This article highlights recently updated Payroll Protection Program (PPP) forgiveness regulations and additional tax law changes that should help business owners maximize their available cash as the country struggles to return to normal.  

Let's start with the "employee retention credit," which is available to businesses that were fully or partially suspended or experienced a decline in quarterly gross receipts of more than 50% due to Covid-19.  The credit is 50% of an eligible employee's wages up to $10,000 for a maximum credit of $5,000 for wages paid between March 12, 2020 and January 1, 2021.  Businesses can apply for this tax credit on their Q2 2020 941 Tax Form or by filing IRS Form 7200 "Advance Payment of Employer Credits Due to Covid-19."

The tax laws also allow companies without forgiven PPP loans to defer their 2020 payroll taxes.  Both self-employed individuals and businesses that meet the previously mentioned test can now choose to postpone 50% of the 6.2% they pay for Social Security taxes until the end of 2021 and defer the remaining 50% to December 31, 2022.

Business owners can, furthermore, amend their 2018 and 2019 tax returns and write off any "leasehold  improvements" to their facilities that were amortized. They can adjust their "business interest deduction" on both their 2019 and 2020 returns from 30% to 50%, and business owners with "alternative minimal tax" (ATM) credits that can be claimed in 2021 can request an immediate refund.   Moreover, "net operating losses," (NOL) which could only be carried forward to offset taxable income, can be carried back up to five years for 2018, 2019 and 2020, so taxpayers can amend past returns and receive a refund.  Sole proprietorships and pass-through businesses can also take advantage of this tax law change, which have been limited to $250,000 for single taxpayers, but  is now suspended for tax years 2018 and later. 

Tax laws for "charitable contributions" have been modified, and "high deductible health plans" (HDHP) have been modified to cover tele-health, remote care, and Covid-19 testing before one meets their deductible.

In addition, self-employed workers are now eligible for a tax refund for both "family leave act" equivalents connected with Covid-19 and "qualified sick pay."  The family leave and sick leave credits can be taken against payroll taxes and any excess credit is refundable on IRS Form 7200 for leave taken between April 1^st and December 31^st 2020.

Requirements on Payroll Protection Program (PPP) loans have also been loosened to help business owners.  For example, last week, the minimum percentage of PPP funding borrowers have to spend on payroll costs to have their loans forgiven dropped from 75% to 60%, and partial PPP loan forgiveness during the covered period is also possible for borrowers that use less than 60% of their PPP loan for payroll.  Additional PPP Loan modifications include:

• The covered period for PPP loan forgiveness, which was extended from eight weeks to 24 weeks, if needed;
• Safe harbor rules covering PPP loan reductions based on full-time equivalent employees (FTE,) which now provides protections for borrowers who are unable to rehire individuals or similarly qualified employees because of health and safety laws connected to Covid-19;
• The SBA increased the maturity on PPP loans from two years to five years for loans approved after June 5, 2020; and
• The deferral period for borrowers' payments of principal, interest and fees has been extended to the date the SBA remits the borrower's PPP loan forgiveness amount to the lender, or if the borrower does not apply for loan forgiveness, to 10 months after the end of the borrower's loan forgiveness period.

PPP funds are available to small businesses with fewer than 500 employers that were in operation on February 15, 2020.  Eligible businesses, including tax-exempt not-for-profits, veterans' organizations, tribal entities, self-employed individuals, sole proprietorships, partnerships, S Corporations, C Corporations, and independent contractors.  (Under certain circumstances, businesses with more than 500 employees may be eligible for PPP funding.)

Investments in R&D may also be something businesses look into this year.  R&D tax credits may be taken when a company makes an investment that is: (a) technological in nature, (b) improves a business component's functionality, performance, quality and/or reliability, (c) eliminates an uncertainty, or (d) meets the test of experimentation.  Qualifying research expenditures include: salaries & wages, supplies costs and contractor costs.  Many states offer R&D tax program credits too, some of which exceed the federal benefit.  

The President and his advisors have been considering a wide range of future tax cut proposals, such as reduced capital gains taxes, increased accelerate depreciation, the suspension of payroll taxes, and expanded deductions for business meals and entertainment to help the economy recover.  The President's recent statements about the economy's rebound can perhaps best be summarized in Yogi Berra's observation about past economic downturns: "business will be like it was before … only more so."  For more details, check with your tax advisor.

Our Small Business Owner's Covid-19 Survival Kit is available through our on-line store on my Square web site https://greater-prairie-business-consulting.square.site/. 

It  contains over two dozen files filled with a plethora of financial, tax, HR, safety, leadership, sales, marketing, and government information to help business owners survive the Covid-19 Coronavirus Crisis. 

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