On June 15th the SBA resumed accepting applications for the EIDL program. If you missed this during the early days of the pandemic, it is not too late to apply.

I recommend that you consider getting this loan, because it provides you with working capital in case the economy collapses. The re-opening of the economy has not gone smoothly, and the earliest that we might be back to “normal” is sometime in 2022. This is my full recommendation:

1. Obtain the largest loan you are comfortable with (the maximum seems to be $150,000). You may need to pledge some assets
2. Park all of this in a savings account and do not spend it unless it is absolutely necessary (see the restrictions below)
3. Pay the monthly interest that is incurred. Technically you do not need to make this payment, but if you pay it each month when it is time to return the funds you will only owe the original principal.

This is a true loan, and it must be paid back in full with interest. The interest rate is 3.75% and the loan term is 30 years. To qualify, you must have “suffered significant economic injury”. Right now, many of you have been able to pivot to online sales and you have cut back on expenses, so things are not as bad as we imagined when the shelter-in-place orders began, and having a smaller profit than the previous year does not qualify. However, if the economy tanks then you might experience “significant economic injury”.  That is why I am calling this “crash protection”.

Be aware that the fine print of the loan documents lists many restrictions. Here is a list of a few of them (there are more) and these are in place until the loan is repaid:

• No payments of dividends or bonuses
• No disbursements to owners (except for services), no repayment of stockholder loans
• No expansion of facilities or purchases of fixed assets (barrels are ingredients, so they are OK)
• No repair or replacement of physical damages
• No refinancing of long term debt

For a more complete discussion about the EIDL program check out Alan Gassman’s 7/28/20 article on Forbes.com

Again, the concept is that these are rainy day funds. Even though the virtual tastings and email marketing programs did remarkably well during the first three months of the pandemic, nobody knows yet if we have seen a permanent shift in wine buyer’s habits. Since there is a cost to this ($470 per month for a $150k loan), plan carefully. Only you can decide your level of pessimism with the future state of things and whether this loan will give you some peace of mind. Let’s hope for the best, but plan for the worst.

9/2/20 UPDATE

On 8/31/20 Intuit sent out a letter saying that they were still in discussions with the IRS on how to implement the Executive Order. As of 9/2/20 (which is 2 days after the order went into place) their answer was still “we will get back to you”. Here is the post.

The IRS issued a notice on 8/28/20 that did not answer all of the questions the payroll providers asked. Here is IRS notice 2020-65

The recommendations fromAccountingToday.com and SHRM.org are:

1. The deferral is not mandatory
2. Employer makes the election whether they will implement the deferral, not the employee
3. Employers should consider whether not implementing the deferral would affect their employee relations
4. Few companies are participating because of the complexity of the tracking
5. This is not a “tax holiday” but rather a “deferral” of tax payments. If this program converts to a “tax holiday” everyone will benefit at that time.

Here is the article on SHRM.org

8/20/20 ORIGINAL POST

On September 1st, an Executive Order signed by the President to defer the payment of some payroll taxes is expected to become effective. Unfortunately, there are many details that have not been clarified. The AICPA sent a letter to the Treasury listing their recommendations. As of 8/19 there has been no response. The payroll providers are also waiting for guidance, because the payroll software and the IRS forms will need to be modified.

These are the key points

• The deferral is for the employee’s portion of Social Security taxes only (not the medicare) that would have been incurred between Sept 1 and Dec 31, 2020
• This is a “deferral” which means that the tax would need to be paid at a later date, although the President said that he would ask Congress to forgive the tax liability.
• If the forgiveness does not happen, the AICPA and others are concerned that the employers could be left holding the bag.
• Many are hoping that the deferral will be voluntary. Again, some are recommending that the employers make the election, others are recommending that the employees make the election.

Stay tuned for more updates. They will be rolling in at the last minute.

Here are a few resources

Executive Order by the President

US Chamber of Commerce letter to Secretary Mnuchin

Secretary Mnuchin’s Comments

AICPA letter to the Treasury

 

There has been nothing easy about the PPP Loan, and how the SBA is handling the EIDL Grant continues in this same fashion. THIS IS SUPER IMPORTANT: If you received an EIDL Grant  (if one day the SBA deposited into your bank account $2,000 to $10,000 and you got no other paperwork, that’s the EIDL Grant), your PPP forgiveness will be reduced by this amount. That means that your PPP Loan will have a balance due and interest will start accruing. You will still owe this to your lender.

Here is the step-by-step on how to handle the EIDL Grant. Let’s say that you received $120,000 PPP loan and $3,000 EIDL Grant

1. Create a current liability account called “PPP Loan”. Use this account when you record the deposit of the funds.
2. Create a current liability account called “EIDL Grant”. Use this account when you record the deposit of the funds.
3. If you also received an EIDL Loan, create a long term liability account called “EIDL Loan” (more on this later). Use this account when you record the deposit of the funds.
4. Create an account called “Grant Funds”. If you have a group of expenses called “Other Expenses” that are regular expenses, put it in that group. Otherwise, create an Other Income account for this.
5. When you receive the notice that your PPP Loan is forgiven, record a journal entry DR PPP Loan/CR Grant Funds for $117,000. (Assume you received full forgiveness) This will leave $3,000 as a balance in the PPP Loan.
6. Write a check to the bank that gave you the PPP Loan for $3,000, and use the PPP Loan account when you record this check. The PPP loan account is now zero.
7. Record a journal entry DR EIDL Grant/CR Grant Funds for $3,000. The EIDL Grant account is now zero. And the Grant Funds account will show $120,000 ($117,000 from the PPP and $3,000 from the EIDL)

I recommend using the date 12/31/20 for the journal entries so that your Profit & Loss reports for the rest of the year are not goofy, but this is a minor detail. Your tax preparer will handle the grant funds when the tax return is completed. And of course, we are still waiting for rulings on exactly how the expenses related to the PPP program will be handled.

For my comments about the EIDL loan see this post.

8/15/20

Go to this post for the most recent update PPP 8/15/20 Update

6/24/20

The Treasury announced another significant update: if you pick the 24-week period, you may submit your forgiveness application as soon as you spend the funds. Read Alan Gassman’s article on Forbes.com

6/16/20

If you have been focused on re-opening the tasting room and missed some of the recent PPP updates, here is a summary:

1. May 15th, The Treasury issued The PPP Forgiveness Application  (click here to download).
2. June 3rd the Senate passed what is known as the Flexibility Rule which added the option to extend your loan to 24 weeks and to lower the requirement of payroll expenses to 60%.
3. June 12th, the latest of 7 Treasury clarifications or rule changes called IFR. This one is titled “Interim Final Rule on Additional Revisions to First Interim Final Rule,” I kid you not. Don’t bother to read this… It’s just an example of what I have to read to stay on top of this.

Changes have come out faster than I can summarize them. Fortunately, I found a great resource on Forbes.com. Alan Gassman and his team of CPAs and Attorneys have been able to write articles within days of each major update and they give free webinars. Their information is written for the layman and other masochists who have been following the PPP Loan Program.

If you happen to be new to this, then you have a lot of catching up to do. If you have not applied yet, the deadline to apply is June 30th. Do not procrastinate.

Here is my summary of some key details:

• If you are close to full forgiveness with the original 8-week covered period, then submit it now and get back to your life.
• Alan says: “When in doubt, pay it out.” There are several loopholes and law changes. The payment must clear the bank before the end of your covered period. If you are using Bill.com or a bill payment service, the date of your payment to the service will suffice.
• There are several loopholes:
  • If you have an FTE reduction or a payroll reduction, you can use non-payroll expenses to eliminate those reductions. This is because of some some weird math on the Forgiveness Application. The best way to use this loophole is to pre-pay your rent. You have to pay it anyway, so again, When in Doubt, Pay it Out.
  • If you laid off some tasting room staff before your covered period and never brought them back, any payroll reduction for those employees is ignored because you don’t even list them on the worksheet. This is an example of how the Forgiveness Application does not follow the spirit of the program, but the instructions are clear.
• There are many new exemptions to the FTE calculation that allow you to add back most of your crew. Since you were required to close your tasting rooms by law, this exemption applies to those employees. You all should have 100% FTE Reduction Quotient (which means no FTE reduction).

If you have more than a few employees, I recommend that you purchase the excel workbook that this team created for $179. They have videos to walk you through it, they update it when there are changes in the law, and they give you a money back guarantee. Go Here to Purchase. Trust me, this will save you a lot of heartache.

Good Luck!!

 

On Friday, May 15th the SBA issued the Loan Forgiveness Application. I know that you are all eager to learn more, so Tyler Willis, CPA and I met on May 20th to chat about what we found in our first pass through this document.

In a nutshell – they answered a lot of questions that were up in the air, but they did it using probably the most complicated method possible.

Stay tuned for an update to our PPP Loan Tracking mini-course. Turns out 95% of the information you need for the Forgiveness Application shows up in the workbook. So I will show you where to find it and where to enter it on the application.

ADDENDUM 5/1/20: I am still working on the update to our PPP Loan program. One of the unique problems wineries face is the large number of part-time tasting room employees. This problem complicates an already complicated process, and that is what I am trying to address in my update. In the meantime, here is a really good article with a step-by-step explanation by Forbes.com GO HERE

This video gives a quick overview of the Forgiveness Application. I will have a more details and instructions in the PPP Loan Tracking mini-course

 PPP Loan Forgiveness Application