Gress Income Tax Service

PPP and CA Small Business Grants

PPP (Payroll Protection Progam) has been extended to 5/31/2021.

Calculation for Schedule C Filers (Sole Proprietors and Independent Contractors)

The SBA and the US Treasury Department seized on the definition of “payroll costs” contained in the CARES Act, which provides, in relevant part, that “any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment or similar compensation” constitutes “payroll costs” to allow sole proprietors to receive the larger PPP loans by using their gross income (maximum $100,000) instead of net profit. The New IFR allows a Schedule C filer who has yet to be approved for a First Draw or Second Draw PPP loan to elect to calculate the owner compensation share of its payroll costs based on either:

  1. Net Profit (as reported on line 31 of Schedule C); or
  2. Gross Income (as reported on line 7 of Schedule C).  
  • In determining a borrower’s eligible expenses and forgiveness amount, the New IFR regards the owner compensation share of a Schedule C filer’s loan amount as “proprietor expenses,” which exclude employee payroll costs.
  • To avoid double counting, Schedule C filers must subtract gross income from the following expenses, which represent “employee payroll costs”:

AB 80 in limbo: Now what? (03-15-21)

On Friday, the Governor’s office announced that AB 80 has been put on hold. AB 80, as initially drafted, would provide at least partial conformity to the federal provision allowing Paycheck Protection Program (PPP) loan borrowers to deduct expenses paid with PPP forgiven loan amounts.  As of right now, expenses paid for with PPP money are not deductible on the state and the EIDL Grants of up to 1000 (max 10,000) are income in CA. 

The state is awaiting additional guidance from the U.S. Treasury Department to see if AB 80 can be enacted.

At issue is a provision in the American Rescue Plan Act that bans states who are receiving additional funding through the Act from using these funds to enact state income tax cuts. What this prohibition encompasses is a wide open question and the Governor and Legislature are waiting for guidance to see if AB 80 can actually be enacted.

As an alternative, our sources report that the state might provide additional grants or other ways to help small businesses.

We will keep you posted as soon as there are any further developments.

In the meantime, we highly recommend that, unless we get guidance in time, you plan to send extension payments on the appropriate voucher to the FTB and pay an amount due based on the assumption that legislation will not be enacted.

 

Apply for small business COVID-19 relief grants beginning December 30

December 23, 2020


The California Small Business COVID-19 Relief Grant Program has announced that it will take applications from California small businesses impacted by COVID-19 for grants of between $5,000 and $25,000. The application period begins at 8 a.m. on December 30, 2020, and continues until 11:59 p.m. on January 8, 2021.

Eligible businesses are those with between $1,000 and $2.5 million in annual gross revenues based on their most recently filed tax return, and include sole proprietorships and nonprofits.

The grant amount that will be awarded is:

  • $5,000 for businesses with annual revenue of $1,000 to $100,000;
  • $15,000 for businesses with annual revenue greater than $100,000 up to $1 million; and
  • $25,000 for businesses with annual revenue greater than $1 million up to $2.5 million.

Grants will be awarded based on the following prioritization:

  • Geographic distributions based on COVID-19 health and safety restrictions;
  • Industry sectors most impacted by the pandemic; and
  • Underserved small business groups (e.g., veterans, low-income or rural communities, and women or minority owned businesses).

Grant awards will be announced beginning the week of January 13, 2021.

Details about the program and how to apply are available at:


https://careliefgrant.com/

Get ready to apply for PPP second draw loans

December 28, 2020


The President has signed the Consolidated Appropriations Act of 2021 (H.R. 133), which, among other things, authorizes a new round of Paycheck Protection Program (PPP) loans called second draw loans. This allows some borrowers to request supplemental funding on their original PPP loans.

Second draw loans

Second draw loans are only available to businesses that employ 300 or fewer employees (part-time and seasonal count), and have at least a 25% reduction in gross receipts.

It is unclear whether applicants must have already received a loan under the first round of available PPP loans in order to qualify for the new second draw loans (we are awaiting guidance from the SBA on this). However, it is clear that if they have received a prior PPP loan they must have used, or will use, the first loan prior to the disbursement of a second draw loan.

Supplemental funding

Borrowers can also submit supplemental PPP loan requests in all cases where their original PPP loan amount would have changed due to new rules that have been released. This applies to partnerships where the original loan did not include the self-employment earnings of the partners. But it also applies to borrowers who returned their original loans, or took reduced loans to qualify for other benefits that are no longer limited for PPP recipients, such as the Employee Retention Credit.

Borrowers must request this additional funding before forgiveness is granted on their original PPP loan.

Deductions allowed

H.R. 133 also clarifies that borrowers who have loans forgiven may claim deductions for expenses even if expense were paid with loan amounts that were forgiven. This applies to all PPP loans.

California does not conform to this federal law, which is amended as part of the stimulus package. Taxpayers will still be required to reduce their deductions on the California return because California enacted AB 1577 (Ch. 20-39), which specifically prohibits taxpayers from claiming any deductions or credits for expenses that are paid with forgiven PPP loan amounts.