Bookkeeping & Accounting

Applying for PPP loan forgiveness – is it time?

 

Applying for PPP loan forgiveness – is it time?

This is a question we are receiving almost daily and the answer is, “it depends.”

When you apply for PPP loan forgiveness, your bank has up to 60 days to review and approve your forgiveness.  Then they send it to the SBA.  The SBA has up to 90 days to review and approve your forgiveness and make the final determination.  Combined, this is potentially a 5 month process (assuming no delays with the SBA, which is not necessarily a safe assumption).

Over the last several months, Congress has been on and off in negotiations to pass another COVID relief bill.  In those negotiations, there has been some bipartisan support for including new legislation that would provide automatic forgiveness for all PPP loans under $150,000.

If this legislation is passed, it will likely make the paperwork requirements simpler and potentially the approval process faster. There are no guarantees of this legislation being enacted, nor a guarantee that it will speed up the approval process, but these changes still seem reasonably possible.

As a result, many PPP loan recipients are waiting to apply for loan forgiveness in case an easier, faster way is introduced, while others prefer to apply now.

If your PPP loan is over $150,000 and you have used all of the funds, then yes, go ahead and start your PPP loan forgiveness application. There has been no discussion of a simpler, faster process for these loans.

If your PPP loan is under $50,000 and you were taxed as a sole proprietor with no employees at the time of receiving the loan, then there is a very simple application available for you that requires very little back up documentation. I do not expect that a simpler form will be introduced for these loans, however there is still a possibility that a faster approval process could result from new legislation.

If your PPP loan is under $50,000 and you had employees at the time of receiving the loan, then there is a very simple forgiveness application available for you, but it does require full back up documentation including bank statements, payroll tax returns, proof of eligible payments, lease agreement, and utility bills.  If new legislation is passed, these documentation requirements may be simplified, and the approval process may be faster.

If your PPP loan is between $50,000 and $150,000, your loan is the most likely to benefit from potential new legislation as there is no simplified application at this time, and full back up documentation is required, including bank statements, payroll tax returns, proof of eligible payments, lease agreement, and utility bills. New legislation could simplify and speed up the loan forgiveness process.

Ultimately, this is an individual choice. If your bank is accepting loan forgiveness applications, you can use the existing forms & procedures to submit your application now.  If you prefer to wait for possible new legislation that might make the process easier & faster, this legislation is most likely to be passed either in December or soon after January 20th.

 

Filing 1099 Forms

Filing 1099 Forms

Between complex rules and changes in filing requirements over the years, there is a lot of confusion around 1099s.  This article covers, who is required to file 1099s, to whom they need to be issued, when they are due, and a few related resources to help you with how to file them.

 

Who Needs to Issue 1099s

If you have a small business, are self-employed, or own a rental property treated as a business, then you are required to issue 1099s.  This includes sole proprietors, corporations, partnership, LLCs, nonprofits, and individual rental property owners.  Individuals making personal payments are not required to issue 1099s.

 

Rental Property Owners

The requirement for rental property owners is new – it started in 2018 with the creation of the Qualified Business Income Deduction (QBID). The QBID allows taxpayers to deduct 20% of qualified business income from their taxes, thus reducing the amount of taxable income and income tax to pay.

The QBID applies to sole proprietorships, s-corporations, partnerships, and sometimes rental properties.  Rental properties qualify for this deduction if they qualify as a business.  The IRS has not provided definitive, black & white guidance as to when a rental property qualifies as a business (as of the date of publishing this article). So, it has been left to taxpayers and their tax advisors to make this judgment.

At Thrive Business Group, we use a few simple tests to determine if a rental property qualifies as a business for the purposes of the QBID and therefore the requirement to issue 1099s.

  1. In owning the rental property, is your intention to make a profit?
  2. Do you (or an agent such as a property manager) engage in regular and considerable activity on the rental property?

If you can answer yes to both of the above, then most likely your rental property qualifies as a business in this context and you are required to file 1099s.  If you are still not sure, err on the side of caution and issue 1099s.  If you claim the QBID on your rental income, then you are required to file 1099s.

 

To Whom 1099s are issued

1099s are issued to any business or individual that your business or rental property has paid $600 or more for any kind of service or rent.

Many small business owners believe that 1099s are only issued to subcontractors, however this requirement is much broader, extending to all service provider payments and rent payments (including real estate/property rent, machinery rent, and pasture rent).

There are some additional special payment types that are required to be reported on 1099s, however they are uncommon and quite specialized and therefore not addressed here.

 

Exceptions

There are a few exceptions to be aware of.  Although this is not a comprehensive list of exceptions and special cases, it covers the most common scenarios in small business.

  • If the business you have paid is taxed as a corporation, you are not required to issue a 1099 (unless they are an attorney or law firm, then they still need a 1099). See the discussion below about how to know if a business is taxed as a corporation or not, especially for payments to LLCs.
  • If the organization you have paid is a tax-exempt nonprofit, you are not required to issue a 1099.
  • If you have paid using a credit card, Paypal, Venmo, Square, Stripe, or similar electronic processing service, you are not required to issue a 1099.
  • If you paid rent to a realtor or property manager, you are not required to issue a 1099.

 

When to file 1099s

Beginning 1/1/2020, there are two 1099 forms commonly used in small business, with two different filing due dates.

Form 1099-NEC is due by 1/31. This form is used for all service provider payments, except attorneys.

Form 1099-MISC is due by 2/28 when filed on paper or 3/31 when filed electronically. This form is used for all rent payments and payments to attorneys.

 

How to file 1099s

The first step is to gather the information you need for preparing the 1099s.  You will need to have a Form W-9 completed by the business or individual you will be sending the 1099 to.  This is how you obtain their legal name, address, and tax ID number.  This is also how you find out if an LLC is taxed as a corporation (and therefore exempt from the 1099 requirement) – they are required to indicate their tax classification on the form.

A best practice is to obtain a W-9 form from each applicable payee at the time you issue your very first payment to them during the year.  Don’t wait until December or January to request this information. It will leave you scrambling when you have a tight deadline.  We also recommend that you review your records in November to double check that you have all W-9 forms you need and obtain any missing forms.

I recommend using an online filing service for preparing and filing 1099 forms.  The IRS makes pdf forms available online for download, but they are not compliant for printing and mailing to the IRS.  You can also request compliant forms to be mailed to you from the IRS, but this can take several weeks (or months) to arrive.  Purchasing compliant forms from an office supply store can be costly.

Using the QuickBooks 1099 service only yields accurate results when set up correctly and all applicable payments are recorded correctly, which is rare (it’s very easy to have just one payment recorded slightly differently to yield an incorrect 1099). Their service also tends to cost a bit more than other options.

Online filing services solve all of these issues and are very inexpensive, generally charging less than $5 per 1099 form.  An online service will use the data you enter to mail (or email) the 1099 to the recipient and file the government copies electronically with the IRS.

There are many online filing services available – a few are listed below. Thrive Business Group has no affiliation with any particular service and makes no specific recommendations or assurances as to their service.

https://www.efile4biz.com/

https://www.efilemyforms.com/

https://www.track1099.com/

https://www.1099online.com/

https://www.tax1099.com/

 

Putting It All Together

As you can see, 1099 compliance is a bit more complex than just issuing 1099s for subcontractors.  However, it doesn’t have to be a burden.  With proper understanding of the 1099 filing requirements, being proactive in obtaining W-9 forms throughout the year, and using an online filing service, it can be relatively quick and inexpensive to file all required 1099 forms.

 

The Lowdown on Auto Expenses—Can I Deduct My Car? (Part 2 of 2)

In Part 1 we looked at the difference between business use and personal use for a vehicle, and discussed how to track and deduct actual auto expenses versus tracking business-related miles. (Read Part 1 here.) In Part 2 we will explore the advantages of using the standard mileage rate over actual expenses for business, and describe standard mileage rates for allowable, non-business use.The beauty of the standard mileage rate is fourfold.

  1. You don’t need to track every receipt for every expense.
  2. You likely are already tracking your business versus personal miles (to find your business-use percent).
  3. You can always switch to actual expenses for a year in which you anticipate higher actual expenses. For example, use actual expenses in years you incur a lot of repair costs (you have this freedom only if you used the standard mileage rate for the first year the particular vehicle was placed in service).
  4. You can avoid the pesky depreciation recapture in the event you later sell the vehicle.Other Car Deductions

In case you’re curious, the standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. So, you get to factor in all your actual expenses without the hassle of tracking each one. As a reminder, the standard mileage rate for 2015 is $0.575 (up from 56 cents in 2014).

There are other types of mileage (non-business) that are deductible on your tax return. Without getting bogged down in the details, the rates are:

  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014.
  • 14 cents per mile driven in service of charitable organizations.

The rate for medical and moving purposes is based on the above-calculated variable costs, such as gas and oil. The charitable rate is set by law.

Of course, all of the above is a general characterization of vehicle-related deductions, which should give you a good idea of which method is better suited to your circumstances. But we all know how nuanced the IRS can be! So, connect with us so we can give you nuanced insight on your particular circumstances in order to help you make the best, most informed business decisions. Remember that at Thrive Business Group it’s

Your Life. Your Business. In That Order.

 

The Lowdown on Auto Expenses—Can I Deduct My Car? (Part 1 of 2)

Running a business can be expensive. Fortunately, the IRS allows certain expenses to offset your business income. A key source of such deductions is your vehicle business expenses. In what follows, I will sketch an outline of how vehicle deductions work and help you determine the deduction method that is right for you.

First, what counts as business use of a vehicle? Vehicle expenses are those ordinary and necessary expenses paid or incurred during the taxable year in carrying on your business and that are related to your vehicle. Simple, right? Here are a couple examples to clarify:

Business Car Deductions

Business Car Deductions

Commuting to or from your regular place of business are miles that are never deductible. Driving to and from a client’s office for business purposes, however, is business related, as is picking up office supplies or driving to a business conference. These, therefore, are deductible.

As you likely are aware, the vehicle need not be reserved solely for business use to claim its deductions, but you definitely cannot deduct the personal-use portion of the expenses. The easiest way to track personal versus business use is to track your mileage. For example:

You drove the car a total of 100 miles in January, 40 of which were business related. In this case, you could deduct 40% (40 miles / 100 miles) of vehicle expenses for January.

There are two main ways to deduct your vehicle expenses. You can either deduct your actual expenses (gas, oil, repairs, etc.) or you can use the standard mileage rate. Here are some facts to know about each.

Deducting actual expenses is exactly as it sounds—you track all expenses related to your vehicle for the year and deduct the business-use percent on your tax return.

Setting aside depreciation for the moment, if you had $3,000 in gas, $250 in oil changes, and $500 in repairs then, assuming 40% business use, your total vehicle deductions for the year equal $1,500 (40% x ($3,000 + $250 + $500)).

Depreciation complicates matters a bit, but the long and short of it is simply that each year you deduct a certain percent of the vehicle’s original cost to you (reduced by the personal-use portion). The downside is that if you sell the vehicle, any amount the IRS so graciously let you depreciate is now treated as ordinary taxable income to you (so called “depreciation recapture”).

Standard mileage is easy. Again, it’s a matter of tracking total business miles for the year. A mileage logbook (which correlates with your work calendar) is useful here. The standard mileage rate for business purposes is 57.5 cents per mile for 2015 (up from 56 cents in 2014).

If you log 1000 business miles, you deduct $575 in 2015 (1000 miles x $0.575 per mile). (No personal-use reduction here since this is based purely on business miles.)

Make sure to catch Part 2 to learn the advantages of using the standard mileage rate!

Changes for the 2015 Tax Year

In an effort to help you make the best personal finance and business decisions in the coming year, here are the 2015 tax numbers recently published by the IRS and SSA (and their 2014 counterparts):

2015 Tax Changes

2015 Tax Changes

 

 

 

 

 

 

 

 

 

 

 

 

If you have any questions, concerns, or are looking for advice on how to put this information to the best use, contact us!

 

 

Affordable Bookkeeping Solutions (Part 2 of 2)

In Part 1 of Affordable Bookkeeping Solutions we discussed the limitations of bank statements and spreadsheets for running your small business. (Read Part 1 here.)

In this follow up, we will look at two great solutions to help you (i) keep accurate records of all the business’s transactions, (ii) keep this data separate from your personal financial activity, (iii) generate usable reports, all while (iv) remaining affordable.

What to Use

For the small business owner, there are really two main options for accounting programs. The choice comes down to two factors: the complexity of the business structure and the size of the business.

Free online accounting software for small businesses -- Wave

Wave is the ideal accounting program for small or simple businesses: service-based businesses, businesses with fewer than ten employees, or a business that grosses less than $50,000 a year (of course, product-based businesses or businesses doing more than $50,000 can use it successfully, too).

Because it is a legitimate accounting program, the data is stored with integrity and has trackable history, making it consistently accurate. You can connect multiple business and personal finances with one account, keeping each separate, but all handy. All the financial reports you’ll need come stock with the program, so reporting is nailed. And you can’t get more affordable than free.

Other benefits of Wave include:

  • It’s cloud-based, so it’s wherever you need it to be,
  • Make your accountant a collaborator to answer questions or clean up data,
  • Connect your business and personal bank and credit card accounts,
  • Create and email invoices with your company’s branding,
  • Receive payment on those invoices (for a small processing fee),
  • Run your payroll (for a small processing fee),
  • Export data and reports to spreadsheets, and
  • Mobile apps to track receipts, do payroll, distribute invoices, et al!

Quickbooks is for those with more complex business structures, or those grossing more than $50,000 a year.

While there are many QuickBooks versions available, each can do what Wave does, and then some. QuickBooks is the standard accounting software in small business. The primary advantage of QuickBooks over Wave is the versatility of its data-tracking and reporting capabilities; where Wave comes stock with about 10 reports, QuickBooks includes 100+, all customizable and with the ability to filter. The tradeoff is the cost—while still affordable, no version is free.

Where to Go from Here

Now that you have an idea about what to look for in an accounting program, talk to us to help you narrow down your selection either to Wave or to the QuickBooks option that is right for you.

And as members of the Wave Pro Network and as QuickBooks ProAdvisors, we at Thrive Business Group have the skills and knowledge to install, setup, train, and support your small business.

We will work with you to ensure that you are getting the most out of your accounting program.

We understand the challenges you face and know that keeping accurate records is vital to your business success. We can offer guidance on everything from complex accounting questions to mastering advanced features of your particular accounting software.

Affordable Bookkeeping Solutions (Part 1 of 2)

At Thrive Business Group we understand that it’s difficult for small businesses owners to make confident decisions without reliable financial information. The first decision a small business owner faces to that end is “Which accounting program do I use?”

The Criteria

The keys to having reliable information are (i) to keep accurate records of all the business’s transactions, and (ii) to keep this data separate from your personal financial activity. Any good accounting program must allow for these two things.

Further, more than just recording the information, the data must be usable—it must be organized, unambiguous, and relevant. In short, (iii) you need a program that generates reports.

Of course, any program you use must (iv) be affordable.

What NOT to Use

Many small business owners are content simply to rely on their companies’ bank statements to track all of their business activities. Others add a spreadsheet for basic tracking.

Both bank statements and spreadsheets are affordable. You needn’t spend a dime for bank statements, and there are many free alternatives to Microsoft Excel for spreadsheet programs (though the sophisticated spreadsheet user may find her reporting ability hampered). However, both these methods are limited.

Separate bank accounts are an essential part of keeping personal and business finances separate. And while many small business owners think that bank records are sufficient for accurate records, they are mistaken. Banks can make mistakes just as well as you can! Without a distinct accounting method, those mistakes become harder to track, potentially costing you money.

Though certain bank-tracking programs like Mint offer reports, the reports will not be enough to satisfy your needs in leading your business. None of the reports can give you the relevant information you need to make wise business decisions, to wow potential investors, or to convince potential creditors of the soundness of your business.

Further, don’t forget tax time! Tax time becomes much more stressful and more expensive than it needs to be when relying simply on bank statements—the amount of time either you or your accountant need to reverse-engineer your fiscal year escalates drastically without a separate accounting system.

Spreadsheets, when used in conjunction with bank statements and an accounting program, are powerful tools in the business world. They are one of the best ways to manipulate data when coming to business decisions.

However, they lack the integrity necessary for keeping info accurate. Think about it—one careless keystroke can compromise an entire year’s worth of data; and without a way to backtrack, the discrepancy may never be discovered!

And while sophisticated spreadsheet users may be able to create useful reports, few business owners have taken the time to become such sophisticated users.

Be sure to read Part 2—What to Use—for two great solutions to this accounting conundrum!