considered for each loan independently. That's what I've been told by the SBA. 

Joe Woodard: For a payroll run generating the ERTC, may your employer FICA deferral also be applied? Basically, can you stack the FICA deferral and the employee retention tax credit? 

Gene Marks: You actually are allowed to combine them, even with the ERTC. If you take the ERTC against your FICA and you still have $10,000 of FICA leftover after the credit, you can still defer that if you want to. It's an interest-free loan. You would have to pay 50 percent of that back by the end of 2021, and the other 50 percent back at the end of 2022. 

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