The Paycheck Protection Program loan (PPP loan) has been a hot topic this past year and there is new information coming out frequently about the program. With the new information coming out, we wanted to provide some highlights of the program and give an easy to understand update on what you need to know for your PPP loan and forgiveness.
PPP Loan Recap
As a quick recap, the PPP loan program originated from the Coronavirus Aid, Relief and Economic Security (CARES) Act. The intent of the program was to provide American small businesses with cash-flow assistance because of the pandemic. Since it first came out, there have been some very important changes to the program that affects how and when the money can be spent, and making it easier to be forgiven.
Expenses Are Now Deductible
A big change that came out at the end of December 2020 was regarding expenses. Before this, the IRS stated that forgiven expenses will not be tax deductible. But as of December 21, 2020, new legislation makes business expenses paid with PPP money are now deductible. It also says that forgiven PPP loans will not count as income. Find all of the details on this legislation here.
Qualified PPP Loan Expenses
The PPP loan has certain expenses that the money can be used for, including:
- Payroll with an individual compensation cap at $100,000 annually
- Mortgage interest on mortgages signed before February 15, 2020
- Rent on lease agreements effective before February 15, 2020
- Utilities that service began before February 15, 2020
In addition, expenses must be paid before January 1, 2021 in order to qualify. It is extremely important that you have good record keeping and bookkeeping during this time (and always) to prove how funds were spent.
PPP Loan Forgiveness
Under the PPP loan program, you must actually apply for forgiveness for your loan to be forgiven. Also, 60% of the funds you receive, need to go towards payroll in order to qualify for forgiveness of the entire loan.
Some applicants are starting to hear of their forgiveness, but many are still waiting. If you have applied for forgiveness and are still waiting to be approved, you can still proceed as if you have been approved.
PPP Round 2
The new bill that was created at the end of December also makes more funding available to eligible businesses, even if a PPP loan was already received. PPP Round 2 is NOW open (as of Monday, January 11, 2021) for applications. You have until March 31, 2021 to apply. General eligibility for Round 2 of the PPP Loan is:
- Previously received a first draw PPP loan and will or has used the full amount for authorized uses
- Has no more than 300 employees
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
Find more information on PPP Round 2 at SBA.gov and get the application here.
Importance of Accurate Financials
Relief efforts due to COVID-19 have shown us how important it is to not only keep your bookkeeping and financial records current, but also the need to be able to trust your books and reports is crucial. Current and accurate books are the core to running your business and being able to pivot as needed. Let’s hope this doesn’t happen again anytime soon, but 2020 has shown us that you never know when you are going to quickly need accurate financials.
24hr Bookkeeper cleans up outdated books so you have current and accurate financials. We also offer monthly bookkeeping services, so you won’t get behind on your books again. Get a hold of us to help with your financial needs.
