With only a few days to go before the end of a difficult year, some accountants and tax professionals are still hoping to finish up some perplexing issues for their clients before New Year’s Day.
One of those involves the Paycheck Protection Program, which has now been extended by the latest round of coronavirus relief legislation that President Trump signed into law on Sunday. Thanks to the new legislation, businesses will now be able to deduct business expenses for forgiven PPP loans.
“I do a lot with professional services firms — law firms, doctors’ offices — and everybody was really, really nervous about the Paycheck Protection loans, and whether the expenses were going to be deductible,” said Evan Morgan, director of tax services at Kaufman Rossin, a Top 100 Firm based in Miami. “I can tell you that this law uncategorically says that all expenses that were paid to meet the requirements of having the PPP loans forgiven are now deductible. That’s a very big deal, particularly because they weren’t sure how to plan for this. Professional services firms are a little bit different from normal entities in that they like to pay out all of their profits in the form of salaries prior to the end of the year.”
Besides matters pertaining to the PPP and other provisions of the CARES Act, accounting firms and their clients have needed to cope with issues left over from the Families First Coronavirus Response Act and what happens from providing paid leave to employees. Other issues may involve what to do with any payroll taxes that have been deferred under the coronavirus relief laws, as well as issues involving workers who have been furloughed or needed to reduce their hours.
Payroll provider Paychex has posted a 2020 year-end checklist for small businesses and their accountants. It advises, among other matters, for businesses to report all COVID-19 related tax credits with a Dec. 31, 2020, or earlier check date, as well as report Employee Retention Credits under the CARES Act. If a business overlooked reporting this information in previous quarters, it can still be reported in the fourth quarter. They will need to report any qualified wages for the Employee Retention Credit, in addition to qualified health plan expenses on wages reported for the Employee Retention Credit. If a business allowed its employees to defer their payroll taxes, the amounts are due for repayment by Dec. 31, 2021, and employees should be reminded of this.
Edward Webb currently serves as BPM’s advisory partner, offering over 35 years of experience in consulting and financial management, including specific experience in transaction advisory services for both healthy and stressed companies. A published author and speaker, he currently leads the Corporate Finance Consulting Group at BPM and sits on the firm's Management Committee. He holds a doctorate in business administration with an emphasis in ownership transition from Temple University, as well as an MBA with a focus on finance from Indiana University. He was born and raised in suburban Philadelphia before moving his family to California. He may be reached at ewebb@bpmcpa.com.
John Beal is Senior Vice President, Analytics, Insurance, for LexisNexis Risk Solutions. He is responsible for leading the company’s insurance analytics and modeling products and services. With more than 20 years of experience in data and analytics across the insurance and financial services industries and market-leading innovations, Beal and his team develop incremental predictive uses of existing data and processes with a strong focus on developing personal and commercial lines credit-based loss models as well as new non-credit industry solutions. Prior to LexisNexis, Beal held key leadership roles at First Union National Bank in Charlotte, where he was Vice President, Credit and Market Analytics within the Quantitative Analysis Group, and at Citicorp Bankcard, where he served as Assistant Vice President, Credit Policy Department.
Paul Mang is Chief Innovation Officer at Guidewire, a provider of predictive analytics and business intelligence solutions for the P&C insurance industry. He is the former Global CEO of Analytics at Aon plc.
“Keep an eye on the reporting that’s required,” said Michael Savage, senior manager of ENS product operations at Paychex. “That takes on a new tone with COVID-19 and all of the legislation that passed to support small businesses and just support businesses in general. Businesses that took advantage of tax credits or paid sick leave wages, that will have an impact on reporting at this time of year, whether it’s the W-2 or 941. Being conscious of how those will impact reporting is really important.”
The quality of the data is also going to be critical this year for employee reporting, he added, including having the correct addresses, Social Security numbers and wage information. “They’re always important every year, but they definitely take on a new importance this year with COVID-19,” said Savage.
Paychex has created an online Coronavirus (COVID-19) Help Center, which includes a PPP Loan Forgiveness Estimator that accountants can use with their small-business clients to help estimate how much of their PPP loan may be forgiven.
Savage believes that small businesses are going to be relying on their accountants more than ever in the year ahead. “These are challenging times for small businesses,” he said. “They don’t necessarily have the expertise in-house to understand all of these complicated changes in the IRS Code, so they’re leveraging their trusted advisors — whether it’s their CPA, their payroll provider or an attorney — and really taking advantage of those relationships at this critical time. We’re seeing too that the do-it-yourselfers that have been prevalent in the small business space are really starting to shift more to leveraging providers that can really provide that expert counsel and advice in these situations.”
