Jun 12, 2020
As you may recall, the Small Business Administration (SBA) launched the Paycheck Protection Program (PPP) back in April to help companies reeling from the economic impact of the COVID-19 pandemic. Created under a provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the PPP is available to U.S. businesses with fewer than 500 employees.
In its initial incarnation, the PPP offered eligible participants loans determined by eight weeks of previously established average payroll. If the recipient maintained its workforce, up to 100% of the loan was forgivable if the loan proceeds were used to cover payroll expenses, certain employee health care benefits, mortgage interest, rent, utilities and interest on any other existing debt during the “covered period” — that is, for eight weeks after loan origination.
On June 5, the president signed into law the PPP Flexibility Act. The new law makes a variety of important adjustments that ease the rules for borrowers. Highlights include:
Extension of covered period. As mentioned, under the CARES Act and subsequent guidance, the covered period originally ran for eight weeks after loan origination. The PPP Flexibility Act extends this period to the earlier of 24 weeks after the origination date or December 31, 2020.
Adjustment of nonpayroll cost threshold. Previous regulations issued by the U.S. Treasury Department indicated that eligible nonpayroll costs couldn’t exceed 25% of the total forgiveness amount for a borrower to qualify for 100% forgiveness. The PPP Flexibility Act raises this threshold to 40%. (At least 60% of the loan must still be spent on payroll costs.)
Lengthening of period to reestablish workforce. Under the original PPP, borrowers faced a June 30, 2020 deadline to restore full-time employment and salary levels from reductions made between February 15, 2020, and April 26, 2020. Failure to do so would mean a reduction in the forgivable amount. The PPP Flexibility Act extends this deadline to December 31, 2020.
Reassurance of access to payroll tax deferment. The new law reassures borrowers that delayed payment of employer payroll taxes, which is offered under a provision of the CARES Act, is still available to businesses that receive PPP loans. It won’t be considered impermissible double dipping.
Important note: The SBA has announced that, to ensure PPP loans are issued only to eligible borrowers, all loans exceeding $2 million will be subject to an audit. The government may still audit smaller PPP loans, if there is suspicion that funds were misused.
This is just a “quick look” at some of the important aspects of the PPP Flexibility Act. There are many other details involved that could affect your company’s ability to qualify for a PPP loan or to achieve 100% forgiveness. Also, new guidance is being issued regularly and further legislation is possible.
Jun 10, 2020
Restaurants and entertainment venues have been hard hit by the novel coronavirus (COVID-19) pandemic. One of the tax breaks that President Trump has proposed to help them is an increase in the amount that can be deducted for business meals and entertainment.
It’s unclear whether Congress would go along with enhanced business meal and entertainment deductions. But in the meantime, let’s review the current rules.
Before the pandemic hit, many businesses spent money “wining and dining” current or potential customers, vendors and employees. The rules for deducting these expenses changed under the Tax Cuts and Jobs Act (TCJA), but you can still claim some valuable write-offs. And keep in mind that deductions are available for business meal takeout and delivery.
One of the biggest changes is that you can no longer deduct most business-related entertainment expenses. Beginning in 2018, the TCJA disallows deductions for entertainment expenses, including those for sports events, theater productions, golf outings and fishing trips.
50% meal deductions
Currently, you can deduct 50% of the cost of food and beverages for meals conducted with business associates. However, you need to follow three basic rules in order to prove that your expenses are business related:
- The expenses must be “ordinary and necessary” in carrying on your business. This means your food and beverage costs are customary and appropriate. They shouldn’t be lavish or extravagant.
- The expenses must be directly related or associated with your business. This means that you expect to receive a concrete business benefit from them. The principal purpose for the meal must be business. You can’t go out with a group of friends for the evening, discuss business with one of them for a few minutes, and then write off the check.
- You must be able to substantiate the expenses. There are requirements for proving that meal and beverage expenses qualify for a deduction. You must be able to establish the amount spent, the date and place where the meals took place, the business purpose and the business relationship of the people involved.
It’s a good idea to set up detailed recordkeeping procedures to keep track of business meal costs. That way, you can prove them and the business connection in the event of an IRS audit.
What if you spend money on food and beverages at an entertainment event? The IRS has clarified that taxpayers can still deduct 50% of food and drink expenses incurred at entertainment events, but only if business was conducted during the event or shortly before or after. The food-and-drink expenses should also be “stated separately from the cost of the entertainment on one or more bills, invoices or receipts,” according to the guidance.
Another related tax law change involves meals provided to employees on the business premises. Before the TCJA, these meals provided to an employee for the convenience of the employer were 100% deductible by the employer. Beginning in 2018, meals provided for the convenience of an employer in an on-premises cafeteria or elsewhere on the business property are only 50% deductible. After 2025, these meals won’t be deductible at all.
As you can see, the treatment of meal and entertainment expenses became more complicated after the TCJA. It’s possible the deductions could increase substantially under a new stimulus law, if Congress passes one.
Jun 8, 2020
Many companies struggle to close the books at the end of the month. The month-end close requires accounting personnel to round up data from across the organization. Under normal conditions, this process can strain internal resources.
However, in recent years the accounting and tax rules have undergone major changes — many of which your personnel and software may not be ready to handle. This state of flux may be pushing your accounting department to its breaking point. Fortunately, there are five simple ways to make your monthly closing process more efficient.
1. Create a standardized, repeatable process. Gathering accounting data involves many moving parts throughout the organization. To minimize the stress, aim for a consistent approach that applies standard operating procedures and robust checklists. This minimizes the use of ad-hoc processes and helps ensure consistency when reporting financial data month after month.
2. Allow time for data analysis. Too often, the accounting department dedicates most of the time allocated to closing the books to the mechanics of the process. But spending some time analyzing the data for integrity and accuracy is critical. Examples of review procedures include:
- Reconciling amounts in a ledger to source documents (such as invoices, contracts or bank records),
- Testing a random sample of transactions for accuracy,
- Benchmarking monthly results against historical performance or industry standards, and
- Assigning multiple workers to perform the same tasks simultaneously.
Without adequate due diligence, the probability of errors (or fraud) in the financial statements increases. Failure to evaluate the data can result in more time being spent correcting errors that could have been caught with a simple review, before they’re memorialized in your financial records.
3. Adopt a continuous improvement mindset. Workers who are actively involved in closing out the books often may be best equipped to recognize trouble spots and bottlenecks. Brainstorm as a team, then assign responsibility for adopting changes to an employee with the follow-through and authority to drive change in your organization.
4. Build flexibility into your staffing model. Often accounting departments require certain specialized staff to be present during the month-end close. If an employee is unavailable, the department may be shorthanded and unable to complete critical tasks. Implementing a cross-training program for key steps can help minimize frustration and delays. It may also help identify inefficiencies in the financial reporting process.
5. Minimize manual processes. Your accounting department may rely on manual processes to extract, manipulate and report data. Manual processes create opportunities for errors and omissions in the financial records. Fortunately, modern accounting software can automate certain routine, repeatable tasks, such as invoicing, accounts payable management and payroll administration. In some cases, you’ll need to upgrade your current accounting package to take full advantage of the power of automation.
Keep it simple
Closing the books doesn’t have to be a stressful, labor-intensive chore. We can help you simplify the process and give your accounting staff more time to focus on value-added tasks that take your company’s financial reporting to the next level.
Jun 3, 2020
For business owners, succession planning is ideally a long-term project. You want to begin laying out a smooth ownership transition, and perhaps grooming a successor, years in advance. And you shouldn’t officially hand over the reins until many minute details have been checked and rechecked.
But it doesn’t always work out this way. As the coronavirus (COVID-19) pandemic has made clear, a business owner may suddenly vanish from the picture — leaving the company adrift in a time of crisis. In such an instance, a traditional succession plan may be too cumbersome or indistinct to execute. That’s why every company should create an emergency succession plan.
When preparing for potential disasters in the past, you’ve probably been urged to devise contingency plans to stay operational. In the case of an emergency succession plan, you need to identify contingency people.
Larger organizations may have an advantage here as a CFO or COO may be able to temporarily or even permanently replace a CEO with relative ease. For small to midsize companies, the challenge can be greater — particularly if the owner is heavily involved in retaining key customers or bringing in new business.
Nevertheless, an emergency succession plan needs to name someone who can take on a credible leadership role if you become seriously ill or otherwise incapacitated. He or she should be a trusted individual who you expect to retain long-term and who has the skills and personality to stabilize the company during a difficult time.
After you identify this person, consider the “domino effect.” That is, who will take on your emergency successor’s role when he or she is busy running the company?
A traditional succession plan is usually kept close to the vest until it’s fully formulated and nearing execution. An emergency succession plan, however, needs to be transparent and well-communicated from the beginning.
After choosing an “emergency successor,” meet with the person to discuss the role in depth. Listen to any concerns raised and take steps to alleviate them. For instance, you may need to train your emergency successor in various duties or allow him or her to participate in executive-level decisions to get a feel for running the business.
Beyond that, your company as a whole should know about the emergency succession plan and how it will affect everyone’s day-to-day duties if executed. Now may be an optimal time to do this because COVID-19 has put everyone in a “disaster recovery” frame of mind. It’s also a good idea to develop a communications strategy for letting customers and suppliers know that you have an emergency succession plan in place.
Jun 1, 2020
Private companies and most nonprofits were supposed to implement updated revenue recognition guidance in fiscal year 2019 and updated lease guidance in fiscal year 2021. In the midst of the novel coronavirus (COVID-19) crisis, the Financial Accounting Standards Board (FASB) has decided to give certain entities an extra year to make the changes, if they need it.
Expanded deferral option
On April 8, the FASB agreed to issue a proposal that would have postponed the effective dates for the revenue recognition guidance for franchisors only and the lease guidance for private companies and nonprofit organizations that haven’t already adopted them. In a surprise move, on May 20, the FASB voted to extend the delay for the revenue rules beyond franchisors to all privately owned companies and nonprofits that haven’t adopted the changes. FASB members affirmed a similar delay on the lease rules.
The optional “timeout” is designed to help resource-strapped private companies, the nation’s largest business demographic, better navigate reporting hurdles amid the COVID-19 crisis. A final standard will be issued in early June.
Under the changes, all private companies and nonprofits that haven’t yet filed financial statements applying the updated revenue recognition rules can opt to wait to apply them until annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), replaces hundreds of pieces of industry-specific rules with a principles-based five step model for reporting revenue.
FASB members extended the revenue deferral to more private companies and nonprofits to help those that were in the process of closing their books when the COVID-19 crisis hit. Private entities told the board that having to adopt the standards amid the work upheaval created by the pandemic layered on unforeseen challenges. In today’s conditions, compliance may need to take a backseat to operational issues.
Last year, the FASB deferred ASU No. 2016-02, Leases (Topic 842), for private companies from 2020 to 2021. This standard requires companies to report — for the first time — the full magnitude of their long-term lease obligations on the balance sheet.
The FASB’s recent deferral will allow private companies and private nonprofits that haven’t already adopted the updated lease rules to wait to apply them until fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Public nonprofits that haven’t yet filed financial statements applying the updated lease rules can opt to wait to apply the changes until fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.