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Coronavirus Unemployment Benefits: What Workers Need to Know

On top of its lethality to thousands of people this year, the COVID-19 coronavirus is the biggest single job killer in living memory: Nearly 10 million Americans filed for unemployment benefits in the last two weeks of March, far eclipsing the worst numbers we saw during the financial crisis of 2008-2009.

Against that backdrop, Congress passed the CARES Act, a $2.2 trillion rescue package signed into law by President Trump on March 27th. Among its many provisions is a new program called Pandemic Emergency Unemployment Assistance (PEUA). This program is designed to provide direct relief to newly unemployed or furloughed workers who have lost their livelihoods due to the coronavirus.

The key feature of the Pandemic Unemployment Assistance program is a $600 per week plus-up of state unemployment benefits for up to 39 weeks.

The Pandemic Emergency Unemployment Compensation (PEUC) program allows those who have exhausted benefits under regular unemployment compensation or other programs to receive up to 13 weeks of additional benefits.

Eligibility

The Pandemic Emergency Unemployment Assistance program also expands unemployment insurance benefits to large groups of people who normally do not qualify, including gig economy workers, freelancers and self-employed individuals.

If you’re out of work because you’re sick or quarantined, or because your child’s day care or school shut down, you can still get a federal benefit, even if your state doesn’t provide it.

Applicants must demonstrate that they are otherwise able to work and available for work within the meaning of applicable state law, except that they are unemployed, partially unemployed, or unable or unavailable to work because of COVID-19 related reasons.

You are not eligible if for unemployment benefits if you are receiving paid sick leave or other paid leave benefits.  

Details vary by state.

Since unemployment insurance is run at the state level, details vary a great deal from state to state. For example, some states have much more generous caps on unemployment benefits payments than others, from just $235 per week in Mississippi up to $823 per month in Massachusetts.

However, the federal Pandemic Emergency Unemployment Assistance program will add $600 to each state’s weekly cap through the end of July. So the maximum benefit available in Mississippi from January 27th through July 31st, 2020 will be $835 per week, while Massachusetts workers may receive up to $1,423 per week.

Note that unemployment compensation is driven by the location of the job, not the worker. If you live in one state and work in another, apply in the state where you work, not where you live.

PEUA benefits are payable for periods of unemployment or partial unemployment beginning January 27th. So if you experienced a loss of employment, including self-employment, due to the coronavirus since that time, you may be able to receive a retroactive federal benefit.

Federal benefits will end as of July 31st.

Waiting periods eliminated in some states.

Some states normally impose a one-week waiting period before workers can qualify for benefits. However, the CARES Act encourages state administrators to waive that requirement. A number of states have already done so.

Job search requirements are eased.

Under normal circumstances, unemployment benefit recipients must show administrators that they are available to work and have been actively seeking employment.

With state and county employment counseling and referral centers and employers shut down, and many people out of work because they are quarantined or have been sick themselves, states are waiving the requirement to actively seek work for the time being.

Expect Delays.

The CARES Act allocated $1 billion to help state unemployment offices staff up to administer the massive onslaught of claims. But it’s still going to take a while for states to catch up. As a result, it may be weeks in some cases before you will actually receive benefits. You should file for benefits as soon as you are unemployed. There is no advantage to waiting. Make sure they’ve filed a tax return for 2019 or 2018 with bank information so the government can deposit the money directly.

Many state unemployment websites are creaking under the strain of an unprecedented amount of traffic. To make matters worse, phone lines are still jammed. Generally, the best way to receive benefits is to file online.

Click here and select the state where you work from the drop-down menu, for more information. Or see this brief FAQ from the Department of Labor.

Plan on paying taxes.

Unemployment benefits are taxable. If you receive unemployment benefits this year, you will receive a 1099G detailing the amount. That will be taxable income (though if your income is way down this year you may benefit from the higher standard deduction under the Tax Cuts and Jobs Act). For 2020, the standard deduction is $12,400. If you file as a head of household, the standard deduction for 2020 is $18,650. And for married couples filing jointly, the standard deduction is $24,800.

Are You Entitled to a Tax Refund? The CARES Act May Allow Your Business To Take More Net Operating Loss Deductions and Boost Cash Flow

The CARES Act provides a number of tax benefits designed to provide relief and improve short-term cash flow for both corporations and individuals. Among them is Section 2303 – Modifications for Use of Net Operating Losses. This is an important concept, and will likely prove to be a valuable tax change that substantially benefits many businesses who have been economically damaged by the coronavirus.

BLUF (Bottom Line Up Front)

If your business incurred a net operating loss (NOL) in 2018 or 2019, or incurs an NOL in 2020, you can now ‘carry back’ those losses for five years.

This means that you may be able to effectively reduce your taxable net income in prior years. This would mean your tax liability for those years is reduced, as well. In Turn, the new rules for net operating losses would allow you to receive a tax refund for the prior years in which you overpaid taxes.

Administrative details are still being worked out. The precise mechanisms by which you can receive a refund or credit are to be determined. Email us at WeCare@JFDIAccountants for more details, and to get on our email list, so you can receive regular updates as the IRS irons out the fine points.

These refunds will provide much-needed operating capital for many businesses who have been affected by the coronavirus, or who have encountered difficulties or booked losses in the last two years, or who will do so in 2020.
Note that to benefit from the new net operating loss carryback provisions, you must have had some profitable years in the recent past for which you reported income. That’s because you need to apply the net operating loss against actual earnings.

If your business lost money in 2018 or 2019, I encourage you to call me to discuss finding these newly-available deductions for prior year tax returns, and strategies to maximize the benefit of this valuable tax break going forward.

Background

Before 2018, taxpayers who incurred a net operating loss had to apply those losses against income received over the previous two years – potentially generating a refund from the IRS.

Only NOLs that could not be applied against the two prior years’ income could then be carried forward to offset earnings in future years. At the time, taxpayers could carry forward unused NOLs for up to 20 years.

The Tax Cuts and Jobs Act changed those rules beginning in 2018. Specifically, it prohibited carrying back losses to previous tax years. The TCJA allowed taxpayers to carry their net operating losses forward indefinitely, but limited the amount you could use to offset income to 80% of income.

The CARES Act

The CARES Act allows most corporations* to carry back NOLs for up to five years prior to the tax year in which the loss occurred. You should start with the earliest of those five years, and work your way forward. The additional deduction against income should generally result in a reduced tax liability for those prior years – and consequently generate a refund of some taxes you already paid.
*Exception: real estate investment trusts. REITs can’t carry back losses, and you can’t carry back losses to any year in which your company was a REIT.

Additionally, the CARES Act also eliminates the TCJA’s 80% of income cap on how much earnings you could offset with net operating loss carryforwards. You can now apply NOL carryforwards from tax years beginning January 1, 2020 and earlier to offset up to 100 percent of future years’ earnings
The 80% offset cap comes back again (with a few small alterations) for tax years beginning after December 31st, 2021.

This benefit is especially valuable for C corporations, because the C Corporation tax rate was much higher prior to 2018: about 35%, as opposed to a top rate of 21% after the Tax Cuts and Jobs Act took effect in 2018. The higher tax rate means deduction opportunities prior to the TCJA are much more valuable than they are in 2018 and later.

Note: The CARES Act doesn’t change the rules for capital losses. Only the rules regarding the taxation of income. You still carry back capital losses for three years and forward for up to five years.

Watch for knock-on effects

Note that carrying back NOLs to offset income in prior years can have indirect knock-on effects on other parts of that year’s tax return. For example, it could affect the general business credit, or your business’s ability to deduct charitable contributions (Section170(b)(2)(A)), which is capped at 10% of taxable income. Taking a significant NOL carryback effectively reduces taxable income for that year, which could affect a charitable contribution deduction.  

If you’ve already filed your 2019 return and you have net operating losses, and you and your tax advisor believe that taking advantage of these expanded carryback provisions will be beneficial, you should file an amended return as soon as possible. If you have not yet filed your 2019 return, you should revise it before filing to reflect your NOL, and carry it back over five previous years if relevant.

JFDI Accountants can use these and other strategies to help you maximize your current cash flow as you navigate the coronavirus crisis.

Contact us today at WeCare@JDFIAccountants.com and let us help you.

Corporations do not normally have glistening credit scores from the start. In fact, building corporate credit is most of the time a long process of proving financial responsibility of the corporation. Do not wait for your corporation to be in dire financial need to apply for credit but rather apply for credit even when you do not need it. Lenders favor financially stable companies when considering who to lend to. Outlined below are some items that you can do that will help you build corporate credit.

1. Incorporate your Business

The first thing that you should do is register your business as a corporation.

As a business owner, you have a variety of entity structures to choose from and it is best for you to discuss this with your accountants and/or attorneys as to which corporate structure works best for your business.

Once a structure is decided, then you will need to apply for your Employer Identification Number (EIN) also known as form SS-4 with the Internal Revenue Service. Ultimately it is the EIN that is used when establishing and maintaining corporate credit.

2. Maintain a Good Personal Credit Score

The initial stages, lenders will heavily weight the personal credit scores of business owners when making their credit decisions. It is imperative that you have a good personal score as this will improve your chances of getting funded. To boost your personal credit score make sure you keep your credit card spending under 30% of your limit, pay all your bills on time, and minimize your applications for new credit. Moreover, lenders will also check personal credits of partners or investors with more than 20% stake in the business, so it is important you plan for this accordingly.

3. Apply for Credit Even if you Don’t Need it

A good fundamental strategy is to apply for credit as a corporation shortly after forming even if you do not need it at that point in time. Keeping in mind that lenders are usually wary of lending out huge sums of money to startups, it is recommended you apply to borrow smaller amounts at the beginning. In addition, you should also apply for commercial credit accounts from major retailers such as Home Depot or OfficeMax. All in all, this should give your corporate credit a boost.

4. Frequent Use of Credit Cards and Lines of Credit

One common mistake that most business owners make is that they apply for a line of credit, get approved but end up not using it because they are wanting to avoid paying interest. Consistent use of your lines of credit will help you build excellent corporate credit. It also goes without saying that your payments to the creditors should be made in a timely manner.

5. Build Relationships With More Than One Lender

Remember the saying “don’t put all your eggs in one basket?” Well, the same saying applies here. Don’t rely on a single lender to build your credit score; banks can change their lending policies overnight, cutting your credit limit overnight. You might instead choose to have a credit line through a credit union or a locally-owned bank and have a credit card through a major bank. Using a variety of lenders means you can constantly build and vary your credit history.

6. Work With A Company To Establish Your Business Credit

There are companies that specialize in helping businesses and corporations alike to build corporate credit. As an added benefit, these companies utilize preexisting relationships and offer your company credit without personal guarantees. More so, these companies know the ins and outs of establishing corporate credit and will attempt to lead you in the right path by outlining the necessary steps that it will take for you to build up your corporate credit. It is highly recommended that you research which company will fit your current needs and to use one established in the most critical stages which is at the startup phase when your entity has no credit at all.

An option that most businesses consider is hiring someone to handle these tasks. However, hiring in-house staff is not the most practical option for small businesses and startups. Having an employee on their regular payroll can cause a serious hike in their expenses. For such businesses, a much more ideal and affordable solution could be to outsource. According to Forbes, outsourcing accounting and payroll functions not only makes a business cost-effective but also offers numerous other advantages that can keep it competitive and efficient.

Here are some benefits that outsourced accounting services and payroll can bring to your business explained comprehensively by JFDI Consultants:

1. Bring Down Operational Costs

Reduced operational cost is one of the most compelling reasons for outsourcing accounting and payroll functions. Compared to hiring full-time employees for these jobs, outsourcing them can be extremely cost-effective as companies can be spared from paying salaries and employer taxes. Furthermore, outsourced accounting services are tax-deductible.

Currently, the average annual salary of accounting and payroll managers is $104,000 and $46,000 respectively. In addition, the payroll taxes amount up to 12% of the salary. Adding up the figures, a company typically has to pay over $160,000 annually to have in-house accounting and payroll managers. On the other hand, outsourced accounting and payroll services offered by JFDI Accountants start at as low as $500 per month.

As a result, outsourcing accounting and payroll functions can save companies as much as $150,000 annually, which is quite a substantial amount for any small or startup business.

2. Work with the Experts

Outsourcing to a firm that is entirely dedicated to accounting and payroll management means working with the experts in the industry. With their extensive experience, these professionals know accounting and payroll processing inside out and are well-adept at handling problems and challenges. Moreover, these experts are also aware of changes in government tax and compliance regulations, ensuring that there are no processing mistakes.

In comparison, if entrepreneurs decide to manage these tasks on their own, they have to give up a lot of their precious time. They are also prone to making mistakes that can lead to penalties charged by the IRS. According to the IRS, every year more than 40% of small businesses pay over $800 individually in penalties due to improper or late payments and filing of their taxes. Alternatively, hiring professionals in-house with the same level of expertise can be unaffordable for most companies. In most cases, companies hire less experienced professionals and have to deal with low quality of work and turnover issues.

The professional team at JFDI Accountants has extensive experience and knowledge of tax laws and regulatory mandates on local, state and federal levels. With outsourced CFO services and payroll management, companies can rest assured that they will be getting reliable and effective long-term solutions for their needs.

3. Focus on the Core Competencies

Accounting and payroll functions can take a lot of time to be completed. Perhaps it is time that small business owners or founders of startups can’t afford to spare? Devoting a huge chunk of time to these activities month after month results in entrepreneurs losing the focus from what matters the most – their core business function. When the core function of a business is neglected, its performance and profits both suffer.

Outsourcing leaves business owners with enough time to focus solely on technical and strategic business matters that can improve the bottom line. It also saves them from dealing with lengthy recruitment processes and turnover issues associated with in-house staff. Outsourcing contractors usually offer month-to-month no-strings-attached service agreements that can be arranged according to a business’ needs and convenience.

4. Get Enhanced Security for Your Data

Financial and payroll data of a company is extremely critical, making its security a major concern. When it comes to such data, there are always certain risks such as identity theft, tampering with or sabotaging company records, and funds embezzlement. Managing unbreakable safety and security of such data when using an in-house accounting or payroll software can cost a business huge sums of money on a regular basis.

From maintaining backups to updating security software regularly, entrepreneurs need to give constant attention to the entire process or risk compromising the confidentiality of their data. Trusted outsourced solutions can save businesses from worrying about safety and security of their crucial business data. Backups, security software and everything else that is needed to keep a business’ data safe is a part of the service provided.

Considering all the advantages it has to offer, outsourcing accounting and payroll functions definitely makes good business sense. Contact JFDI Accountants today to find out if outsourcing is indeed the best solution for your business.

Coronavirus Student Loan Relief

The federal government is providing sweeping relief to most federal student loan borrowers. The CARES Act provided a number of breaks for student loan borrowers, who collectively now owe $1.6 trillion in federally-guaranteed student loans.
Payments are halted through September 30th, 2020, and interest rates have temporarily been set to zero through the same period. See below for details.

It’s important to note that these provisions apply only to federally-guaranteed student loans offered under the auspices of the U.S. Department of Education. They do not apply to private student loans, loans still owned by educational institutions directly, and U.S. Department of Health Loans.

Automatic Forbearance Through September 2020

First, the Department of Education announced that automated payments for the vast majority of federally-guaranteed student loans ceased as of March 13th, 2020. All federal student loan borrowers are automatically placed in administrative forbearance. No payments are required until October 2020, according to the Department of Education.

Wage garnishments for delinquent borrowers are suspended as well.

Auto-Debit Payment Refunds Available

If your loan servicer inadvertently processes any auto-debit payments on federal student loans covered by this policy between March 13th and September 30th, 2020, they will refund them to you upon request. Contact your loan servicer directly to make the request.

Federal Student Loan Interest Temporarily Set to Zero

You can continue to make payments if you choose, but there’s not much reason to do so: Under Section 3513 of the CARES Act, Interest on most federal student loans is suspended as well through the end of September.

Specifically, the interest rate is being temporarily set at 0% for these loan programs:

Not All Loans Covered

Some Perkins and FFEL loans are still owned by the educational institutions, not the federal government. Those loans are not included in either the CARES Act’s provisions, the zero-interest provision or the Department of Education’s moratorium on auto-debit payments.
In most cases they are able to work with you if your income was disrupted by the coronavirus. Contact the educational institution that holds your loan for more information.

Find Your Servicer

To verify that your loan is eligible for these benefits, contact your loan servicer online or by phone. If you don’t know who services your loan, visit StudentAid.gov/login or call 1-800-4-FED-AID (1-800-433-3243).  

If you are hearing impaired, call 1-800-730-8913 for the TTY line.

Public Service Loan Forgiveness Program Considerations

If you’re enrolled in the Public Service Loan Forgiveness Program (PSLF), you will still receive credit for the time spent in administrative forbearance, just as if you were actively repaying the loan on time. However, you must remain employed full time with a qualifying government or non-profit employer to keep making progress.

Income-Driven Repayment (IDR) Plans

If you are enrolled in an income-driven repayment plan, such as PAYE, REPAYE or IBR, you will still continue to make progress even while your loan is in administrative forbearance. You will not be penalized or lose eligibility for eventual IDR forgiveness just because your payments are in deferral.

If your income remains reduced in October, contact your servicer for more options.

Loan Rehabilitation

If you have a loan in rehabilitation, you will not be penalized if you stop paying between March 13th and September 30th, 2020. You will get credit for your nine months of payments required to rehabilitate a federal student loan just as if you had been making your rehab payments as originally scheduled.

Tax Benefits for Employers

Thanks to the CARE Act, employers may now temporarily deduct payments made to employees in the form of student loan repayment assistance. The measure expires in 2021. Student loan reform advocates have long advocated bringing employer student loan repayment contributions on an equal tax footing with tuition assistance benefits and 401(k) matching contributions, both of which are generally tax deductible to the employers — and non-taxable to the employee, as well.

The student loan repayment assistance deduction is limited to $5,250 per year per employee — the same cap as tuition assistance benefits have had for years.

Although the measure expires next year, this benefit may prove quite popular in an election year. Congress could extend the tax deductibility of employer student loan repayment assistance in the future.

Coronavirus checks: Who’s eligible, and how to get your money

Note: The following guide was written with the best, most current information available as of April 7th, 2020. However, the situation is still in a state of flux. Treasury officials are still fine-tuning regulations and administrative requirements based on feedback from the field. Some information in this guide may have changed since it was first published.

The massive $2.2 trillion CARES Act, signed into law on March 27th, includes a direct cash payments, called Economic Impact Payments, to most American taxpayers, to be distributed as soon federal officials can figure out how.  
The Act authorized a tax-free payment of up to $1,200 to every American worker or retiree with a Social Security Number, to include green card holders and permanent residents. The government will also pay $500 for each qualifying child in the household.
You can still qualify, even if you owe back taxes, or you have defaulted on a federal student loan.
The benefit does not have to be paid back.

Eligibility

Not eligible

How much will you receive?

For most American single filers who made less than $75,000 in 2019, the stimulus payment will be $1,200.

Married couples who earned less than $150,000 in 2019 will receive $2,400.

If you filed as a head of household and made $112,500 or less, you will receive $1,200.

You will receive an additional $500 for every qualified child in the household. A family of four, then, can receive up to $3,400.

What is a “qualified child?”

Under the CARES Act, a qualifying child is one meeting all of the following criteria:

Phase-outs

The payout is reduced by $5 for every $100 of income earned over the threshold. Payments phase out completely for individuals who earned $99,000 or more, or couples making $198,000 or more, with no qualified children. The payment phases out completely at $136,500 for heads of household.

There is no marriage penalty – the thresholds and phaseouts for married filers are precisely double those of single filers, other than heads of households.

When will the coronavirus stimulus checks arrive?

According to Treasury Secretary Steven Mnuchin, the first coronavirus stimulus payments should be going out by about April 16th. Those will be going out via direct deposit to those who have already provided the IRS with their direct deposit information.

To get your payment as soon as possible, ensure you’ve filed a tax return for 2019 or 2018, with your direct deposit information included. The government can then issue your payment via direct deposit.  

If the IRS does not have your direct deposit information on file, they will send a paper check. However, that process could take until May, according to some sources.

What do I have to do to apply?

Most people don’t have to do anything, say Treasury officials. The majority of recipients have already filed a 2018 or 2019 tax return. The government will automatically calculate your benefit from those returns, and send your payment via direct deposit to the account specified on your returns.

If you have not filed a 2019 return, you can do it for free via the IRS Free File Program.  If you haven’t already filed a 2018 or 2019 return, or the IRS doesn’t have your direct deposit information, you’ve moved, or you’ve gotten divorced since you last filed, using the IRS Free File program is the fastest and most reliable way to ensure you receive your coronavirus stimulus payment.

The IRS doesn’t have my direct deposit information. What now?

The Internal Revenue service is working on creating a Web portal that you can use to transmit your direct deposit information to them. It should be live in the coming weeks. Once they have your account information, they can send your coronavirus stimulus payment via ACH. It will still be faster than issuing a paper check – and much less expensive for the government.

Social Security Recipients

Social Security recipients are eligible. They will not have to file a tax return to get this payment if they are not normally required to file, according to the IRS, in a policy reversal announced last week.

The IRS will use existing SSA-1099 and RRB-1099 forms to process payments. If a bank account is on file, these retirees will receive a direct deposit. Otherwise, the IRS will send a paper check – though at a later date.

“We want to ensure that our senior citizens, individuals with disabilities, and low-income Americans receive Economic Impact Payments quickly and without undue burden,” said Treasury Secretary Steven Mnuchin. “Social Security recipients who are not typically required to file a tax return need to take no action, and will receive their payment directly to their bank account.”

Non-filers With Children

Note: that if you are a Social Security or Railroad Retirement beneficiary and not required to file taxes, and you have minor children as dependents or living with you, the IRS will have no way of knowing about these children. You would therefore not receive the additional payment of $500 per child – just the $1,200 payment for singles and widow(er)s or the $1,200 for married couples, assuming your income does not exceed the threshold for the maximum payment.

Are Emergency Impact Payments taxable?

No. These payments do not count as taxable income. They will not contribute to, or trigger taxes on Social Security income, or cause any other negative tax consequence.

Do I have to pay the money back?

No.

SSI Recipients

According to the Social Security Administration, Economic Impact Payments received will not cause a problem for Supplemental Security Income (SSI) recipients. The Social Security Administration will not count such payments as income. They will also not be counted as assets for one year.

This was a major concern among disabled individuals, their guardians and advocates. The fear was that if they received an Economic Impact Payment directly, it would count as income or an asset – and therefore render them ineligible for other means-tested government benefits such as food assistance or Medicaid.

The Social Security Administration has put these fears to rest. However, SSI recipients must spend down the money within a year, and get non-exempt, personally-owned assets below the state threshold, or the money received under the Economic Impact Payment program may count as a spendable asset and jeopardize access to benefits

Non-filers who owe taxes

If you have not filed a return for 2018 or 2019, but have a tax liability, the IRS encourages you to file as soon as possible, with your direct deposit information to receive your stimulus payment.

The IRS will not intercept your payment even if you owe back taxes, whether to state or federal governments.

I have delinquent student loans. Can I still receive the payment?

Yes. The IRS will not withhold your payment due to federal student loan default.

If you made too much to qualify in 2018 but now you’ve lost your job

Some filers will have earned more than the income threshold as reflected in their 2018 or already-filed 2019 returns — but have since been furloughed or laid off. You may not be eligible for the benefit immediately. The Treasury Department is aware of the issue, and is working on addressing it.

Meanwhile, you may be able to apply for assistance under the Paycheck Protection Plan or an Economic Injury Disaster Loan. You may also qualify for expanded emergency unemployment benefits.

When is the deadline to file taxes so I can receive a stimulus payment?

If you haven’t filed a 2018 or 2019 return yet, and you need time to prepare or to see a tax professional, you have until the end of the year before the stimulus payment will no longer be available.
The deadline to file and pay individual income taxes for tax year 2019 is extended to July 15th. Be sure to meet that deadline to avoid penalties for non-filing and interest for non-payment.

Beware of coronavirus scams.

The IRS will either send a direct deposit to the bank account that you provided to them on your 2018 or 2019 tax return or via their soon-to-be-launched portal, or they will send you a paper check.
The IRS will not telephone you, email you or text you to verify your account details. If you get a call from someone claiming to be with the IRS or Department of the Treasury asking you to “verify” or “confirm” your Social Security number, account details, or any other similar information, it’s a scam.
If you receive an email or text from someone claiming to be with the IRS or Treasury, do not click on the links. The links may contain spoof websites or may contain computer viruses or malware designed to steal your information.
If you receive a check that contains instructions to call a number and verify accountant information or receipt, it’s a scammer at work. The check is fake.

If someone contacts you and claims you need to pay a processing fee, or pay any other fee up front in order to get your money, it’s a scam.  

Need help?

We understand the process can seem overwhelming. Most people don’t spend every day thinking about tax and financial documents and complying with innumerable federal administrative requirements.

Fortunately, at JFDI Accountants, we eat, sleep and breathe that stuff every day.

If you need assistance, please don’t hesitate to reach out to us at WeCare@JFDIAccountants.com.

Meanwhile, stay safe, respect the CDC guidelines, and look out for each other.

All the best, and good luck,

Amir Marmar,
CEO, JFDI Accountants

The Economic Injury Disaster Loan Program (EIDL): What Business Owners Need to Know

The Economic Injury Disaster Loan program (EIDL), run under the Small Business Association, isn’t new. But it’s getting quite a workout as we navigate the economic ramifications of the coronavirus pandemic. The CARES Act, the $2.2 trillion economic stimulus package signed into law on March 27th, beefed up the benefits available under the program, while expanding eligibility.

This program provides assistance in the form of low-interest loans to businesses, renters and homeowners located in areas affected by declared disaster areas. Small business owners in all 50 U.S. states, the District of Columbia and all U.S. territories are eligible to apply.

These loans are not intended to replace lost income or revenue to the business. These are meant simply to keep qualifying businesses, as well as self-employed individuals, independent contractors and sole proprietorships afloat during the period of time affected by the crisis.

The Basics

Who is eligible?

To qualify for coronavirus-related aid, the borrower must have been in business as of January 31st, 2020, and have suffered economic injury related to the pandemic.

Businesses with access to credit from other sources are not eligible for the SBA’s EIDL program. However, they may be eligible for the Paycheck Protection Program loan.

Disqualifications

You are not eligible for EIDL assistance if one or more of the following circumstances apply:

60 days delinquent on child support;

Underwriting

The CARES Act authorized the SBA to waive or streamline a number of its normal EIDL underwriting and processing requirements in order to get funding out fast. At press time, here are the latest underwriting rules and requirements.

The EIDL Emergency Loan Advance Program

The Economic Injury Disaster Loan program isn’t new — but the EIDL Emergency Loan Advance program is!

The Emergency Loan Advance program was created by the CARES Act, the massive coronavirus aid and stimulus package for businesses and workers that was signed into law on March 27th, 2020.

The EIDL Emergency Loan Advance Program provides for an emergency advance of up to $10,000 to qualifying small businesses, including sole proprietors, independent contractors and self-employed individuals.

Learn more about the Economic Injury Disaster Loan Emergency Advance.

Eligible EIDL Emergency Advance Program uses

You can use your EIDL advance for any purpose allowable under section 7(b)(2) of the Small Business Act (15 U.S.C. 636(b)(2)), including:

How to Apply

Click here to access the EIDL application form.

Be prepared to submit a profit and loss statement for the period January 31st, 2019 to January 31st, 2020.

If you’ve frozen your credit report, you’ll need to unfreeze it while you apply.

If you’re applying for an EIDL loan for another disaster, unrelated to the coronavirus, click here.

Coordination With Other Programs

You cannot receive a Paycheck Protection Program loan in addition to an Economic Injury Disaster Loan through the SBA for the same purposes. However, if you have an EIDL loan unrelated to COVID-19, you may still apply for a Paycheck Protection Plan loan.

If you took out an Economic Injury Disaster Loan (EIDL) between Feb. 15 and June 30, 2020, and used the proceeds for payroll, you are required to use any funds received to refinance that loan into a Paycheck Protection Program loan.

Refinancing may be advantageous, even if not required, since the interest rate on PPP loans is 1%, while EIDL loans charge 3.75% (2.75% for non-profit borrowers). However, you should carefully check repayment terms, as EIDL allows for much longer repayment periods.

Also, be aware that PPP loan amounts used to pay wages and benefits to employees, rent, mortgage interest and/or utilities for your place of business are forgivable. EIDL loan proceeds, except for the $10,000 Emergency Loan Advance funds, must be repaid.

Any emergency EIDL Emergency Loan Advance received will be subtracted from any amount forgiven under the Paycheck Protection Program. That is, you cannot ‘double-dip’ both programs for the same expenses.

Applicants can have an existing SBA Disaster Loan and still qualify for

an EIDL for this disaster, but the two loans cannot be consolidated together.

Find Out More

For more information, call the SBA at 1-800-659-2955. However, you can expect the switchboard to be overwhelmed, as the SBA is scrambling to keep up with demand at press time. You can also email disastercustomerservice@sba.gov.

Need help?

JFDI Accountants is here to help you through this challenging time. If you require additional assistance or guidance, email us as soon as possible at WeCare@JFDIAccountants.

We look forward to serving you.

Note: The Treasury Department, Small Business Administration and lenders continue to update and refine their procedures and administrative requirements. The information in this article is current to the best of our knowledge as of April 7th, 2020. However, details may change between the time this piece was written and the time you read this. We encourage all readers to visit the Small Business Association website at www.sba.gov to get the latest, most up-to-date information.

The Paycheck Protection Program (PPP) is an unprecedented Small Business Administration lending program designed to prevent or mitigate the effects of massive numbers of layoffs. It’s a forgivable loan of up to 2.5 times your average monthly payroll, and an interest rate of 1%. Amounts used to keep employees on the payroll or to pay rent, utilities and mortgage interest will be forgiven. So for most borrowers, some or all of that loan is going to turn into a grant.

If you’ve been deterred from applying for SBA assistance in the past, because of the long delays and endless paperwork required, don’t be deterred from the Payroll Protection Program. This one is different. If you’ve been affected by the coronavirus crisis, and you’re having trouble making payroll or even if you’ve already had to furlough or lay off workers, or you need to make a rent payment just to stay alive, you need to take a look at this program.

Use the proceeds primarily to make sure your employees are getting paid and keep the lights on at your business location (rent and utilities). If you use the money for these purposes, up to 100% of the loan can be forgiven.

Unlike almost every other federal program ever implemented, the Paycheck Protection Program is designed to be quick and dirty. You’ve heard of JFDI Accountants; This is JFDI lending. There’s no collateral or personal guarantee required. The application is just one page long, plus a signature page and an instructions page. You can fill it out in five minutes. Do that, round up your payroll documentation, and turn it in to any participating lender. ‍

Note: The SBA itself does not lend money directly in the Paycheck Protection Program. To apply, you must go to an authorized Small Business Association lender.

Here are the details that small business owners need to know:

The basics

Terms

Loan Forgiveness

Paycheck Protection Program loans are forgivable under the following circumstances:

To qualify for forgiveness, the rent or mortgage interest must have been incurred prior to February 15th, 2020.

Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. So you can’t throw your employees overboard and expect to get to keep a bunch of free money. It doesn’t work like that. It’s designed to incentivize businesses to pay employees, so they can survive while they’re staying home.
The good news is, of course, those employees will be there for you when you ramp operations back up.

What to do if you’ve already laid off employees or slashed their pay prior to the PPP program

If you’ve already let employees go or reduced their compensation, it’s not too late to qualify for a Payroll Protection Program Loan, and you can still qualify for forgiveness for payroll expenses. To qualify, you must:

Your eligibility for loan forgiveness will be reduced or eliminated if:

Loan forgiveness isn’t automatic. You must request it from your lender. Be prepared to submit documentation for your payroll and other qualifying expenses. See the section below on how to apply.

How to claim Paycheck Protection Program loan forgiveness

Submit your request to your lender or loan servicer. You must include the following information:

You must certify that these documents are true, and that you used the forgiveness amount requested to make payroll and make your eligible interest, rent and utility payments.

The lender must make a decision within 60 days of receiving your application.

Who is eligible?

Self-Employed, independent contractors and gig economy workers

Independent contractors and self-employed individuals can start applying for the Paycheck Protection Program on April 10th, 2020.

Qualifying payroll costs for these individuals may include:

Limitations apply for those earning $100k or more. Email us at WeCare@JDFIAccountants.com for details.

Underwriting

The Paycheck Protection Program is optimized for speed and simplicity. Underwriting is highly streamlined:

How much can I borrow?

Generally, you can borrow a maximum of 2.5 times your average monthly payroll costs (including tips, benefits, taxes, etc.) Most businesses should use their average monthly payroll over the last 12 months. For new businesses, you should base your application on your average payroll for January and February 2020.

You should include all employees in your application, whether full-time, part-time, seasonal, on-call, temporary or per diem.

Loans under the Paycheck Protection Program are capped at $10 million.

The SBA will use your 2019 tax records and payroll documents (most recent 12 months) to calculate your payroll costs, which drives the overall loan amount.

There are some special calculations that apply to seasonal businesses, and businesses that were not in operation between February 15th and June 30th, 2019.

To calculate the amount your business is eligible to receive under the PPP, use one of these calculators:

How to apply

Unlike the Economic Impact Disaster Loan Program, which is administered directly by the Small Business Administration, the Payroll Protection Program is administered by a network of SBA-approved banks and other lenders throughout the country. You can apply via any participating SBA-approved lender you choose.

Click here to download a PDF of the application.

Required documents

Be prepared to submit the following documents in support of your Payroll Protection Plan application:

Availability: You can apply through June 30th, 2020. However, funding for the Payroll Protection Program is capped. The sooner you apply, the more likely it is that you will be able to get funded.

Coordination with Other Programs

You cannot ‘double dip,’ using an Economic Injury Disaster Loan (EIDL) and a Payroll Protection Program loan for the same thing. You can use them both to fund payroll expenses, but they must be used to pay employees for different periods, for example.

If you took out an Economic Injury Disaster Loan (EIDL) between Feb. 15 and June 30, 2020, and used the proceeds for payroll, you are required to use any funds received to refinance that loan into a Payroll Protection Plan loan.  

If you receive an emergency grant of $10,000 under the EIDL program, that amount will be subtracted from any PPP loan forgiveness.

Need help?

JFDI Accountants is ready to help you navigate the requirements of applying for Small Business Administration relief.

You can email us at WeCare@JFDIAccountants.com for more information.

Sole Proprietorship

This is the simplest form of a business structure where an individual owns the business. The business is not a legal entity and the owner is personally responsible for all the legal suits and debts of the business. The process of setting up a sole proprietorship is fairly easy and simple. A sole proprietorship can operate under the real name of the owner or under a fictitious name (DBA) such as ‘Drew’s Barbecue.’ A sole proprietor only needs to get local licenses to start operating. Many businesses start as a sole proprietorship and graduate to other complex business structures as they expand.

Advantages of Sole Proprietorship

•    Ease of setup

•    Owners can freely mix personal and business assets

•    Sole proprietorship carries little or no formalities

•    Easy decision making

Disadvantages of Sole Proprietorship

•    A sole proprietor cannot sell interests in his business to raise money

•    The business owner is solely responsible for the legal suits and debts of the business

•    Sole proprietorship rarely survives after incapacitation or death of the owner

Partnership

Partnerships operate in more or less the same way as sole proprietorship only that in partnerships, more than one person is involved. A partnership is usually an agreement between two or more people to work together in a business, sharing profits and losses. Like sole proprietorship, partnerships are relatively easy to form. As much as this is an advantage, don’t get into a partnership without a formal written agreement or an operating agreement to be more specific. Because of its ease of formation and informality involved in its setup, partnerships are more likely to end in disputes and lawsuits between partners.  Find an attorney to draft the partnership agreement to avoid future squabbles within the business.

Advantages of Partnership

•    Easy to setup and few ongoing formalities

•    Partnerships are pass-through tax entities

•    Partnerships don’t require annual meetings

Disadvantages of Partnership

•    Individual partners are responsible for the actions of other partners

•    Oral and informal partnerships can lead to disputes and lawsuits among partners

•    All partners are subject to unlimited personal liability for losses, debts, and liabilities of the business, except in cases of limited liability partnerships and limited partnerships

Limited Liability Company (LLC)

LLCs are a comparatively recent phenomenon, with the first of such companies hitting the market in the 1980’s and 90’s. LLCs are normally referred to as hybrid businesses as they combine the elements of a partnership or sole proprietorship with those of a corporation. Like sole proprietorships and partnerships, LLCs are easy to set up and allow for quick operation. On the other hand, just like corporations, LLC owners are not personally responsible for losses, debts, and other business liabilities. LLCs can be managed as corporations (manager-managed LLC) or as partnerships (member-managed LLC). LLCs can also choose to have a president, board of directors and officers just like corporations or they can choose to ignore such formalities altogether. LLCs however are not alternatives to corporations, but as businesses grow they can be converted to corporations. This is usually a complex matter that requires sophisticated legal and tax analysis and should not be attempted without the help of a qualified accountant and attorney.

Advantages of the LLC

•    Few formalities involved and there is no need for annual meetings

•    Owners are protected from the business liabilities and debts

•    Like partnerships, they are quite simple and allow for quick operation

Disadvantages of the LLC

•    They are more expensive to set up compared to partnerships

•    They are subject to annual fees and periodic filings with the state

•    Unanticipated problems in their operation may occur as they do not have a reliable legal precedent to guide managers and owners. The LLC law is, however, becoming more streamlined as time passes by

•    LLCs are not the appropriate vehicles for businesses that seek to raise money in the capital markets or those that seek to go public

•    Certain states do not allow the setup of LLCs for certain professional vocations

Corporation

The term corporation has its roots in Latin word ‘Corpus,’ which means body. A corporation is, therefore, a legal body in the eyes of the law. A corporation is owned by shareholders, operated by officers, and managed by the board of directors. The shareholders determine who runs the corporation and how it conducts business. The shareholders receive profits based on the shares of stock they own. A corporation has perpetual life. When shareholders leave or pass on, they can transfer their shares to other individuals who continue to run the corporation. Corporations can raise funds more easily than sole proprietorships and partnerships. To raise investment capital a corporation only needs to sell its shares of stock. Corporations can further be divided into two: C Corporation or S Corporation.

Advantages of Corporations

•    Owners are protected from personal liability of the corporation’s liabilities and losses

•    Corporations are the appropriate vehicle for businesses that want to go public

•    Corporation owners and managers are guided by a reliable body of legal precedent

•    Corporations can easily transfer ownership through the transfer of securities

•    Corporations can easily sell securities to raise capital

•    Corporations can enjoy tax benefits under certain circumstances.

•    Corporations can have unlimited life.

Disadvantages of Corporations

•    Corporations are double taxed. First, the corporation pays a tax on its gains and then the shareholders pay a tax on the dividend or distribution they receive

•    Corporations require input from many people, so they are slow to act

•    Corporations must adhere to certain organizational guidelines such as annual general shareholders meetings

•    More expensive to set up compared to sole proprietorships and partnerships

 #1: Not testing your ideas sufficiently

Your start-up is doing well, and you are optimistic about future prospects. In this bubble of optimism, it is easy to overlook potential risks and make snap decisions. Any hasty decision backed by limited information will back-fire.

Take intelligent risks by trying to see what others do not. Don’t hesitate to take contrarian views and test them. If the results confirm your hypothesis, you learn something; if they don’t support your hypothesis, you still learn something.

In the context of the product, testing ideas through ready prototypes is critical. Customers will be more willing to provide honest feedback on a rough mock-up than a ready/near-ready product. Even if that decision is operations-based, the extra time spent investigating and testing will pay off.

#2: Penny pinching on infrastructure and services

A poor or weak infrastructure will hit your product hard. When your product starts getting traction, you need to go with all guns blazing and ensure that employees bring their A-game. This will be impossible if you don’t upgrade your infrastructure, automate repetitive tasks, and engage service providers who keep the non-core/administrative side running so you can focus on product and sales.

For a great user-experience or satisfactory client experiences, you need to empower your business processes and employees with robust systems and productivity tools. A good balance between cost and quality can be achieved by brainstorming on infrastructure enhancements and reviewing service providers at an early stage, to give yourself enough time for informed decisions. Going the cheapest route isn’t always the optimal decision for your company.

#3: Not having a tightly focused vision

Trying to do too much at once or trying to do it all will result in a burn-out and possibly trap you in a Jack of all trades, master of none situation. Focus on your specialty, something that differentiates you, or a service/suite of services you excel in. If you spot opportunities that don’t fit the vision, ignore them and work on what you know you can deliver best.

#4: Not acquiring talent early on

As their business scale up, founders will need to start delegating responsibilities to employees. A talent shortage or unmotivated employees will be detrimental to growth and put unnecessary stress on senior executives/founders.

Attract and retain talent through appropriate incentives, team-building activities, professional development, and other strategies. A satisfied team will be more willing to take on responsibilities and contribute to firm-building beyond their defined job responsibilities.

#5: Overlooking negative feedback

When your product/service takes off, and sales and good reviews come pouring in, you may tend to overlook the negative ratings as you may be too focused on expanding or improving the offerings of your current product. This attitude is not conducive to the long-term quality and competitiveness of your product/service.

Filter the negative feedback and determine what more you can do to appease customers who’re not yet convinced about the value of your product. Use these insights to continually improve your product and convert customers to brand advocates.