Just before the New Year, the new Consolidated Appropriations Act of 2021 was passed. My colleague and bookskeep financial advisor, Anna Popke of Majestic Oak Financial, summarized a few key aspects that ecommerce business owners need to keep in mind.
First of all, the PPP is back
If you did not receive a PPP loan under the initial program, you can now apply under the terms of the original program. If you did receive a PPP loan last year, you may be eligible again. Here are the criteria:
- Business can have no more than 300 employees, with the exception of businesses classified as providing “accommodation and food services” which retain the 500 employee limitation.
- The business must have experienced a drop in revenue of more than 25% in any one quarter in 2020 as compared to the same quarter in 2019 (even if, overall, you did better in 2020 than 2019). There are special rules for businesses that were in operation as of February 15, 2020 but did not exist for a portion or at all in 2019.
- The cap on the loan amount, while still calculated at 2.5x average monthly payroll expense, is lowered to $2m from $10m. (Businesses in the “accommodation and food services” category can receive PPP 2.0 amounts up to 3.5x average monthly payroll costs.)
Clarification on the types of expenses that qualify and deductibility of expenses paid with funds from PPP 1.0 and 2.0
There is finally clarity that any PPP loan amounts forgiven are not includable in taxable income and any expenses that were paid using the PPP funds are deductible. This change will apply to both the original rollout of PPP and any new funds received under the PPP 2.0 program.
General PPP changes
There is a simplified forgiveness application for loans up to $150k—a one-page form, and lenders CANNOT ask for proof of use of funds or substantiating documentation. Payroll expenses related to employee benefits such as group term life insurance, disability, vision and dental all count towards payroll expense to meet the 60% use of funds on payroll expenses.
Borrowers who returned PPP 1.0 funds due to uncertainty in qualification can reapply for the maximum loan amount under current calculation rules, which may result in a larger loan than originally received.
100% meal expense deductibility
In an effort to encourage spending at restaurants, CAA 2021 allows for a full 100% deductibility of business spending at restaurants for 2021 and 2022. This is not retroactive for 2020. A lot more clarity is needed here as the current stipulation is that the expense incurred must be for food or beverages provided by a restaurant. It appears that expenses for both dine‐in and take‐out would qualify. Previous statutes forbade writing off alcoholic beverages; it is unclear if that is the case here. Additionally, it is unclear if expenses incurred in an establishment that serves food but is considered a bar would qualify as well as things like room service, catered private events, etc.
Contact bookskeep if you’re searching for a team to help get your books in order, understand your numbers and be ready for tax time, year after year.
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