• Funding
  • Investing
  • Lending
  • Insurance
  • Banking
  • Wealth
  • Fintech
  • Venture
  • Crypto
Subscribe
No Result
View All Result
  • Equity Funding
  • Stocks
  • Mutual Funds
  • Credit Cards
  • Loans
  • Insurances
  • Savings
  • Crypto Trading
Home News Feed Personal Finance

PPP loan borrowers are being steered toward forgiveness. Why they should slow down

CNBC NewsbyCNBC News
November 4, 2020

RyanJLane | E+ | Getty Images

Small businesses that took a forgivable loan this year — as well as their banks — can’t wait to have the balance wiped out, but tax professionals are telling them to slow down.

The CARES Act, which went into effect this spring, established the Paycheck Protection Program, an emergency line of funding for small businesses suffering during the coronavirus pandemic.

Between April 3 and Aug. 8 — the last day a firm could have applied for a loan — more than 5 million PPP loans were approved, accounting for $525 billion, according to data from the Small Business Administration.

Applicants are eligible for forgiveness if they devote at least 60% of the proceeds to payroll expenses. Firms that fall short of the amount may be eligible for partial forgiveness.

More from Smart Tax Planning:
3 smart tax moves, no matter who wins the Nov. 3 election
These are the income tax brackets for 2021
Here’s the most you can save in your 401(k) next year

This fall, the SBA and Treasury Department have signaled that they’re ready to start processing loan forgiveness. In October, the SBA rolled out a simplified application (known as Form 3508S) for businesses that received a loan of $50,000 or less.

Even the banks that made the loans in the first place are getting antsy, sending borrowers letters encouraging them to apply to have the balance wiped out or make plans to begin payment as early as next month.

“Thank you for trusting Florida Credit Union with your Small Business Administration (SBA) Paycheck Protection Program (PPP) loan,” read one email to a borrower, obtained by CNBC.

“Your loan obligation is coming due with your first payment due date on 11/15/2020,” the missive went on. “Please note, this loan is not a grant. As a reminder, you need to apply for loan forgiveness using the link below.”

The wording is enough to scare applicants into hurrying the process — which could be a huge mistake, tax professionals said.

“I was on the phone with the vice president of a community bank who tried to argue with me that it’s in the client’s best interest to apply for forgiveness right away,” said Adam Markowitz, enrolled agent and vice president at Howard L Markowitz in Leesburg, Florida.

“Under no circumstance is that true,” he said. “Is it more beneficial to apply for forgiveness now?

“There is no harm in waiting.”

Uncertainty continues

Tax professionals have shied away from marching clients toward forgiveness because so much remains uncertain around the PPP loan program.

Lawmakers have spent the last few months fighting over the next round of Covid-19 relief, including the next steps for cash-strapped PPP borrowers.

Tax deductibility is at the heart of the conflict for small businesses and the tax professionals aiding them.

Forgiveness of the PPP loan is tax-free, but borrowers won’t be able to claim tax deductions for the business expenses covered by forgiven loan proceeds, according to the IRS.

These are $300,000 to $400,000 loans they’ll have if they’re not forgiven, so this is hanging over their heads and they’re anxious to be done with this portion of PPP.

Nicole Davis

founder and principal at Butler-Davis Tax & Accounting

Meanwhile, members of Congress on both sides of the aisle have pushed for deductibility. Sens. Chuck Grassley, R-Iowa, and Ron Wyden, D-Ore., proposed a bill that would permit small businesses to deduct those covered costs.

Deductibility is important because entrepreneurs’ taxable income will appear higher on paper without those write-offs.

This could also affect their eligibility for certain tax credits when the time comes to file their 2020 returns.

“People with big loans and large deductions, we’re telling them to hold off,” said certified financial planner Dan Herron, CPA and principal of Elemental Wealth Advisors in San Luis Obispo, California.

“If we include the money, they have income,” he said. “If we don’t, they have a loss.”

Lack of a clear path forward on deductibility is also affecting business owners’ ability to plan their cash flow needs for 2021.

“People are basing business decisions on forgiveness, and they’re worried about making loan payments,” said Nicole Davis, CPA, founder and principal at Butler-Davis Tax & Accounting in Conyers, Georgia.

Indeed, some of her PPP borrower clients have received notices from their lenders, encouraging them to apply for forgiveness.

“These are $300,000 to $400,000 loans they’ll have if they’re not forgiven, so this is hanging over their heads and they’re anxious to be done with this portion of PPP,” Davis said.

Easy forgiveness for some, not all

Proceed cautiously if you’ve received a notice from your lender, and talk with your tax professional before you apply for forgiveness. Sometimes the best course of action is inaction.

The smallest borrowers — namely sole proprietors with no employees and firms that took less than $50,000 — may have a simplified process for forgiveness.

Meanwhile, applicants with heftier loan balances, a workforce that’s shifted significantly over the course of the year and other moving parts might be better off waiting for more certainty.           

“Just wait a few more weeks and let it play out,” said Megan Gorman, founder and managing partner of Chequers Financial Management in San Francisco.

“We don’t know what will happen in future stimulus bills, and the Senate isn’t back in session until Nov. 9.”

Source Link

Related Topics

Stocks making the biggest moves midday: Poshmark, JPMorgan, Wells Fargo, Zoom, Spotify & more

Bitcoin

Donald Trump Banned From Twitter in Final Days of Presidency

Prev Next

You May Like

Stocks making the biggest moves midday: Poshmark, JPMorgan, Wells Fargo, Zoom, Spotify & more

Bitcoin

Donald Trump Banned From Twitter in Final Days of Presidency

Investing

Fintech start-up SoFi to go public via SPAC backed by Chamath Palihapitiya

Personal Finance

Mega Millions jackpot is now $490 million while Powerball is $470 million

Financial News

Stock Market

China’s economy is still months away from a full recovery, business survey finds

CNBC News
by CNBC News
Personal Finance

What Biden’s student loan forgiveness plan would mean for borrowers

CNBC News
by CNBC News
Stock Market

Stocks making the biggest moves in the premarket: Verizon, Snap, AutoNation, Netflix & more

CNBC News
by CNBC News
Earning

Home Depot earnings beat as shoppers focus on home, retailer to make pandemic pay raises permanent

CNBC News
by CNBC News
Stock Market

Dow surges more than 500 points, heads for best week since April as post-election rally continues

CNBC News
by CNBC News
Bitcoin

What October’s Metrics Tell Us About BTC, ETH and Volatility

CoinDesk
by CoinDesk
Stock Market

China’s Xi says country will speed up trade talks with EU, Japan and South Korea

CNBC News
by CNBC News
Stock Market

Market is overestimating odds of a decisive election, BTIG’s Julian Emanuel warns

CNBC News
by CNBC News
Load More

© 2020, FinanceLane

Home | Contact | Terms and Conditions | Disclaimer | Privacy Policy

  • Home
  • News Feed
    • Equity Funding
    • Debt Funding
    • Crowdfunding
    • Real Estate Funding
  • Investing
    • Stocks
    • Bonds
    • Mutual Funds
    • Private Equity
    • Merging & Acquisition
    • Real Estate
  • Lending
    • Personal Loan
    • Business Loan
    • Credit Card
    • Microfinance
    • Peer-to-Peer Lending
  • Insurance
    • Life Insurance
    • Auto Insurance
    • Education Insurance
    • Health Insurance
  • Banking
    • Business Banking
    • Payments Bank
    • Investment Banking
    • Individual Banking
  • Wealth
    • Earning
    • Savings
    • Investments
    • Budgetting
    • Credit Management
    • Tax Planning
    • Retirement
  • Fintech
    • Alternative Financing
    • Payments
    • Asset Management
    • Digital Banks
    • Softwares
  • Venture
    • Startup Ecosystem
    • Merging & Acquisition
    • Equity Investing
    • Franchising
    • Business Offers
  • Fintech
    • Alternative Financing
    • Asset Management
    • Digital Banks
    • Softwares
    • Payments
  • Crypto
    • Crypto Investing
    • Crypto Trading
    • Crypto Coins
    • Bitcoin
    • Blockchain
    • DAPP
  • Subscribe
  • Contact
  • Login

© 2020 FinanceLane - Terms and Conditions | Disclaimer | Privacy Policy

Welcome Back!

Login to your account below

Forgotten Password?

Create New Account!

Fill the forms bellow to register

*By registering into our website, you agree to the Terms & Conditions and Privacy Policy.
All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Add New Playlist

← ‘Black Swan’ author: Global coronavirus response a case study of government incompetence and denial ← I’ve won more than $4 million playing poker—here’s my No. 1 secret to successful decision-making
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.