044- Coronavirus Relief Options with Mike Jesowshek
Summary:
Have questions about the recent government assistance programs for Covid-19 relief? You’re not alone. Mike Jesowshek of JETRO and Associates joins us to break it all down, including what exactly the programs are and who should be applying for them.
Topics in this episode:
What programs are currently available, and who should apply for each
What programs are available for independent contractors and freelancers
What programs are available for businesses with employees
It’s April 13th, is it too late to apply for these? If I haven’t applied, what should I do.
If I did apply, when should I expect the money?
Once I get the money, what are my obligations? Grant vs loan?
Will this money be taxed next year?
Are there any tax/money saving moves I should be making right now?
When is the new tax day, again?
Main takeaway? It’s not too late, so get organized and apply!
About our guest:
Mike Jesowshek is a modern and innovative CPA, taking a new age approach to accounting, tax savings, and growing your business. He is the founder of JETRO, a digital accounting firm, and host of the Small Business Tax Savings Podcast. Mike has both a bachelors and masters in accounting.
Mike has spent the majority of his career as an entrepreneur. He was CFO and co-founded several companies and has experience in all business stages. He set out on a mission to help businesses that have seen and lived the same experiences he did in business. This is how JETRO was built. He has been in the shoes of many small business owners out there and his end goal is to help them in one area that most business owners are not familiar with, accounting and taxes.
Give us a call! (636) 364-8260
Check out our Covid-19 resources
Follow us on: Instagram, Facebook, Twitter
Subscribe on iTunes, Spotify, Google, Stitcher, & TuneIn
Email us at: feedback@petsitterconfessional.com
A VERY ROUGH TRANSCRIPT OF THE EPISODE
Provided by otter.ai
SUMMARY KEYWORDS
ppp, eidl, payroll, loan, business, tax, funds, apply, information, employees, grant, bank, clarification, self employment, loan amount, clients, application, program, question, big
SPEAKERS
Collin, Mike
00:17
I'm Collin and I'm Meghan. And this is pet sitter confessional,
00:20
an open and honest discussion about life as a pet sitter.
Collin 00:29
Well, hello, everybody. Welcome to a special episode on a Thursday, April 16. We have with us Mike with Jetro, tax and Associates. He was previously on with us with Episode 22 talking about getting ready for tax day, getting organized and a lot of tools to get in place. Well, some things have changed since then, although still apply. But tax day looks a little different for us this time around. We're all busy trying to figure out financial programs for us here in the United States. And how They do or do not apply. And so Mike has graciously come on to help teach some of that apart and offer some clarifying information in this really confusing time. So Mike, thank you so much for coming on today.
Mike 01:12
Yeah. Collin, thanks for having me. Happy to be here.
Collin 01:14
I think the first big question out there is, what programs are available and and who do they or who should apply for each of them?
Mike 01:24
Yeah, this is this is definitely a crazy time. There's a lot of stuff coming out right now. And there's been releases of information and then changes to that information. So I'll just kind of preface this, that this is the information and how we understand what's available out there as we know it today. But know that some of this can change and it's kind of a very fluid information. So some of this can change, but I just wanted to kind of preface but really when we're looking at a business owner, and some of the two main programs that we're focusing on are going to be talking about today. Whereas if the government has made available during this kind of rough time for business owners of all sorts and the two different loans that they that they brought out were the ideal, which is the economic injury, disaster loan, and then the PPP, which is the paycheck protection program. And when we look at both of those loans, they both have some pluses and minuses and they're a little bit different. So what I first want to talk about is the Ei dl loan and that's, again, the economic injury disaster loan. In this loan basically operates very similar to your traditional loan. So it's just a loan with a pretty good interest rate. It's at 3.75%. And it doesn't have to be paid up to you know, the the payment date of the loan, when it's actually matures, can be pretty far out there. So this one operates very similar to a traditional loan with one caveat the The government's offering and advanced, which is being considered as a grant on this loan. So basically, you apply for this loan, and you have the potential to get a grant. And that grant amount is up to $10,000. When this originally came out, everyone was told that they would get a $10,000 grant, again, a grant that does not have to be repaid. But since then, some information has changed in that number has ranged from $1,000 per employee, up to $10,000 for that grant, but either way, there is a grant piece to this, and that grants available, whether you get accepted or denied for the loan, it doesn't matter, that client is still available. And the idea behind it is that they're going to send you an advance, get some quick cash into your business bank account. And again, that amount doesn't have to be repaid. Any additional loan over and above that advance that gets made that would just run as a traditional loan has to be repaid back, but that initial grant would not have to be and again, that's it To $10,000. So that's the ideal loan. This is a loan that you apply for directly with the SBA. So you don't go to a bank for this. You dress new, you apply for directly on the SBA website. And you can apply for the advance. So there's the loan application on the actual website actually has changed quite frequently over the past month. And so it used to be a pretty long application that took maybe an hour or two to fill out, ask for a ton of information. Then they took that down, and they went to a paper version, which is basically the same thing. But now you were submitting paper documents. It wasn't an online application. And I think because that application just kept crashing. And then they later made another change to make it very easy. So now the process is about 10 to 15 minutes. It's just asking for some basic, basic information about the business about the owners, a little bit of revenue information, and then at the end there'll be a box that says check this box to considered for the advance the advance payment, which is that granted that doesn't have to be repaid. And so you enter that you check that box into your banking information, and you submit the application. Now, my guess is that down the road, they might ask for more information, depending on what kind of loan amount is needed. But for some people that just want the advance, just want that grant piece that doesn't have to be repaid, they made this process pretty easy, where you can at least get your information in the door pretty quickly. So that's the ideal, again, runs like a traditional loan, but there is an advanced piece that advanced pieces of grant that does not have to be repaid, and it's up to $10,000.
Collin 05:41
Does that make sense? on kind of EDL part, it does. And so basically, as you mentioned, if that $10,000 that everybody had in their mind was this goes above and beyond that, if you need it to, but that grant only goes up to that amount.
Mike 05:56
Exactly. Yep. So there could be a potential loan, and I don't know what the Using to determine what that loan amount is. But let's say you get a $10,000 advance, and then they offer you a loan of $40,000. So basically that $10,000 advance would not have to be repaid. But any loan amount over and above that amount would be on the typical terms that they have, which are pretty generous. And so it's a good way to get cash infusion, but then they have that kind of cherry on top, which is that grantees.
Collin 06:24
Sure, yeah, no, that makes a lot of sense that I know that one was particularly confusing.
Mike 06:28
Yeah. And so that's one program, the second program that they introduced, and this one is a little bit more attractive, depending on how your business is set up. And so this one's called the TPP, the paycheck protection program. And this one is pretty unique because it has the ability to be 100% forgiven. And there's two ways that this one applies for it's very payroll related. So if you have employees, or you're an S corp and you're running payroll to yourself, you would calculate how much loan you get using the PPP based on two and a half times your average monthly payroll. So let's say that you're an S corp, you're the only employee and your monthly payroll is $10,000, you would be able to apply for a PPP loan of 25,020 $5,000, which is two and a half times your average monthly payroll. And now the biggest kicker in this one is that if you use those funds, to pay for payroll, to use it on payroll, or rent or utilities or interest on the mortgage interest on debt, that that amount can be forgiven. And that forgiven period starts. When you get your funding the date you get your funding, and then for the next eight weeks, so let's say you get your funding on May 1, you have eight weeks to spend that those funds on the allowed items that I mentioned kind of payroll, interest payments, rent, utilities, you spend it on those amounts. for your business, and it has the potential to be 100% forgiving. So this one is really attractive, because you have that big forgivable piece. Now for some people, they might not be on payroll, they might not be an S corp, they might not have any employees. And so this, this program is also available for sole proprietors, independent contractors and freelancers. It just has a little bit of twist, instead of being based on payroll, it's based on net earnings from self employment. So let's say that you had income in your business of $100,000. How you would calculate that that's the profit of your business with no employees, you would take that hundred divided by 12 and then multiply by two and a half to get your average monthly income from the business or, you know, to get that PPP amount. So the two loans options are the EDL and the PPP. The EDL has that grant piece and this is the good part of it that doesn't have to be repaid. Up to $10,000, we're saying could be anywhere from 1000 to $10,000, in the PPP has the opportunity to be 100% forgiven. But this one is more centered around payroll. And it the maximum amount is two and a half times your payroll, or two and a half times your net earnings from self employment.
Collin 09:21
So if somebody if somebody were a business owner, but they didn't take a salary, could they apply for the PPP loan?
Mike 09:30
Yep. So if you're a business owner with no payroll, then it's based on your net earnings from self employment. And so this would be someone that has a Schedule C, or maybe a partnership. If you're running as an S corporation, you're likely going to have payroll or you should be running payroll to yourself, so this wouldn't apply to you. But yeah, exactly. For those with no employees that just run the kind of a freelancer sole proprietor an independent contractor. They would use they can apply for the PPP and the loan amount of that PPP would be based on net earnings from self employment. And again, it's two and a half times your average monthly net earnings from self employment. And you determine that number by just taking a full year's worth divided by 12. That's going to be your average monthly from that self employment. It's April 16. Right now, is it too late to be applying for either of these? No, it's definitely not too late. Now, the ideal loan, there should be funds available for that one, that one, again, is the one that you can apply for directly on the SBA website. And so you can go ahead and apply for the ideal one, that's the one with the grant. Now, the PPP loan is kind of a there's a certain amount of funds allocated towards it. And they're saying that once those funds are gone, they're gone. From as of right now, there's still plenty of funds to be given out. There's still plenty of information funds to be given, so you can still apply for that one. This one's a little different, though you don't apply directly with them. SBA, you apply with a bank. And so what we're recommending is to first check your local bank and see if they're participating in this PPP program. If it's a small local bank, there's likely a good chance that you can get in there, get this application submitted pretty quickly. If it's a big local bank, or a big bank, like a chase, or Wells Fargo, we're finding that the applications are a little bit delayed because of the volume that they're receiving in. So I'm always recommending to clients, first, check with your bank, see what their see if they're working with this program, if you can apply for it. And if they're not, or they're backed up, or whatever that might be, then there's plenty of other websites out there. There's plenty of companies where you can apply for the loan. So that that would be something that you applied directly with the bank. Both of these loans are still available of these loans you can apply for. There's been talks in Congress about putting more money towards the PPP. So they initially put out a certain dollar amount that once it's gone It's gone, they've started to realize that that's going to get hit, then mounts gonna get hit. And so they're working right now, nothing's been passed officially, but they are working on bringing more funds to that program to ease the availability to business owners. So yeah, definitely not too late for either of them, however, I would say is act as quickly as possible, because they could be eventually too late. Now, the PvP loan actually ends on June 30. So if you don't have an application in by June 30, you won't be available for those funds. But what they're saying is they don't expect the funds to be available that late. So even though it goes that long, technically, they recommend applying as soon as possible.
Collin 12:43
If somebody hasn't applied, what kind of information and documentation should they start getting together before they go on and either through the SBA website for the EDL or to the bank for the PPP.
Mike 12:55
Yeah, so for the EDL. It's going to be pretty basic information at least to begin with. So it's going to be just information like your business name business, ei n, it's going to ask for your gross receipts. So what's your revenue Ben for the past 12 months. And it's also going to ask you for your cost of goods sold. So if you had any product that you sold related to that revenue, it's going to ask for those numbers. Those are really the only two numbers on the ideal side that you need initially, initially to apply for it. So again, revenue and cost of goods sold numbers for the last 12 months. And then just basic information about yourself, your business bank account information, and business address, things like that. The PvP is going to be a little bit more complex. And because these are directly with the bank, most banks are requesting different information. So what I'll give you is kind of a general idea of what most banks are requesting. There might be more there might be less depending on which actual bank that you go with. But for the PPP, the big items are payroll reports. So because it's based on payroll They're gonna want payroll for the past 12 months. Now the period you use for that can be January of, you know, all of 2019, so January through December of 2019. Or you can use a period of April 1 through March 31, of April 1 of 2019 through March 31 of 2020. Basically, what we're saying is run both scenarios, find the one that gives you the biggest benefit. So the banks are gonna want payroll reports that have a detailed listing of gross earnings, and then any kind of taxes that were taken out if there was retirement or anything like that. They're going to want that information. And they're also going to want your payroll tax forms that you submit to the IRS. And so this is going to be form 941 form 940 Form W twos. So they're going to ask for all that information, and then they're likely going to ask for your 2019 tax return for the business. Now if you are someone with no employees, but you're still applying for the PPP loan The this, this actually opened up on Friday the 10th. So for independent contractors that don't have employees, they're just applying for it based on their own business income. This didn't actually open up till last Friday. And these items, they're going to ask for the profit from your business. So where your profit is of your business was for the prior year, and they're likely going to ask for some tax returns. Because it's not based on payroll for this side. They're not going to need any kind of payroll forms or anything like that.
Collin 15:32
It's a little more straightforward with there, but you still have to have your documents all together and be ready with that kind of information.
Mike 15:39
Yeah, exactly. And the bank's gonna let you know exactly what they need. Okay. Again, I'm thinking that's going to be your 2019 tax return is probably going to be the best data that you can give them. If you don't have your 2019 returned on, they might ask for just financials so a profit and loss and maybe a balance sheet, or they may go off at 28 I'm not sure exactly on that, that's probably gonna be up to your bank. But I would recommend just getting the 2019 returned down, because that's for sure I'm going to be the item that they're going to base it off of.
Collin 16:11
But there may have options if that's not done. If somebody did apply, how long are you seeing processing to take before the money hits their people's accounts? That's a good question.
Mike 16:23
The, for the ideal loan, they initially said that that advance was gonna hit in three days. Unfortunately, that hasn't been the case. And I think that the reason is, is that the, the quick application you submit online, is not the full application. And so once you submit that, you'll get contacted to either provide more information or they'll give you, you know, the amount that you're offered as the grantees, and then it'll be three days after that. So there's really no clue when those are going to start to hit and now we have had some clients where they have hit. We've had some clients that applied over a week and a half ago that still haven't gotten funds. So it's kind of hit or miss on that, on the PPP loan, this is supposed to be a quick application or something where they can get quick funds out to you. So the the idea behind the PPP loan is to move away. Now the problem is, is that the applications are so backed up at the banks that they're not getting through the applications. However, with that being said, once your application is approved, it's normally hitting within two to three business days after that. So it's the part of getting your application approved, and then you're going to get funds quickly. But it might take a little bit for that application to get approved just because of the volume that these banks are working with.
Collin 17:39
So once somebody gets the money, what are their obligations as far as tracking and documentation is for those expenses, especially if they're with the PPP and bouncing between that grant versus loan for the payroll?
Mike 17:53
Yeah, for the I'll start with the EDL one just because I want a little bit more simpler. Basically that you EDL funds can be used for just regular operating expenses. So you can use it on payroll, you can use it on rent, you can use it on interest if you have any debt, just normal operating expenses for your business, the PvP gets a little bit more complex. So PvP you can use for payroll payments on interest or on a mortgage or other debt that you might have. And you can use those funds for rent and utilities. So payroll, interest, rent and utilities. Now, the forgiveness piece of that, remember, the PPP has the ability to be 100% forgiven. And for forgiveness, you have to spend at least 75% of the funds on payroll. The rest can be used for mortgage, mortgage interest, interest on debt, rent and utilities, etc. It's important to know that that period again starts eight weeks after you get your funding. So once you get your funding hits on a Monday, you have eight weeks to spend that money on 75% On payroll and the rest on interest, or rent or utilities, and then it will be forgiven. So the PvP is a little bit more strict as far as what the funds can be used for and how quickly you have to use them. And that's, you know, also why it's based on two and a half times the amount of payroll is because they expect you to use the majority of that on payroll. And that's really the purpose of the PPP. It's to keep people working, keep people getting paid, even if they might not be working. They're encouraging you with this program to continue paying your employees, because the downside of it is if you're continuing to pay them, and they don't have to fund it through unemployment. And so that's really the idea of the PPP is to keep people working, and so it's heavily payroll related. Now, I know we're still trying to figure all of these kind of things out, but keeping an eye towards next year. How are these kinds of programs going to impact our taxes come tax time next year? Yeah, that's a great question. When we're looking at the EDL grant, there hasn't been much clarification on whether this is going to be taxable or not. So that up to $10,000. There hasn't been much clarification on whether you're going to get taxed on that. Now, my guess is that you will not be taxed on it. And the reason that I say that is because when we look at the PPP in the forgivable amount that the clarification has come out will not be taxed, so it's not taxable income to you. So let's say you get a PPP loan for $40,000. You spend it on payroll all at 40. within eight weeks, it gets forgiven, you will pay no taxes on that forgivable amount. And so that's why we feel that they're going to treat the ideal grant the same way. But the clarification has not come out on that yet. Either way, I'm telling clients, it's money that's that's available to you that you wouldn't have either way so even if they tax EDL you're still getting funds that you wouldn't have had anyways. And the funds you get can help cover your taxes. But again, I'm not not expecting them to be taxable, the ideal side and for sure the PvP side is not taxable.
Collin 21:06
Okay. Okay, that's good. That's I know some people are already trying to think of next year right now. And so yeah, that's, I'm sure more guidance may come out as far as concrete answers to those in the future.
Mike 21:17
Yeah. And that's important to that when you're getting this type of funds you want to know, do I need to put some money away for taxes, because I'm getting this free money or money that I wasn't expecting to have, and the government's giving it to me. And so you would assume that there's some type of tax piece to it. But it's good to know ahead of time whether you need to put money away or not put money away. Luckily, the EDL grant is only up to $10,000. So even if they do tax it, it's not going to be a too big of attacks. The PvP would be different. You know, PvP loans could be fairly large. And if that was going to be taxed, that would be a big, something that you definitely want to know ahead of time, which Luckily, they give they give that clarification that it's not exploiting the PPP side
Collin 21:58
had somebody submitted listener question, what's the employee retention tax credit? And when or is it better off a better option than the PPP?
Mike 22:08
Yeah, so the employee retention credit is, is really based on businesses they've been forced to close. But you're still keeping your employees on board. And so this is where it gets really complicated because you cannot combine the CRTC, which is employee retention tax credit with the PPP. And so this is a calculation that you definitely want to do you want to look at, okay, what does the RTC credit give you versus what the CPP benefits can give you? And we're finding for most of our clients that PPP is going to be the better route and again, this is for businesses with employees. So those of you that have no employees, you don't even have to worry about the E RTC item that's going to be kind of a mute cause. But if you have employees, the E, TC is going to be something you want to look into We have a calculator out. And we can put it on our website they can look at. But basically, you want to see, it's going to really depend on how long you're out of business. So how long are your doors closed, where you cannot operate your business. And that's going to determine which one is going to give you a better benefit. So, again, we're finding we're doing the calculation, most of our clients, we're finding that the PPP is going to be the better bet for most of them. But that's also kind of an unknown of we don't know how long this is going to last. We don't know how long businesses are going to be shut down. So depending on how long is our shutdown, that will change and factor, how beneficial the RTC will be to you.
Collin 23:42
But with all these all this going on, it may have been lost on some people that tax day has moved. So when is the new tax day?
Mike 23:49
Yeah, that and I appreciate them doing that for accountants based on pushing all these other government options out there and then right around tax time, so It was it was nice and nice move by them. But the new tax day is July 15. And it's an auto extension. So it's automatically extended to that date, you do not have to file anything. And this is for 2019, tax return taxes, as well as your 2020, quarter one and quarter two estimated taxes. So that new date is July 15. Now, keep in mind that if you don't have anything, everything ready at that point, you can still extend to the normal extension date just like you would on April if you weren't ready, which would be October 15. If you'd want to do that, you have to be sure to file an extension by that July 15. So basically, think of it this way, you're moving the April 15 deadline to July 15. Nothing has to be done on your end. If you're not ready by July 15. You would file an extension just like you normally would on April 15. Except it's now going to October 15
24:55
an extension that I'm sure that all of us do appreciate but I know you you are appreciating so much more given everything going on.
Mike 25:02
Yeah. And they just did last week they announced the moving of the q2 estimated tax payments to also be that July 15. Date, they move the q1, which makes sense because those normally would be due on April 15. They move those to July 15. But then you've got kind of in a weird situation, the q2 estimated taxes are normally due on June 15.
Collin 25:23
And so you almost have a situation where q2 is due before q1. And so they found the clarification last week that both q1 and q2 estimated tax payments for 2020 had been pushed to July 15. Right now, I'm curious if you have any recommendations for businesses or independent contractors thinking about tax moves or ways of thinking about finances right now? Moving forward, that could be saving them money or stay more organized moving forward.
Mike 25:54
Yeah, I mean, right now, there's a lot of uncertainty out there. Again, we don't know exactly how long it's gonna be last. We don't know How long we're going to be shut down for. So we're encouraging clients to just do some planning. Think about the good, the bad, the ugly. So the good. Let's say, this thing's over in three weeks, everything's opening back up, businesses going back to somewhat usual. That's a good plan. So do planning on what happened, how you have to adjust in your business. If that happens, then look at the bad. Let's assume this goes on for two months. How are you gonna need to adjust what needs to be done on your end to survive to the end of those two months? And then let's look at the ugly, three to four months. And so I'm telling clients do this type of planning, even if it's on the back of a napkin, I have an idea so that when you hit these certain benchmarks, you know what you need to do in your business. And so this is going to be a tough time for all businesses. And it's really saying, How can we fight this storm? Because we know this will end this will pass and we'll get we'll get through it. But it's how long can we survive to fight the storm? And so that's why we're doing these planning and What moves you need to meet make it certain thresholds will really help you when you get to that point and be prepared for it. Who else is saying like, look at expense cutting. So go down your income statement, bring up your income statement and see what items you can either cut or downgrade. So let's say you have a subscription, a software subscription, can you maybe go down a package? So instead of having the premium, can you go down to the standard, if there's items you can cut now put them in and bring it back on when business operations open up? So we're saying go down your income statement line item by line item, and look at the items that might be available to help cut during this time, because the big concern is cashflow. Right now you want to hold on to as much cash as possible, because that's going to help you fight through the storm that's going to help you get you through the storm. If you're putting money in various expenses or software programs that you might not be using now or not using as much as you used to. Those are items and cash that's outgoing that you're not going to Get back. And so we're taught telling clients with the expense cutting the planning, slowed down your cash outflow. So if there's any bills or rent payments that you can negotiate for a short period of time, do that. See if you can, you know, do an interest only if you have debt or see if you can skip a month of rent or whatever it might be. Try those options to see what what's available to you. And if, if you try and they say, No, try again, in a couple days, a lot of these people that you're working with, are going through very similar struggles as you are. So it's gonna be tough for them to push that back. But at the same time, they might have more cash flow, they might be in a better position where they know that they just need to get to the storm and their clients, you guys just need to get to the storm. So once you're through the storm, you'll be able to catch up and be back on your feet and back to normal. And so they might be willing to give you some grace there. And so again, this is just a time where you want to try to preserve as much cash as possible. So do that expense cutting see You can see where items you can cut or downgrade, as well as slow down any cash outflow. So if you have funds that are going out, see if there's ways that you can slow him down, push them back a month or two so that you can just weather the storm get through the storm because again, we know that to surpass there is an end point. This is not a forever type situation. So there is an endpoint, we just need to do whatever we can to fight through it and get to the end.
Collin 29:26
And I know there are a million different situations that everybody is in and so if somebody has a question about their particular scenario and situation, how can they reach out to you and ask some questions?
Mike 29:39
Yeah, they can. They can reach out to us right on our website. It's Jetro, tax, je tr o tax calm. We actually have a little banner up top that has COVID-19 resources. So you can go ahead and click that if you want some of the information that we talked about today, as well as a link on how to apply for the EDL as well as information on the PPP program. So you can find us on our website, or you can also check out our small business tax savings podcast. We're sharing information as much as possible as quickly as we can as up to date as possible on a weekly basis. So we're also sharing information there as well.
Collin 30:15
Wonderful. And I encourage everybody listening if you have any sort of question or clarification that you'd like, reach out to Mike at Jetro. They're a great resource during this time. And Mike, thank you for coming on. And we wish you guys all the best in this in this storm.
Mike 30:31
Okay, that sounds great. Thanks for having me, Colin. And hopefully we'll connect soon once all this has passed.
Collin 30:37
Yeah, absolutely. There's a I'm sure there'll be more questions that come up. But yeah, we'll definitely be in touch TomSka we absolutely plan on doing a follow up interview with Mike once a lot of this dust settles coming up. So please keep your questions coming in and reach out to him directly. If you have any particular questions that you need answered right now. Tomorrow. We have Jennifer flat and Henry lucky from hoopla adventures, international travelers and house sitters as they talk about how the COVID pandemic has affected their travels and what they've done in response.
Hello, World!
Hello, World!
