Changes in loan rules create confusion
Lawmakers and bureaucrats can’t make up their minds on policy for a loan program that helped small businesses with COVID-19 related losses and business owners and even bankers are confused.
The Paycheck Protection Program’s first round of loans began last spring.
At that time the loans were not taxable as income, said Austin Coyan, senior manager, certified public accountant, and certified fraud examiner with Adams Brown.
Adams Brown has a branch office in Hillsboro.
The PPP program operates through the federal Small Business Administration.
It was put into effect soon after state-mandated shutdowns were enacted.
“We went to working remotely and it became PPP time,” Coyan said. “When they first were enacted with the CARES act, Congress stated they were not included as income.”
Later the Internal Revenue Service said expenses covered with PPP money could not be deducted from income. That made the PPP loan taxable, Coyan said.
That changed Dec. 27 when legislators passed a bill changing the status again. The loan was not taxable and businesses can deduct expenses covered by the money.
“This is the third change to the process,” Coyan said. “It should be the last change.”
PPP loans are forgiven as long as businesses use it for qualified expenses.
“With the new bill that passed in December, those expenses were expanded,” Coyan said.
The money must be used within a set time span, though.
“You have to use it within 24 weeks,” he said. “As long as you use it within that time, it becomes a grant.”
A second round of PPP loans is now available, but the December bill revised farmers’ eligibility rules.
Farmers can use their gross revenue as a qualifier. Since qualifying businesses are allowed to draw funds from each round, farmers can make their first draw now and a second draw, Coyan said.
The rules for a second draw are different.
For second draw, a business must show a 25% loss in any quarter compared to the same quarter in the previous year.
“There’s a lot of confusion in it right now,” Coyan said. “Not only from borrowers, but from bankers who work on it. I know the bankers just had another webinar with SBA the other day.”
Coyan has noticed some businesses he works with aren’t eager to apply for a loan.
“We have some that are willing to go out there and get it,” Coyan said. “I do have some that are questioning, because of the question of whether the repayment rules will change.”
Conyer said the biggest hardship for many of his clients is meeting the 25% decrease in quarterly income requirement.
“You have to show you have economic conditions that you need the loan,” Coyan said.
Businesses that got SPARKS grants, available through the state, have to count those grants as gross revenue.
The application period for PPP loans runs until March 31 or until funds are depleted.
“The money this time does not seem to be going as quickly as last time,” Coyan said.
Coyan attributes that in part to more stringent requirements for the loan.
Coyan points to another COVID-related income tax consideration.
When the government sent out two rounds of stimulus checks, college-age children did not count as dependents.
When people file income taxes for 2020, they can fill out a reconciliation form to get any stimulus money they should have, but did not, receive. The money will become a tax credit.
Parents of college-aged children should pay attention to whether their children can claim themselves as dependents. They might want to do that this year so they can get the stimulus credit.