2020 Year-End Tax Guide

17

www.marcumllp.com

If a business doesn’t qualify for form 3508S because it received more than $50,000 in loan proceeds, it may be able to use simplified form 3508EZ. Form 3508EZ should be used by businesses that did not experience a reduction in their FTEs or a 25% wage reduction across all employees. If a business experiences a decline in FTEs or a 25% wage reduction, the business must use form 3508, the long form of the LFA. BANK-CENTRIC CONSIDERATIONS Due to the many questions that continue to arise, we anticipate that LFAs will be subject to scrutiny for many years to come. The SBA has six years to audit the files at their convenience. Though some banks have opened up their forgiveness portals, not all banks are prepared to deal with covered periods that differ from the standard 8 or 24 weeks (for example, if a borrower wanted to seek forgiveness for 13 weeks). At the end of August 2020, the SBA issued guidance on an appeals process in the event that an expense is challenged. But, as of this writing, the appeals process has not yet been tested. Further, though it has been seven months since enactment, the PPP program continues to unfold, with additional guidance issued regularly. To that end, it is preferable to wait to seek forgiveness for maximum clarity. CONCLUSION The PPP was a lifeline many businesses needed and couldn’t have continued on without. We are hopeful that Congress, regardless of the outcome of the Presidential and Congressional elections, will act quickly to issue additional economic stimulus to assist businesses that are continuing to struggle. If that happens, count on Marcum to provide your business with timely updates and assistance in navigating the loan program to your maximum advantage.

X C Corporation – The caps for payroll, health insurance, and retirement plans contributions are limited to 2019 amounts. For example, if health insurance premiums increased in 2020, only the 2019 amount is included in eligible costs. X Health insurance and retirement contribution caps are in addition to the compensation limits. X S Corporation – The caps for payroll and retirement are limited to 2019 amounts. X Health insurance is included in wages, so it is not eligible to be added to compensation limits. X Retirement contributions are in addition to compensation limits. X Schedule C – Forgiveness is limited to 2019 Schedule C net income times (8/52) or (2.5/12). X No additional retirement contribution or health insurance is eligible. X Partnership (LLC, LP, etc.) – Limited to 2019 self- employment income minus Section 179 depreciation, unreimbursed partnership expenses (UPE), and depletion, multiplied by 92.35% (capped at $100,000 after the math). X No additional retirement contribution or health insurance is eligible. SEEKING FORGIVENESS On October 8, 2020, the SBA announced the creation of a new form 3508S intended to assist recipients of loans of less than $50,000 to receive full forgiveness with less paperwork. The one-page form allows businesses that received loans of less than $50,000 to skip the FTE requirements. Businesses still must prove that they used the funds on allowable and forgivable expenses, but there is significantly less burden on those business owners. While many speculated that loans under $150,000 would receive this treatment, the SBA decided to use a lower threshold, as 67% of all loans (and 12% of all funds loaned) fell into this subset.