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The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act

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The Consolidated Appropriations Act, 2021 (CAA 2021) became law on December 27, 2020, and among many other things, provided for a second round of potentially forgivable Paycheck Protection Program loans to small businesses that were financially impacted by the effects of the pandemic.

The Act not only provides funds and guidelines for a round two of PPP money; it also expands PPP round one in a number of ways.  Here are a few of the highlights. 

Changes to PPP Round 1 Loans

Existing borrowers with PPP loans can reapply for a loan or request a loan increase as long as they have not received forgiveness. This includes borrowers that returned all or part of their PPP loan or whose loan maximum has increased due to regulations implemented after receipt of their loan.

Businesses that have not been granted forgiveness can spend PPP money and apply for forgiveness on an expanded list of expenses, including: 

  • Software, cloud computing, HR, and accounting
  • Property damage
  • Supplier costs
  • Essential contracts in force prior to loan
  • Worker protections, e.g. PPE
  • Payroll costs can include group insurance including group life, disability, vision, dental

They can now choose their covered period at any time between 8 and 24 weeks (previously it was 8 OR 24 weeks only).

There will be a simplified forgiveness application for loans under $150,000.  However, do note that this is not the rumored rubber stamp: the backup paperwork and calculations are still required.

The SBA has until January 21, 2021 to establish the guidelines for the application process.

PPP Second Draw Loans

Additional PPP monies will be available to qualifying businesses, up to loan amounts of $2 million. The business must:

  • Employ 300 or fewer employees
  • Have used or plan to use the full amount of PPP1
  • Can prove a 25 percent drop in revenue in any quarter of 2020 compared to 2019

Businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives are eligible.

In round two, borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs in the one year prior to the loan or the calendar year. Businesses with NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5X average monthly payroll costs. The rules for forgiveness are the same as in round one.

Organizations not eligible for PPP2 include:

  • Businesses not in operation on Feb 15, 2020
  • Businesses that received a Shuttered Venue Operator Grant
  • Entities normally ineligible for SBA loans in general, except for nonprofits and religious organizations
  • Political organizations and lobbyists
  • Entities affiliated with entities in the People’s Republic of China
  • Registrants under the Foreign Agents Registration Act
  • Publicly traded companies

The entire program is extended to March 31, 2021.

There are also special provisions for these types of businesses:

  • Venues
  • Farmers and Ranchers
  • Housing Cooperatives
  • News Organizations
  • 501(c)(6) and Destination Marketing Organizations
  • Businesses in bankruptcy proceedings

The disclosures have also gotten stronger, with specific provisions for collection of demographic information and required disclosures for leaders in government to publicize their receipt of PPP forgiveness as well as prohibition of them receiving PPP loans in the future.

The law gives SBA a deadline to act, which varies from 10-24 days depending on the section. The next course of action for businesses that want to apply for these funds is:

  • Continue gathering your documents,
  • Make your calculations,
  • Check with your accountant if you need help,
  • Select your SBA-approved bank, and
  • Wait for both
    • The SBA guidance and
    • Your bank to open the application portal

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act starts on page 2042 of the 5593-page bill in case you want to see for yourself. Your tax professional is your best resource for any clarifications on tax law.

A New Round of Stimulus Checks

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On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 which included measures for both COVID-19 relief and sweeping funding provisions for the government through September 2021. While there are many sections of this law to explore, this article will focus on the stimulus checks.

Qualifying individuals will receive these economic impact payments, and the Washington Post reports that more than 85 percent of US households will receive a check. To qualify:

  • For individuals making up to $75,000 per year, or if a couple, making up to $150,000 per year, the check will be $600.
  • For individuals making between $75,000 and $86,900 (couples: $150,000 to $173,900), the check will be between $595 and $5. In this phaseout, the amount of the check decreases by $5 for every $100 of income above $75,000/$150,000, phasing out completely at $87,000/$174,000.
  • The amount sent will be based on the amount you earned (adjusted gross income, to be exact) on your 2019 tax return.
  • Includes children. The definition for child will be the same as the one used to calculate the child tax credit.
  • Excludes dependent adults over 17 at the end of the tax year.
  • Excludes persons who died on or before January 1, 2020.
  • Includes individuals who file jointly with an ITIN, but excludes the person with the ITIN.
  • Includes 2019 non-filers who receive benefits from Social Security Administration, Railroad Retirement Board, and the Department of Veterans Affairs.

Here are some examples: A family of four – mom, dad, and two children under 17 – that earns a total of $100,000 per year will receive $2,400. A single man earning $80,000 per year that lives with his disabled father will get $350 (80,000 – 75,000 = 5,000 / 100 = 50 * $5 = $250. $600 – $250 = $350). A woman with 2 small children earning $87,000 will not get anything.

Taxpayers do not have to do anything to receive their stimulus checks. Many taxpayers will receive their stimulus checks via direct deposit, if that information was included on your 2019 return. If the IRS does not have your bank account information, you will likely get a check or a pre-paid debit card. If you’ve moved, you can update your address by completing an IRS change-of-address form (allow six weeks).

The checks are supposed to start hitting bank accounts early in January. You do not have to pay tax on this income.

If you never got the first stimulus check, you can claim it on your 2020 tax return. Details are here on the IRS site. https://www.irs.gov/newsroom/recovery-rebate-credit

Deductibility of PPP-Related Expenses

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One of the biggest tax issues of 2020 has been clarified with the signing of the Consolidated Appropriations Act, 2021, (CAA 2021), and that was whether expenses that are normally deductible and that were paid with the proceeds of a Paycheck Protection Program (PPP) loan that is forgiven are truly deductible.

The CARES Act, which became law on March 27, 2020, was drafted so quickly that the question of deductibility was left out, but several members of Congress made it clear that deductibility was the intent all along. The IRS went the other way, publishing a notice (2020-32), a revenue ruling (2020-27), and a revenue procedure (2020-51), that took the opposite stance: PPP-related expenses that were forgiven were not deductible, therefore potentially causing business’s taxes to become much higher.

Congress has now reversed the IRS’s position with CAA 2021 in Section 276 (PPP) and 278 (EIDL). Gross income does not include forgiveness of PPP loans and emergency EIDL grants. Deductions are allowed for normally deductible expenses paid with PPP loan proceeds that were forgiven. It also provides deductibility for Second Draw PPP loans. This is all good news for taxpayers with PPP loans.

However, there could be timing issues that could reduce the deductibility of the full amount of the PPP expenses. There could also be amounts “at risk,” which is a tax term that limits your deductions in certain cases.

All of these issues need to be carefully considered on a case-by-case basis. Your tax professional is your best source to help you review all of these factors so that both your PPP loan forgiveness and allowable deductions are timed to reduce your tax bill.

The Power of Listening

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Now, more than ever before, the act of listening is important. Not only is it important to listen to someone, but to effectively listen to them. Sure, we all know that in order to understand individuals, to connect with them and understand their wants and needs, we need to be alert, focused, and mindful. After all, the power of listening—effective listening—will help you get more information from clients, increase their trust and commitment in you, and reduce conflict and misunderstanding.

Below, we’ve included more information on the power of listening, and tips on how to be a better listener.

What It Means To Listen

We don’t need to give you a textbook definition of listening; you already know what it means. However, it is necessary to point out that the act of listening and actually comprehending what a person is saying can lead to strong, healthy, and thriving relationships—all very important qualities in any type of relationships, specifically a business one.

If you don’t believe us, think about the last time you were having a conversation with someone and felt as if you weren’t being heard. How did that make you feel? How did that affect the relationship? Did it make you feel valued?

According to Dr. Carl Rogers, a psychologist, active listening is a specific communication skill. Giving free and undivided attention to a speaker through active listening is the most effective way to achieve individual change and group development.

Isn’t that the ultimate goal? Whether the relationship is professional or personal, don’t you want to establish a solid, mutual ground of respect? It’s the only way for both parties to succeed.

If your listening skills are in need of a little tune up, don’t worry—we’ve got you covered! We’ve put together a list of different ways to help you become a better listener.

Tips On Becoming A Better Listener

If you truly want to become a better listener, then consider implementing these tips into your daily life.

Understand The Benefits

First, it’s imperative to understand that listening to someone is beneficial to both the person doing the talking and you. Nothing bad or negative comes from listening to another person speak, but the complete opposite. Remember, if you thoroughly listen to an individual, it’s more likely that same individual will listen to you when it becomes your turn to speak. The partnership the two of you are hoping to grow can only be successful with mutual listening.

Make Eye Contact

Next, when someone is speaking to you, always make eye contact. This tactic not only shows respect, but it will also help you focus on the other person’s words, what he or she is saying and how they feel.

No Distractions

When sharing a conversation with someone, make sure there are no distractions. Obviously, this means you need to put down your phone and give the speaker your full attention. Don’t worry about what’s going on around you; don’t think about your next meeting or what you plan to have for lunch. Listen, engage, and show the person talking that you care.

Ask Questions

One of the best ways to show the speaker that you are really listening to them, is to ask them questions. Make sure you fully understand what they’re saying by verifying their wants, needs, and/or concerns with specific questions.

Remember, nothing bad comes from listening—only good. The next time someone is speaking, consider opening up your eyes, ears, and mind just a little bit more. In doing so, you will gain the full benefits of the power of listening.

A 39-Item Tax and Accounting Year-End Checklist for Your Small Business

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Keeping your accounting records up to date all year long is essential for any business so you can see exactly where your business stands and be able to make informed decisions based on clean numbers. 

At year-end, there are a few extra accounting tasks to finish so that your books are ready for the tax professional when tax time comes around. Plus, anything that wasn’t performed monthly or more often should now be completed at year-end. 

Here’s our list of items we feel every small business owner should consider doing or delegating at year-end.  Every company may not need to do every task – just the ones that apply to their business and their situation.

1. Bank Statement Reconciliation

All bank account balances on a company’s balance sheet should be reconciled to their corresponding bank statements. Hopefully, your main checking account is being reconciled monthly, but perhaps your savings or investment accounts are not reconciled as often. 

Don’t forget bitcoin if you’re into digital currency.

2. PayPal Reconciliation

 It’s easy to forget your PayPal account in the list of reconciliations to complete. It is effectively another cash account like your bank, and we list it here separately for emphasis.  If you’re using your PayPal account for both business and personal, get two accounts and use only the business account for your business transactions. Your accounting will be less expensive and more straightforward.

3. Petty Cash Reconciliation

Does your business have a petty cash account? If so, complete the reconciliation on the last day of your fiscal year. That will allow you to record all outstanding expenditures and replenish the account to its balance sheet amount. 

4. Credit Card Reconciliation

If you have credit card debt in your business, each credit card statement balance should be reconciled to the amount on your balance sheet report.

If you are using your credit card for both personal and business, get another credit card and use one card for personal and another for business. This will cut down on your accounting expense and keep things easier to track.

5. Loan Reconciliation

If your company has any loans, the loan balance on your balance sheet should match the loan balance on the bank or lender statement. When payments are made, they include both principal and interest which need to go into separate accounts.  Often, this is not recorded correctly and can be corrected at year end.

6. Interest Income and Expense

It’s a good idea to reconcile the balances in your interest income and expense accounts with the interest you received and paid from your financial institution reports.

7. Accounts Receivable

If you invoice clients and have unpaid invoices, then you will have a balance in Accounts Receivable. The total of this account should add up to all the unpaid customer invoices you have.

You may need to make adjustments so that the balance is accurate. For example, some invoices may need to be voided or adjusted if the amount is incorrect. You should also investigate negative balances by customer. Negative balances could be legitimate credits on account, but there could be other reasons such as improperly applied payments.

8. Uncollectible Invoices

If any of the unpaid invoices in your Accounts Receivable account are old and might not be collectible, they can be written off or sent to a collection agency.

9. Inventory

If your business stores inventory or items for sale, then the cost of these items need to be reflected on your balance sheet. The reconciliation is a counting of physical inventory and matching that to the inventory balance on your books. 

Your inventory may be a lot more involved if you manufacture goods for sale. You will have components such as raw materials and work-in-process in addition to finished goods.

The cost of each item is determined by the accounting method your business has adopted.  Once the physical count is complete, an adjusting entry can be made to adjust the book balance.

10. Inventory Write-Offs

If some of your inventory is no longer salable, it may need to be written off or sold for scrap. Your books should be adjusted for these changes at year-end or as soon as the items are determined unsalable.

11. Accounts Payable

If you owe vendors money for work performed or items acquired, then you will have a balance in Accounts Payable. The total of this account should add up to all of the unpaid bills you have.

You may need to adjust the balance for accuracy. For example, some bills may need to be voided or adjusted if the amount is incorrect. You should also investigate negative balances by vendor. Negative balances could be legitimate credits on account, but there could be other reasons such as improperly applied payments.

It’s also a good idea to review any open purchase orders. Adjustments may be needed if invoices were not properly applied or matched to purchase orders. Close any open purchase orders that are no longer needed.

12. Sales Tax Liability

If you collect sales tax when you sell your products or services and some of it is unpaid to the state or local agency, you should have an amount recorded in your sales tax liability account. It should be adjusted to the exact amount due. The amount will be determined by your payment schedule.  It could be a year’s worth, a quarter’s worth, a month’s worth, or some other amount.

13. Meals and Entertainment

One of many things your tax accountant will be asking you for is the amount you spent on meals and entertainment.  It’s important to have those items in separate accounts with no other expenses so the amounts can be determined quickly. Also, keep in mind that starting in tax year 2018, the deductibility of entertainment expenses is typically 0% while meals are still typically 50% deductible.

14. Documentation for Invoices, Bills, and Receipts

If you are ever audited, you’ll need proof of what you spent in your business. Year-end is a good time to make sure your paperwork is in order and either filed in a safe place or scanned in and saved in the cloud. 

15. Fixed Assets

Your balance sheet should reflect the long-term assets your company owns, such as vehicles, buildings, land, machinery, furniture, equipment, computers, and the like. Each of these items should be listed on your fixed assets schedule and the balance should reflect the correct value of these items.

If you sold, abandoned or otherwise disposed of any fixed assets, an entry should be made to remove the fixed asset from the books (including any accumulated depreciation) and to recognize any gain or loss on the disposition.

16. Depreciation

Certain fixed assets can be depreciated which means a portion of the cost is expensed each year. A company should have a current depreciation schedule and that should be updated each year or more often.

An adjusting entry should be made to reflect depreciation for the current year or period if it’s recorded more often.

A schedule should also be kept of differences between book and tax records so that it’s easier to complete the corporate tax return.

17. Wages Reconciliation

Expense accounts that are payroll-related should be reconciled with the sum of the payroll reported on the IRS Form 941s in all four quarters. These accounts include wages and payroll taxes paid by the employer.

18. Officers’ Salaries (or Partners’ Guaranteed Payments)

Your tax professional may need the breakout in wages between officer’s salaries and all other wages if your business is incorporated. For Partnerships, guaranteed payments to partners should be tracked separately from employee wages. Your accountant can create a separate account and make a journal entry to break it out or you can track it outside of your accounting system.

19. Bonuses

If you award bonuses at year-end, ‘tis the season to run that special payroll cycle.

20. W-2s

Hopefully, your payroll system automatically generates W-2s for your employees and the W-3 submittal, but it’s a good idea to check them to make sure they are accurate. You may also have state and local reporting requirements at year-end. 

The totals on the W-3 should reconcile to the corresponding payroll expense accounts.

21. W-4s

Year-end is a good time to see if you have copies of W-4s in hand from your employees. 

22. Vacation and PTO

If your company does not roll over vacation time for employees, there may be an adjustment to make in your payroll system to update the earned and unused hours.

This might need to be done on the employee’s anniversary date versus year-end.

23. State Unemployment Insurance Rate

At the beginning of each year, each unemployment insurance agency in the states where you have employees working will notify you of your company’s new SUI rates. These should be entered into your payroll system so that the numbers can be accrued correctly.

24. Workers Compensation Insurance Updates

Your workers compensation policy should always be kept up to date with new hires, new or changed work codes, employee terminations, and work location changes, but year-end provides a good time to double-check it. This year, your employees may very well be working from a new location, so be sure to update your policy if you haven’t already.

25. Posters

If you have workers in a state that is a stickler for labor law posters, then make sure you send up-to-date posters to each work location in your business and instruct employees to display the employment posters prominently.

26. W-9s

If you pay contractors with cash, check or electronic funds transfer, each contractor will need to furnish you with their W-9. We strongly recommend you collect this before you issue the first payment to them. But year-end is a good time to audit your records to see if you have what you need. 

You may also want to collect their insurance certificates at this time. If you don’t have them, you may be subject to paying more in workers compensation.

27. 1099s

Your company may need to generate and send 1099s to any contractor you paid over $600 for the year that was not paid through credit cards or a payment vendor like PayPal. The W-4s your contractors provide will tell you if they are taxed as corporations or not. If they are taxed as corporations, you generally will not need to issue a 1099 regardless of amount paid. There are some exceptions such as if the contractor provided legal services.

28. Other Account Balances

If you have other accounts not listed above on your balance sheet, they should be reviewed or reconciled. These accounts are less common: goodwill and other intangible assets, deposits, prepayments, escrow, and others.

It will depend on the nature of the account as to how the amount can be validated.

29. Other Accruals

There may be other accrual entries not mentioned here that apply to your situation and that need to be made by your accountant.

30. Barter Transactions

If you performed any barter agreements this year, you’ll need to make a manual journal entry to properly record the transaction.

31. Other Adjustments and General Cleanup

Other adjustments you need to make to clean up your transactions can include things like transactions that got booked without a class; entries that were made to an account when a subaccount should have been used, entries that were booked net that need to be grossed up, and entries that were booked into the wrong income or expense account or category. 

You could also have accounts, customers, vendors, or other entities that were created incorrectly and that now need to be merged or deleted after the transactions are restated.

Your data will be more meaningful and consistent when you take the time to clean it up a little.

32. Tax Documents

As you receive these at the beginning of the year, keep them in a safe place and all together for easy delivery to your tax professional. Better yet, scan them in as you get them and upload them to your client portal provided by your tax professional.

33. Cash vs. Accrual Adjustments

Many small businesses use the accrual method of accounting to keep track of unpaid invoices and bills but use the cash basis to pay taxes. In this case, reversing entries may need to be made so the books are right for tax but then are reversed on January 1 back to accrual. Some accounting systems allow you to select Cash vs. Accrual basis on reports and will automatically adjust for unpaid Accounts Receivable invoices and Accounts Payable bills.

34. Back up Your Data

Hopefully, you’re making a backup far more often than once a year. Year-end is simply a good time to take an extra backup or even test your current backups to make sure your disaster recovery plan is sound.

35. Password Change

If your accounting, payroll, bank, PayPal, and other financial accounts do not force a password change periodically, now is a good time to reset all of them.  Use a different, strong password for each account.  Hacking and especially phishing are way up in volume this year, so your chances of having something bad happen are significantly increased.

36. CPA Review

Now is a good time to allow your CPA to review your books to see if anything else should be done.  Or maybe you’ve delegated all of the above tasks to them and they’ve been with you every step of the way!

If you haven’t gotten your CPA involved yet, now is the time to do it.

37. Close or Lock the Books

Now that everything is tied with a bow, no more entries should be recorded that have a date of last year or your balances will change and no longer reconcile with all the hard work you’ve done so far. Some accounting systems allow you to close the books by preventing new entries; this is called locking or closing, so use this feature if you have it. 

38. Budget for Next Year

How close did you come this year to meeting your budget? An analysis of the year can be made at this time, along with the creation of a new budget for next year based on what you learned and your upcoming goals.

39. Tax Projections and Plan

It’s a really good idea to set up a tax projection or planning meeting with your tax professional well ahead of December 31 in case there are any moves you can make to save on taxes. This should include determining if you have deposited enough of your tax liability so that you won’t owe a large amount come tax time.

You can also get a schedule of tax payments that need to be made in the coming year for the following year’s taxes. 

Conclusion

Of course, we can explain as well as help you complete these items so that your books and taxes stay current, accurate and organized.  Reach out to us anytime so we can help you!