Everything You Need to Know About the COVID-19 Relief Bill

The Hartford

Have you been keeping up with all the changes to the COVID relief bill? If not, your business could be missing out on the opportunity to not only save, but also generate some much needed capital. In this episode, Jon Aidukonis and Gene Marks discuss how small business owners can take advantage of these new loan and tax policies and use the additional revenue for growth.

Executive Summary

0:15—Today’s Topic: How Can My Small Business Benefit from the Recent Policy Changes in Federal COVID Relief Funding?

3:06—Due to recent changes in the relief bill, business owners who have an existing SBA loan, specifically a section 7(a) or 504 micro loan, can get three months of that loan forgiven. They are eligible for an additional five months of forgiveness if their industry has been hit particularly hard.

4:38—Small business owners who are planning to take out a new loan can qualify for six months of principal and interest forgiveness if their loan is approved by September 30, 2021.

5:20—With such a wide range of generous COVID relief loans, now is an ideal time to really invest and build your small business.

7:49—If your business has experienced a 20% revenue decrease due to COVID, you can qualify for a quarterly 70% tax credit for every employee whose wages were taken up to $10,000.

11:21—Non-profit organizations are also eligible for all these federal loans and tax credits.

11:48—To increase funding, non-profits should let their supporters know that the government is providing an additional tax break for every donation they make.

13:19—As a small business owner, you now have the option of deferring your social security or FICA (Federal Insurance Contributions Act) taxes until March 2021, without any interest or penalty.

15:57—FICA taxes should not be included in your payroll cost calculations when applying to a PPP (Paycheck Protection Program).

17:17—For the next two years, you can deduct 100% of your business meal expenses.

19:12—Businesses can earn a tax credit of up to $9,600 when they hire a veteran or anyone who has experienced long term unemployment.

21:43—Because of the paperwork required for many of these loans, it is a good idea to start assembling all the necessary documents in advance; these can include payroll documentation, tax returns, sales records, invoices and contracts.

25:28—According to a special provision in the original Cares Act, business owners who have incurred any losses in 2020 are allowed to carry back that loss for up to five years, but only once they file this year’s income taxes.

Links

Transcript

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Jon: Welcome back everybody to another episode of Small Biz Ahead. This is Jon Aidukonis joined by Gene Marks, and we’re here to talk a little bit more about some COVID relief funding that just became available tied to this most recent legislation. Gene, how’s it going today?

Gene: It is going okay. Hey Jon, before I let you go, come on, give me a TV show to watch on Netflix. I’ll start you out with one, whatever that is worth. So we just finished watching the final season of The Crown, which was awesome. And I completely do not even want to get into the argument of people saying it was too fictionalized or not, or too true or not. It is a fictional tale of the Royal Family, but it’s so artfully done. The writing is great. The acting is great. Highly recommend that you watch The Crown. It is an excellent series. That’s my recommendation. What about you?

Jon: Yeah, you’re the third person who’s brought that up in the past couple of weeks. I got to make some time for it this holiday, for sure.

Gene: Yeah, it’s great.

Jon: I actually just started watching, and I’m super late to the party so I can see the eye rolls happening now from our listeners, but Ink Master. It’s a tattoo reality competition show and the first two seasons just got released on Netflix. And then I realized the rest are on Amazon Prime video. So I’ve been like in this rabbit hole of watching tattoo artists try to be crowned as the next ink master and I’m oddly fascinated by it.

Gene: Awesome. Okay, cool. I will definitely check it out.

Jon: Yeah. It’s hosted by some of the folks from Miami Ink back in the days. And Dave Navarro is actually their host slash third judge.

Gene: Wow. That’s very cool.

Jon: ’90s rock nostalgia.

Gene: My daughter just got her first tattoo, which looks absolutely awful. On the underside of her arm, it’s a yak, believe it or not. And I’m blown away that she did this.

Jon: Is she a hunter?

Gene: No, she’s a vet student, and she loves yaks. I don’t know what to tell you. I don’t know. We’ll have to put her on the show one day and she can explain it because I can’t even figure it out.

Jon: Yeah. I have not thought of the yak animal since I think I was in middle school, and I’m not even sure why I would have then. But that is an interesting tattoo for sure.

Gene: Oh brother.

Jon: Yeah. We’re going to have to follow up on that in 2021. All right. So I guess kind of getting into it. So if you’re a listener you might’ve heard or maybe next in your rotation is an update kind of on all things that changed with the recent PPP updates. But additionally, there’s a lot of other resources that just became available for small business owners. So when we think about things like other SBA loans, some tax credits, some other things you need to know kind of tied to this relief package, it felt like a different episode. So we’re bringing you a different episode. So I think we can jump right into it. And Gene, maybe we can talk a little bit about some of the SBA loans that became more attractive for folks this year.

Gene: Yeah. This one’s near and dear to my heart. And I just, Jon, this week interviewed Senator Chris Coons from Delaware because he was very instrumental in writing this portion of the relief bill. So he’s all jazzed up about it and so am I. So let me explain this to you guys. If you have an existing SBA loan, Small Business Administration loan, a section 7(a) or 504 micro loan. If you already have that in existence, guess what? Thanks to this new bill, you can get three months of that loan automatically forgiven, both principal and interest up to $9,000 per month. So depending on the size of your loan, you can immediately save $27,000 on that loan. And if you are in an especially hard hit industry, you’re in food service and accommodation, if you’re in the arts industry or entertainment or recreation, you can get an additional five months of your existing loan completely forgiven, Jon. I mean, this is principal and interest, you don’t have to pay it, with a total of eight months. So think about that. At $9,000 a month, if you’ve got an SBA loan, you could save $72,000 on that loan you wouldn’t even have to pay. So for people that have existing 7(a) or 504 micro loans, please, please, please talk to your SBA banker soon, like now, and make sure that they are aware of this and that they accommodate that forgiveness. That’s if you have an existing loan. Now, if you get a new loan, a 7(a) or a 504 micro loan, and by the way, if you get these loans, they’re guaranteed by the government. The banks are encouraged to give them out. You can use them for working capital. You could use them to buy another business. You can use it for inventory, for equipment. If you get a new loan approved before September 20th of 2021, your first six months of principal and interest will be forgiven. That’s up to $9,000 a month as well. So I just wanted to make it clear. Now if you’ve already got an existing SBA loan, that’s a great benefit. But man now, there’s never been a better time to go and get an SBA loan to grow your business in the aftermath of COVID because the government is giving you this free money as part of the loan. And you don’t even have to be effected by COVID, any business is eligible up to 500 employees. So go, go, go to an SBA banker and ask them more about these SBA loans, section 7(a) or 504 micro loans. I hope I explained that accurately enough, Jon.

Jon: Yeah. I mean, I think that’s awesome. So I feel like that’s a good opportunity too for folks who maybe weren’t necessarily impacted by COVID to the extreme where they feel like they were on the verge of shuttering. But I think about what’s the world going to look like after, and if you need a little help kind of setting up your business for that. So is it something where you can think about a walk-up window, if you’re on a main street, for pickup. Is it something where you can think a little bit about a new access store or even a patio for a restaurant, because I don’t think outdoor dining is going to reduce any time soon. This feels like a really good way to try and kind of get a leg up on that type of work.

Gene: You bring up a really good point as well, is that there are so many restaurants that are building outdoor facilities, which I think are going to continue for a long time. And as I’m walking by them, I’m like, “Geez, that can’t be cheap.” I mean, these people are putting in duct work and building out, whatever. And I think to myself, “God, I mean, if it’s not tough enough already for restaurants, now they got to go to this expense.” But I got news for you. I mean, if you’re thinking of doing that and you could get one of these loans, a 7(a) loan or a micro loan, and you would have your first six months of that loan, the principal and interest, completely forgiven. So it makes it so much cheaper for you to do. So these loans are not for survival. They’re for growth. I mean, you got to be thinking post COVID. And the bottom line is, Jon, is that there are many businesses in this country that are struggling. We know all about that. The restaurants, the retailers, people in certain industries, but Jon, you and I both know there are a lot of other businesses that have been doing fine. They’ve navigated their way around COVID and they’re looking to the future post COVID and they want to grow and they see opportunities. And this is a great way to get financing for some of those opportunities.

Jon: Awesome. No, for sure. That’s great to share and hopefully some folks can take advantage of it. In addition, it seems like people who are able to retain some employees kind of over the past couple of months and into next year, they have a new and enhanced tax credit.

Gene: Yeah. So here’s where we lose half of our audience because we’re now going to talk about taxes. But I’m going to couch this in different terms. Saying, guys, listen to me. Okay? Put out the word tax credit and instead replace it with the words, “Money in the bank.” Okay? Because there’s a credit that’s available to you, that’s been available, but it’s now been expanded. And if you take advantage of this credit, it’s a refundable credit, you can get money back from the government that you put in the bank. And here’s the way this credit is. It’s based on your employees. So if you’ve been impacted by COVID, which means that your revenues have gone down 20% year over year, that’s the definition of being impacted. 20% for this rule. If that’s the case, then listen, every quarter now going forward, you can take any employee’s wages up to $10,000, you can take up to a 70% credit on those wages. A $7,000 credit per employee against your social security taxes. So for example, if you’ve got 10 employees and they’re all making more than $10,000 a quarter, it’s a $70,000 credit and whatever you paid in social security taxes this quarter, if it’s less than 70,000, the difference is money back to you in the bank. So you don’t have to apply for this. You just do it on your next quarterly tax return. So talk to your accountant, please, and ask them about the employee retention tax credit. You can go back in time and claim it, or you can do it going forward through July 1st. And again, whatever credit amounts you get, it gets applied against your employer FICA, the social security taxes you’re paying in. And if the credit is in excess of what the employer taxes are, you get the cash. So take advantage of that right now, because it could be money in the bank.

Jon: Awesome. And I know you talked a little bit about kind of the change, but if you’re a business who opened in 2020 or who maybe don’t have a year over year change to show, are you still eligible for this credit?

Gene: So unfortunately there were, well before this, anybody who was not in existence for all or part of 2019 were not allowed to participate. Now you can. So if you at least started your business in 2019, you will be eligible to take part in this, and before that wasn’t the case. It also, by the way, it expanded this to all organizations. It can include your health plan expenses. That’s considered to be compensation, even if you didn’t pay any compensation to the employees. And by the way, a big deal about this, you can take advantage of this credit even if you participate in the paycheck protection program. It’s just that you can’t use the same wages for both. So if you use some wages for forgiveness, whatever wages you didn’t use for forgiveness, you could use for this employee retention tax credit. So that’s another thing to keep in mind. So it’s really been expanded to allow employers to get more options and get potentially more money back.

Jon: Great. And then, I think let’s keep talking about money. So if you’re a non-profit, you’re allowed to make more money now, too.

Gene: Yes. That is correct. So, I mean, even as a nonprofit organization, it’s not even about making more money, it’s just that you are now included in all these provisions. You’re currently included in, when we talked in the last podcast about PPP, but you’re also able to take advantage of these tax credits. One other thing about nonprofits, while we’re talking about nonprofits, is they expanded the tax deduction for nonprofits in 2021, which basically means that individuals that want to give money to charities, you can now give up to 600 bucks if you’re married filing jointly or $300 individually, and take a tax deduction for that. Even if you’re taking the standard deduction, you can get an additional deduction for these contributions. And I say this so that if you’re an individual listening to this in 2021 take advantage of that extra deduction, give it to a charity. And if you’re involved in a nonprofit, man, that should be your headline of your charitable campaigns during 2021, reminding everybody that they get this extra special tax deduction in 2021 for giving money to your charity. So take advantage of that so you can bring more money in, hopefully more donations.

Jon: Yeah, no, it feels like because there were a lot of questions I feel like even just in the initial PPP and some of those decisions that have been made, and I feel like a lot of the 501(c)(3) organizations specifically haven’t really known where they fit in. So if you’re a community gallery or kind of an art center or maybe an education resource organization, it just seems like a lot of folks have been kind of in that ether of between what do we do and how do we help people or bring you the service that makes us a nonprofit when the world has changed so much? So good to know we can do a little bit more to support them. All right. And social security. So there’s some stuff going on with deferring social security taxes?

Gene: Yeah. Now this has always been around, but again, this is for an employer as well. So if you’re running a small business, the government is offering you a interest free loan through 2022. And it relates to your social security, your employer portion of social security taxes. If you decide not to pay them at all, so you’re not dealing with this tax credit thing, any employer who wants to, whether you’ve been affected by COVID or not, if you don’t want to pay your employer social security or FICA taxes this year, you don’t have to. In fact, you don’t have to pay them at all through March, 2021. You can defer them. You will have to pay them eventually, but you can defer them. 50% will be then owed before the end of 2021 and the other 50% owed by the end of 2022. So what that means is that if you owe, I don’t know, say $50,000 in FICA taxes, employer share of FICA taxes. You’re like, “I’m going to keep the money in the bank. Maybe I’ll use it. Maybe I won’t. But I’m not going to pay it to the government. I’m going to keep it. And I only have to pay 25,000 of it back by the end of the year and 25,000 by the end of 2022. And the government’s not going to charge me in any interest, excuse me, or penalties for doing that.” It’s an interest free loan that you’re getting from the government. Just be aware that if you decide to take advantage of this, you don’t have to apply, you can just do it, but you’re going to have to pay it eventually. So it’s not a grant or anything, it’s a loan without interest.

Jon: Right. So this is probably more one of those things, if you can, maybe just kind of keep it going normal so you don’t change your books too much. But if you’re looking for kind of a little bit of cushion or headway or need some relief outside of money that might be available to you, it’s another way to kind of build a little bit of that cushion in to kind of navigate the next few months.

Gene: Yeah. You hit it right on the head, Jon. I mean, I kind of look at the next, I don’t know, through June of 2021, it’s going to be some pretty hairy times. We don’t know how cases are going to spike. We don’t know how quickly the vaccinations will be distributed and take effect. And honestly, if I’ve learned anything from watching a lot of successful business owners, the people who have cash win and the people that don’t have cash don’t win, they don’t survive. So here’s an opportunity to hoard a little bit of cash. You will have to pay it back at some point, but you can keep it on hand. And boy that cash might really be useful if you run into a few rough weeks making expenses because of COVID. So nice to have it. I hope you never use it. I hope you stick it away, it never gets used, and then you just pay it back. But it’d be nice to have that cushion.

Jon: And a random question here, if you’re in one of the classes that we talked about in our other episode where maybe you’re eligible for a grant that has to be used for payroll costs, or maybe you are a PPP recipient or a second time recipient, where you’re trying to kind of balance out your ratio. Would your social security or your FICA tax be considered a payroll cost? So is it something where you could actually maybe borrow or be awarded money to pay that if you were to hold it off now to kind of manage where your liquid assets are?

Gene: It’s a great question. I mean, the FICA taxes that you’re paying are really not considered to be part of the payroll cost calculation for PPP. So they’re really kept separate from all that conversation, which is why the employee retention tax credit and this opportunity to defer those FICA taxes for a little bit, that’s why those have those problems in place to try to make it a little bit easier for employers. But it’s a great question. So they’re two absolutely different things.

Jon: Got it. Yeah, because I think that’s an important distinction because I think when you’re thinking payroll costs, you think sometimes everything that goes along with it. But this one wouldn’t be considered one of those. So to our audience, just know that, that that’s why some of these programs are it so we don’t mix them up. But on probably a less severe note, if you are someone who’s been able to kind of stay in business and you’re traveling to the extent that you can or entertaining to the extent that you can, there’s a bigger deduction now for meals, it seems like.

Gene: Yeah, there is. I mean, I don’t know, these kinds of things bother me, Jon, but that’s just a personal thing. First of all, yes, there’s now through the end of 2022, you can now deduct 100% of your business meal. It used to be 50%. So first of all, I don’t know what incentive that gives. I mean, when people go out to eat lunch, they’re not thinking of tax strategies while they’re eating lunch. You know what I mean? Like, “Should I order that extra drink because of the deduction…” I just don’t think that’s high on place of mine. And I don’t know what impact that has on the restaurant industry. And between you and I, I mean, I hate these… I like driving down overall tax rates. We should just pay tax rates overall instead of muddling up the system with lots of these sort of weird deductions that expire after a period of time. It seems like it just serves special interest. But listen, if it helps the restaurant industry, I’m all for it. So just bear in mind now that for the next two years, if you go out on a business meal, you can deduct a hundred percent of the expenses. And if that encourages you to go out and spend money at a local small restaurant, by all means, go and do it.

Jon: Get the cheesecake. But I’m with you. I think for the short term, it feels like I’m not sure how much meaning that’s going to have for a lot of folks. But over the next year or two, a little bit we’ve seen can add up. So hopefully that does kind of help some of our folks who are really impacted from having to shut down for months on end. All right. So anything outside of kind of the grants and loans that we talked about, anything else that you feel like folks need to know kind of coming into the next couple months? Any new programs or any other caveats that they should be aware of?

Gene: Yeah. I have two comments to make. So number one is there’s another thing called the employee retention tax credit. And I’ve talked about this for years, because a lot of people don’t seem to know about it. It was extended as part of this bill through 2026. If you hire anyone who’s been a veteran or has been long-term unemployed. And by the way, that’s defined as six months, which in this last economic downturn, that’s nothing. So you hire somebody back who’s been unemployed for six months, somebody that was on welfare, you can get up to a $9,600 tax credit for doing that. Now the calculation is a little complicated. So you might want to involve some outside, an accounting firm to help you with that. But it’s a big credit that you should take advantage of as you’re bringing these employees back, particularly if they’ve been unemployed for a while, it’s money in your pocket. Which brings me to my last point, Jon. I mean, I mentioned getting an accounting firm involved. Listen, we want our businesses, and we want to just focus on running our businesses and all this stuff, this legislation, this accounting stuff, this tax stuff, people say, “It’s not what I do. I sell this, I perform these services. That’s what I enjoy doing. All of this stuff is just,, it’s confusing and whatever.” And I agree with all of that, but it’s unprecedented the amount of benefits, tax incentives, and bonuses, that the government is offering right now. And putting aside how they’re going to pay for all of that, that’s a whole conversation, the bottom line is that there’s a lot of money out there for you as a small business, and whether you’ve been significantly infected by COVID or not. So I really do recommend that you get together with a good CPA or a good attorney or business advisor, really go through all of the things that you and I have talked about. See what you can take advantage of, take advantage of it, and put the money in your bank account because you’ll use that money. I know you. You’ll use it to hire more people or to invest in your business or, I don’t know, put it away for your retirement someday. And there’s a lot of money that’s out there. A lot of benefits out there for you, if you just spend the time or pay somebody to spend the time to really look deeply at some of these programs and take advantage of them. That’s what I recommend.

Jon: Gene, that’s a good point. And I’m going to add in one more question because I feel like this did come up in some of our conversations with some owners after the first round. So probably baseline, there was going to be a couple of documents that you need to get ready. And as we’re recording this, a lot of this legislation we’re anticipating to be passed, but by the time you hear, they’ll probably be a little bit of a window between when you can actually start securing some of this funding. Are there things that people could maybe start getting ready? I should caveat that. If you’re listening to it as it’s released, you might be listening to this way in the future. In case, leave us a comment and let us know if we were right. But in terms of cashflow statements or PNLs or employee kind of payroll statements, is there kind of a top five list people can start kind of pulling, getting together, so when these programs open, when applications open, when they’re kind of reaching out to get counsel from their accountants or lawyers, they are ready to have an informed decision, or discussion rather?

Gene: Yeah, that’s actually a great question because really the one commonality about all of these programs, PPP, economic injury and disaster loans, shuttered venue grant programs, employer retention tax credits, all of these things. If there’s one thing that’s in common with them all is that they all do require some documentation and support. And the documentation and support really fall into just a few very common categories. Payroll documentation, if you have a payroll service, good. And I strongly recommend that you do have a payroll service because they’re the ones that have the ultimate documentation, your payroll register. But make sure all of your HR records are in order for everybody. You should have a good clean general ledger and financial statement that support your tax returns because you’re going to be asked for all of that. And finally, I mean, when you apply for things and you’re looking for forgiveness, you may very well be asked to say, “Well, show me the invoice for that.” Or, “Show me the contract for that.” And I just want to make sure that you’ve got all of those, your invoices and your contracts, filed in a way. If still doing it manually, okay, but hopefully you’re scanning everything in, you’ve got these things filed electronically. So you’re going to want to make sure that you are able to provide them as well. So all of those things are really, really important to make sure you’ve got your ducks in order now, because you’re going to be asked for them. And you’re avoiding running around with your head cut off if you get all that information in good order before you start applying for some of these benefits.

Jon: Right. And I think from a lot of these too, they are looking for year over year change, either based on the calendar year before or the quarter that you’re kind of trying to show impact. So I would take that advice back to 2019, pull your statements again, figure out how much you did in sales, figure out what you paid in payroll, start to get that ready. And I would recommend maybe doing a quarterly view too. So when you’re ready to start jumping into these applications, having conversations, kind of showing impact, you’re ready to go. Because I think if anything, we’ve seen even when enormous pools of funding are available, they go really quickly because we’ve never seen this kind of demand before. So you definitely want to be prepared to kind of take advantage early because I anticipate a similar experience where as soon as this is available, it’s going to be gone. So just want to make sure you’re as prepared as you can be to take advantage of that quickly.

Gene: You’re right. And by the way, your point is so spot on about the prior years. I mean, you’re going to be asked to provide documentation for 2019 or even 2018, you need to be looking back on that and saying, “I got to get my act together to take advantage of that.” So yeah, that’s something that’s important. One final thing that I’ll leave you with. A little bit of a tax tip for all of you guys that are still around. If you lost money, if you lost money in 2020, regardless of why, but if you have a loss, file your tax returns fast. And the reason why is because the original CARES Act has a special provision that one time only you can carry back the loss for up to five years. You’re only allowed to do that for 2020. Which means that if you lost money this year, but you made money in prior years and you paid taxes, you can carry this loss back and get the taxes you paid back to you. But you can only do that when you file your tax returns. So light a fire under your accountants and tell them to get those returns filed fast because the faster you file your returns, the faster you can claim that carryback loss and the faster you can get refunded the taxes that you paid from those prior years. Do that as soon as you can.

Jon: Yeah. That’s a great tip because I think you’re really talking about three things now. So there’s new funds available to be awarded, there’s new policies available that might let you reclaim money you paid in the past, and there’s a couple of measures in place that might prevent some expenses that you’ll have to pay eventually. But if you need a little bit of breathing room, you might be able to kind of build that into your next couple of weeks or months. So definitely different ways to think about managing your finances going forward. And if you haven’t already, this is part two of a two-part podcast where you can go back and learn a little bit more about the disaster relief grants, about kind of the new rules and regulations around PPP. Gene And I will keep you guys posted if there’s more that comes out. Look for a potential part three. And then the new year definitely, we’ll stay on top of making sure you’re aware of other things like grants and programs and other opportunities we hear about for sure. So wishing all of our listeners the very best. Gene, thank you as always for your insight and advice and guidance.

Gene: Thank you, Jon.

Jon: Yeah, thank you. And for more, everyone can go to sba.thehartford.com. A lot of resources posted there, a lot of tools and kind of tool kits from Gene in the past, if you’re looking for advice on maybe how to calculate some of these pre-work assignments. We’re hoping everyone kind of gets through this together. So stay tuned for more and enjoy the rest of your day or evening, whatever it is when you’re listening.

Gene: Take care.

Jon: Thanks very much. Bye guys.

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