1. Only Use Money From The Loan on Forgivable Expenses
You must track what you spend this money on in order to be able to apply for forgiveness. Recipients must not lose sight of the legal restrictions on the use of these fund. The SBA issued a Rule that requires PPP applicants to certify funds are being used for the following:
- Payroll for 8 weeks after receiving the loan
- Rent or mortgage interest for 8 weeks
- Approved Utilities
This requirement comes with a warning: knowingly using the funds for unauthorized purposes may lead to charges of fraud. In fact, there are a few potential federal crimes that could apply for misusing funds or even making false statements about the intended use of the funds.
2. Work Closely With your Tax Professional to Maximize Your Forgivable Amount.
Loan recipients should work closely with their tax professionals to ensure that they maximize the forgivable amount of the loan. This requires proper documentation of the allocation of the funds.
3. Which Brings Us to Document Everything.
Keep records on every penny you spend from the PPP loan. Have documentation to show the number of employees you have and how you have not laid anyone off since February 15th. If you did lay or furlough employees after receiving the loan, you have from April 26th until June 30th to hire them back, in order to get full forgiveness. Make sure you understand every expense that you can allocate to the PPP, and that at least 75% of the PPP loan is used for payroll.
4. Look for Additional Savings Under the CARES Act.
Everything happened so quickly and there was a mad dash for borrowers to get their foot in the door and secure their funds. But since the dust has settled a little borrows need to take the time to consider other tax breaks under the CARES Act or even better revisit the second point, and consult your tax professional. Here are a few potential tax breaks.
- The CARES Act specifically increased the ability to deduct net operating losses – referred to as NOLs. This idea allows taxpayers to file amended returns and get cash refunds now.
- The CARES Act loosened the rules that limit business interest deduction. Allowing some taxpayers to deduct additional business interest expenses.
- The CARES Act accelerates the ability for corporations to use alternative minimum tax (AMT) credits. Under the new provisions, companies are able to claim AMT credits for as early as the 2018 tax year.
5. Don’t forget to file an application with the bank after the 8-week Period to Request Forgiveness of Your Loan.
Finally, PPP borrowers will need to file an application with their bank after the 8-week period. If you have followed all of these steps, this process should be an easy process. Banks are required to make the forgiveness determination within a 60-day period after the application is submitted.
Keep in mind that a representative of the business will be required to submit a certification providing, among other things, that the amount for which forgiveness is requested was used for appropriate purposes.