4 Tips For Navigating The Pandemic Like A Small Business Pro
Welcome to Selfmade Finance School, our new money series with Block Advisors to help small business owners with their tax, bookkeeping, and payroll needs year-round. This week, we explore PPP loan relief and more.
If you are a business owner who took out a PPP loan during the pandemic, it's likely you have had your fair share of nightmares about the process. The initial rollout was 'clunky' to say the least, and now you are probably managing the forgiveness part of the loan. There is also a chance you are trying to get access to more lending! With all the moving parts and the massive amount of information coming your way, I want to outline a few important things that could help ease this bumpy journey. But first, my disclaimer: If you have been even remotely dialed in over the past 10 months, you know that all things surrounding government loans have been… fluid. As I type, I am getting you the most up-to-date information but please keep in mind that the government has made a lot of changes surrounding these loans – and more changes are on the horizon – so please always make sure you double check before proceeding! Here goes nothing:
1. What is PPP? How Do I Get it? What If I Need More Money? If your business has been materially impacted by the pandemic and you haven't already considered it, you should see if a PPP (Paycheck Protection Loan) is right for you. If you meet the current CRRSAA requirements (updated since the original CARES Act), you could borrow up to 2.5 times your average monthly payroll and use this loan to pay payroll costs and cover some of your eligible overhead expenses. You can access these loans through your bank or lender. Keep in mind that these loans are structured to become forgivable if you allocate the money according to the PPP rules. We have already been through the first round of PPP and some of the rules have changed since then. If you are seeking a second loan, you cannot have more than 300 employees and you must prove to have had a drop in revenue of 25% for any quarter in 2020 as compared to 2019. The second draw loans are limited to up to $2 million with most limited to 2.5 times average payroll, but hotels and restaurants get 3.5 times monthly payroll.
2. Let's Talk PPP Forgiveness: If you took out a PPP loan, you may now be going through the forgiveness stage. If you have not done so already, reach out to your lender and check on how to begin the paperwork to file for forgiveness. You may be able to use Form 3508EZ — the EZ form is much easier. It requires less documentation and fewer calculations are required. The SBA site is also a decent resource. Forgiveness should be a top priority for you if it is not already! The timing on a forgiveness determination will vary greatly from business to business. You may not know if your loan has been forgiven before you file your taxes but the COVIDTRA (Covid-related Tax Relief Act of 2020) clarified that tax basis and other attributes of your business will not be impacted by PPP forgiveness.
3. Is PPP money going to be taxed? First, if you used PPP money to pay your expenses, you will still be able to deduct your qualifying expenses. This is great news! Also, your forgiven PPP loan is not considered taxable income on a federal level. That said, make sure you check about how your state will treat this loan as this could be different on a state income tax level.
4. What about EIDL loans? Economic Injury Disaster Loans (EIDL) are actual loans, meaning they are not forgivable. In some cases, business owners took out EIDL as a safeguard against the unknown but haven't spent the cash. If that is the case, it might make sense to think about repayment . If you have utilized this money, you will repay under the loan terms. The good news is that if you received this loan, this money will not be included as income and you may deduct otherwise deductible business expenses paid with an EIDL loan on your tax return.
Final thoughts: If you are a small business and still struggling, consider looking into the second wave of PPP lending. Call your lender and if you don't have one, there are many lenders out there that are specializing in PPP. Second, if you are overwhelmed by the tax rules and regulations this year, you are not alone. You should consider whether hiring a tax professional to help you through this is right for you. Paying for a professional at this time could be money well spent and give you time back to focus on what you love. With Block Advisors, our team of professionals can take care of your financial tasks at tax time and beyond.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. O'Keeffe Financial Partners and any other entity listed herein is not affiliated with Kestra IS or Kestra AS Investor Disclosures: https://bit.ly/KF-Disclosures
Your relationship with your finances is one of the most important relationships you'll ever have, and you can't avoid it. That said, for many of us, the pandemic only added to our financial stress. If you find yourself feeling frazzled, just remember that financial insecurity isn't a net-worth issue — it's a mindset issue. And, we happen to have plenty of advice on how to turn your money mindset around so you can take charge of your funds once and for all.
To start, feeling secure begins with a strong foundation, and there's no better time than now to get started stacking the bricks. It's easy to get swept up in the January "new year, new me" mentality, but really? Any time is the right time to get yourself in order. You don't need to wait for a new year, a new moon, the right moment, or a sign from above. You don't even have to start on the first day of the month — you just need to start.
Introducing NerdWallet: A Safe and Reliable Money App
To help with that, we've put together a list of the just-right-for-you ways that NerdWallet can help you monitor your financial outlook. Haven't heard of them yet? NerdWallet is a personal finance company that helps consumers make smarter financial decisions. Their website and app let you compare different financial products, find articles and tools to make financial decisions with confidence, and keep tabs on your finances (hey there, credit score, I see you!) all in one place. Plus, NerdWallet has over 75,000 glowing reviews in the App Store (and a 4.8 star rating) if you want to read up on any more testimonials.
Tim Chen, NerdWallet's CEO and co-founder, started this financial journey in 2009 after his sister needed help finding a credit card. Even with an economics degree and a Wall Street background, it took awhile for Tim to find the right recommendation (so don't feel too bad when it takes you a while, too). Their mission is to bring clarity to all of life's financial decisions.
So it's safe to say that NerdWallet is a pretty good sherpa for your journey, too.
Get the most from your money
Did you know that the money you park in a savings account can lose value? Harsh, but true. If your money isn't earning interest that's on pace with inflation it will actually be worth less to you in the future. And if the bank charges fees? Forget about it. Make sure you're earning the interest you deserve and come out on top. NerdWallet has researched dozens of financial institutions to help consumers find the best options. The hard work has already been done for you, so you can just select the account that works best for you and your nest egg.
Keep an eye on everything, securely
Once everything is set up, tracking and managing your finances is what will keep the money machine running smoothly. You can create an account either through the site or the app and link your bank accounts, then keep tabs on all your finances in one place. Get a clear picture of your saving and spending, get insights into how to master your money, and even build your credit score all in one place.
Get extra credit points
Do you have the best credit card for your lifestyle? Some cards give cash back on every purchase, ones with travel perks, and ones that charge way less interest than you're paying now. NerdWallet takes the guesswork out of choosing the right credit card with simple side-by-side comparisons of different credit cards so that you feel confident choosing the right one. Whatever you want to do, NerdWallet can help you find the best credit card to get it done.
Know your options for settling down
Mortgage rates are pretty low and it looks like they're going to stay that way for awhile, so buying a home might be the move sooner than you think. But there's so much more to a mortgage than just the interest rate! To help you choose a mortgage lender, NerdWallet has in-depth reviews on multiple lenders in a mixture of categories so you get the home loan with the mortgage rate, term, and fees that's right for you.
Settle an old score
NerdWallet helps you monitor your credit score for free and helps you see how little things (like raising the limit on your credit card or paying your bills on time) can increase your score. NerdWallet partners with TransUnion® to provide your VantageScore® 3.0, based on information in your TransUnion® credit report. Your score and credit report information are updated weekly. But that's not even close to all:
- They provide you with tips from experts on how you could build or optimize your credit score
- You'll get a detailed look at your credit score and all the factors that go into it—your payment history, credit utilization, the age and type of accounts, balances, and any recent inquiries
- The credit simulator tool gives you an idea of how your credit score would change if you applied for a new credit card, closed your oldest credit card, or got a new auto loan
- You also get free, unlimited access to your credit report
When it comes to managing your money, safe and reliable is where it's at. Establishing a healthy relationship with your finances begins when you take control and practice habits that build wealth. Signing up just takes a few minutes. Set your intentions to build a solid financial foundation, it will only strengthen your relationship with your finances. And don't be afraid to get a little nerdy while you're at it.