Tammy: Exciting tax information, you know some people have been telling me that they have been getting these notices saying they owe and we’ve filed their tax return. Well, the IRS isn’t physically there so they are not cashing checks, so they did send out another notification letting everyone know that they are acknowledging that and that they are kind of freeze those notices moving forward.
Brian: Yeah I know there are still some clients that are receiving them, they are telling you to ignore them. What we’ve been doing is still calling and letting them know about the letter and put a hold on the account until they actually cash the check. The IRS wants there money they have it yet they are not cashing it.
Tammy: From what I understand the IRS has expressed that its going to be pretty liberal with penalty abatement this year.
Brian: I did have an instance where Delaware actually sends a letter out the clients and the cash and their check had already cashed and they still got a letter in the mail saying they owed money.
Tammy: Wow that a little scary.
Payroll Tax Holiday
Tammy: another topic that definitely warrants some discussion is the Payroll Tax Holiday, which is actually a deferral. We’ve talked about that in the past and I think everybody is kind of used to the concept but interestingly enough though Federal Government employees are seeing this take effect and originally we thought it was an opt in by both the employee and the employer but the government is taking the position that they are just doing it automatically. So this is pretty confusing for some employees and UM really trying to get the message out that yeah your saving this 6.2% now but come January not only are you going to start paying the 6.2% but now you are going to have to start paying the 6.2% back. And so it’s going to feel like a double hit so people need to definitely plan accordingly and possibly save that money because from what I’ve heard its unlikely that Congress is going to deem that as forgiven.
Brian: President Trump has said that if he wins the election he’s going to have it as a forgivable event but he can’t do that through executive order, it has to be an act of Congress.
Delaware Relief Grant
Brian: The Grant kicked off this month and it’s called The Delaware Relief Grant. So it’s a 100 million dollars that the Governor has allocated to small businesses. So you could possibly get anything up to $100,000 depending on your revenue but these expenses, you have to use the money for COVID related expenses. So it’s the Delaware Relief Grant and it started in September and the first round was done in like two or three days, they got like 1,600 applications they allocated a little over $30,000,000 in the first round. They are going to do a second round October 1st, and a third round in November. $33,000,000 each round until all the grant is used. So you have to go online that day, it’s first come first serve to the Delaware website and apply for this loan. On the application your going to give them your gross revenue number for 2019, your going to list out the type of expenses you spent the money on or are planning on spending the money on before the end of the year and your Delaware business license. Answer a few questions and then they are going to process it, they have hired some third parties to assist in the effort and once it’s processed it may take three weeks and then you get your money and you have to use it for COVID relief expenses and things such as purchasing equipment for the workplace that you needed. Ok let’s say you started having folks work from home, and you bought a bunch of new laptops, that’s something you could use to qualify. All the PPE stuff that you bought for your offices, like the plexiglass, the masks the sanitizer, washing stations, all sorts of things money you spent on, you can still spend that money before the end of the year. So you thought you needed some of the stuff and you didn’t have the funds to do it, you can get this grant and do it and have that money forgiven and not have to pay it back. So it’s really exciting. What’s going to happen in 2020 after you file your tax return, your going to submit your 2020 tax return to Delaware with the invoices of the things you spent the money on and you have to have shown at least a 7 ½% drop in gross revenue from 2019 to the 2020 amount for this amount to be forgiven. That’s the key thing. So if your not seeing a decrease in revenue your going to have to pay this back with interest. So this is not really working for you.
Tammy: And do you know if that interest accrue from the time you got the grant?
Brian: Yes, from the time you got the grant until the time you pay it back. It’s a pretty high rate. They say its going to be prime plus 500 basis points. So that could be 50%, so it’s really not worth it if you don’t think you see a drop in revenue. So the other thing I wanted to point out is this money can also be used if you had to take out any debt during this time. So if you had to go to the bank and say I need a line of credit increase or I need a new loan because I don’t have any money. If you went and got one of those EIDL loans, Emergency Disaster Loans from the SBA you can use this money to pay that back.
Brian: So that’s nice too. A lot of people did get that loan so if you get this grant money you can use it to pay that back. So something to be thinking about I think it’s a, but like I said it’s first come first serve basis, we have heard from the state there has been a fair amount of fraud, people trying to, when the first round kicked off they were putting any loan amount, loan applications and they weren’t even legitimate businesses. So they are policing that, it’s first come first serve. So get on it September 1St.
Tammy: So what if you didn’t’ make the first round do you think your in the queue?
Brian: No, Even if you applied in the first round and your not given this grant money, you have to start fresh on the Second round, its first come first serve so your not the first ones in line. Now they said that your application is saved so you shouldn’t have to go through and complete all of that stuff again, you should be able to resubmit the previous application, so it will save you a little time. Something to be thinking about its good for Covid related expenses and it also one more thing, sorry advertising if you wanted to use this money for additional advertising for the rest of the year on advertising you wouldn’t normally spend you could use that money for this because your business is suffering so why not get a little extra money and I could do some extra advertising and maybe generate some more revenue. These grants monies can be used for that. You can spend that money by December 31st and still maybe get it forgiven if you show proof of spending.
Tammy: and that’s good because of a lot of those are campaigns probably pay for it now and you know have a campaign that runs into next year.
Brian: The Governor said that depending on how quickly the money goes the $100,000 million he may allocate more but we will see what happens.
Tammy: That’s big, that’s definitely a win for our small business in the area.
Payroll Protection Program
Tammy: You know it’s been kind of quiet and the forgiveness that’s available now and some institutions are putting out a link finally on that. But you have some time you don’t have to rush, we were hoping Congress by now was going to reconvene and vote to stream line forgiveness for under $150 that hasn’t happened and so some institutions are even giving an recommendation to wait. You do have 10 months from the time your cover period ended, so you have plenty of time to apply and I know there’s a lot of anxiety around just wanting to get it done but you could be putting yourself through some more work that you don’t necessarily have to. And then of course the big looming question is Will this you know basically be taxable because right now the way it is currently written you would not get the deduction for what you used the PPP for and in fact that makes it kind of taxable income so that a little worry some. So of course I know we are on top of it with our clients and kind of giving them two scenario tax planners one with and one without.
Brian: And it’s a big deal. I mean the intent of Congress was to not make this taxable it literally says in the Cares Act it’s not taxable income but the IRS ok fine but if it’s not considered forgiveness of debt then it’s a grant and grant monies by IRS rule you can’t take the expenses unless you use the monies for, so essentially its taxable. We are hoping through this next round they can make that go away and save you folks some money. In the end some most folks if you got the money and you have to pay tax on it let’s say the effective rate is less 40% your still getting 60 cents on the dollar that you didn’t have before. But it hurts the folks that haven’t been getting any revenue and really needed that money and now it’s gone so they don’t have 20% - 30% to give back.