Congratulations if you received either your PPP 7(a) loan or notification from your lender that you will receive those funds soon. Now you need to figure out how to make the best use of this forgivable loan.
Please remember that the primary purpose of the PPP loan is to provide money to small businesses to retain their staffs. Pay out 100% of the amount of the loan over 8 weeks with at least 75% being spent on payroll costs and the rest for certain facility costs and the full amount of the loan will be forgiven. Even if you don’t pay out the full 75% for payroll costs you should still qualify for a portion of the loan to be forgiven.
The challenge for many small medical and dental practices is that most practices shut down and immediately furloughed their staff and the owners mid-March upon being told to stop treating patients. How should the PPP funds best be utilized when your staff is not currently employed at your office and you probably won?t reopen your practice until mid-May or later?
Still Employing Your Staff?
Your decision is easy if you continue to maintain your full staff even if your office is closed or working at a reduced schedule. You will use the PPP funds to pay your staff, rent and utilities over the next 8 weeks, at which time the loan should be forgiven. The government will, therefore, subsidize the staff and facility costs of your practice over the next two months. Make sure that your staff count and payroll costs don?t dip by 25% during this period of time.
No PPP For You
If you didn?t apply for the PPP or weren?t approved and don?t plan to apply again later, then please make sure to contact your payroll provider. They will help you take full advantage of the $5k per Retained Employee tax credit by having you not remit your federal payroll tax deposit each pay period. Doing so will help you recoup the full tax credit very quickly. You also have the option of holding onto the 6.2% Employer Social Security match and repaying those deferred taxes ratably over the next two years.
Below are the basics of the PPP loan. (The PPP guidelines are still very fluid. The info below is based on our understanding of the rules as they currently apply. If there are any errors, please let us know ASAP.)
What if you do NOT rehire your staff?
- Every week your state will continue to pay your staff their regular state unemployment benefit plus an extra $600 from the federal government.
- The government will also pay your unemployment benefit of your state’s benefit plus $600 from the federal government per week.
- The full amount of PPP funds remains available for when you reopen your practice but won?t be forgiven and, instead, will be treated as a loan to be repaid over 24 months at 1% interest.
What if you rehire your staff very soon?
- You will use the PPP funds to pay your staff?s payroll costs.
- You will also use the PPP funds to pay yourself up to $1,923 per week ($100,000 max divided by 52 weeks).
- The PPP funds can be used to pay your rent and utilities, including phone and internet. (On the contrary, unemployment will not pay your facility costs under any circumstances.)
- As long as you spend the full amount of the PPP money over 8 weeks, with at least 75% for staff payroll costs and the rest on rent and utilities, the full loan will be forgiven. (Partial forgiveness looks to also be allowed based on staff counts and salaries paid during the 8 weeks following when you get the loan.)
- The PPP funds could be completely spent by the end of 8 weeks, no matter when you reopen.
- It appears the forgiven loan won?t be taxable to you as Cancellation of Debt which might give you an extra financial boost by letting you claim these expenses without picking up any income.
What should you do?
Which path you take depends on how quickly you think you?ll be able to reopen your practice. The sooner you can reopen, the more you want to rehire your staff within the next week or so and begin paying everyone once again. Practices paying high rent might also want to rehire their staff soon as a way for the government to subsidize their facility costs over the next two months through the PPP.
Let?s say you reopen on 5/18. The PPP money would pay you and your staff for two weeks while being idle, and then would continue to pay your practice salaries for the first six weeks you are open. The loan would also pay your next two months? rent and utilities. That should hopefully give you time to build up your practice A/R and cash flow again. At the end of 8 weeks, the PPP would be fully forgiven.
What if you can?t reopen until 6/15? If you hire back your staff next week, you would use the PPP to pay their salaries, your salary (up to $1,923 per week) and your rent and utilities. When you open on 6/15, there would be 25% or less of the PPP funds remaining to help you get your office up and running again. Would you have been better off keeping your staff and yourself on unemployment for those 6 weeks and then have the full amount of the PPP loan available to jumpstart your practice when you finally reopen even though that loan will no longer be forgiven? Remember, unemployment benefits paid by the government are comparable to salaries paid with a loan forgiven by the SBA. Both are ?non-loan? money.
Many national and state medical and dental societies are pushing Congress to allow practice owners to delay the 8-week period to determine loan forgiveness. If this option passes, then practice owners who don?t immediately rehire their staff and instead save the funds to use upon reopening their practices could fare best. No one is sure of the likelihood of something like that being enacted, however.
According to the IRS, to be deductible, an expenditure must be both “ordinary” and “necessary” in connection with your profession.? The IRS defines “ordinary” as common and accepted in a particular profession and “necessary” as helpful and appropriate for a particular profession.
Here?s a list of 16 professional expenditures commonly incurred by young health care professionals:
Beepers and pagers
Education, examinations & licenses
Equipment & instruments
Meals & entertainment
Parking & tolls
Professional dues, journals & subscriptions
Psychoanalysis as part of training
?Travel & lodging
Uniforms & cleaning
?Please note:? Employees may not deduct professional expenses that are eligible for reimbursement from their employer.
From IRS Tax Tips:
Your children may help you qualify for valuable tax benefits. Here are eight tax benefits parents should look out for when filing their federal tax returns this year.
1.?Dependents.? In most cases, you can claim your child as a dependent. This applies even if your child was born anytime in 2013. For more details, see Publication 501, Exemptions, Standard Deduction and Filing Information.
2.?Child Tax Credit.? You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17 at the end of 2013. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more about both credits, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.
3.?Child and Dependent Care Credit.? You may be able to claim this credit if you paid someone to care for one or more qualifying persons. Your dependent child or children under age 13 are among those who are qualified. You must have paid for care so you could work or look for work. For more, see Publication 503, Child and Dependent Care Expenses.
4.?Earned Income Tax Credit.? If you worked but earned less than $51,567 last year, you may qualify for EITC. If you have three qualifying children, you may get up to $6,044 as EITC when you file and claim it on your tax return. Use the EITC Assistant tool at IRS.gov to find out if you qualify or see Publication 596, Earned Income Tax Credit.
5.?Adoption Credit.? You may be able to claim a tax credit for certain expenses you paid to adopt a child. For details, see the instructions for Form 8839, Qualified Adoption Expenses.
6.?Higher education credits.? If you paid for higher education for yourself or an immediate family member, you may qualify for either of two education tax credits. Both the American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See Publication 970, Tax Benefits for Education.
7.?Student loan interest.? You may be able to deduct interest you paid on a qualified student loan, even if you don?t itemize deductions on your tax return. For more information, see Publication 970.
8.?Self-employed health insurance deduction.? If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child under the Affordable Care Act. It applies to children under age 27 at the end of the year, even if not your dependent. See IRS Notice 2010-38 for information.
You can also watch IRS YouTube Videos on these subjects:
We’re happy to start a monthly “Tax 101” Series!
We’ll feature?basic topics of taxes and hopefully answer those questions that you maybe felt were “too silly to ask” a CPA in person.?
And please let us know if there are topics you’d like us to cover.
Topic 1: Filing Statuses
(from IRS Tax Tips)
Using the correct filing status is very important when you file your tax return. You need to use the right status because it affects how much you pay in taxes. It may even affect whether you must file a tax return.
When choosing a filing status, keep in mind that your marital status on Dec. 31 is your status for the whole year. If more than one filing status applies to you, choose the one that will result in the lowest tax.
Note for same-sex married couples: New rules apply to you if you were legally married in a state or foreign country that recognizes same-sex marriage. You and your spouse generally must use a married filing status on your 2013 federal tax return. This is true even if you and your spouse now live in a state or foreign country that does not recognize same-sex marriage. See irs.gov and the instructions for your tax return for more information.
Here is a list of the five filing statuses to help you choose:
1.?Single.? This status normally applies if you aren?t married or are divorced or legally separated under state law.
2.?Married Filing Jointly.? A married couple can file one tax return together. If your spouse died in 2013, you usually can still file a joint return for that year.
3.?Married Filing Separately.? A married couple can choose to file two separate tax returns instead of one joint return. This status may be to your benefit if it results in less tax. You can also use it if you want to be responsible only for your own tax.
4.?Head of Household.? This status normally applies if you are not married. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Some people choose this status by mistake. Be sure to check all the rules before you file.
5.?Qualifying Widow(er) with Dependent Child.? If your spouse died during 2011 or 2012 and you have a dependent child, this status may apply. Certain other conditions also apply.
Take a peak at Andrew’s article for Oncology Practice Management. Lots of tips to cut your 2013 taxes and advice for 2014.