Legislation provides other business relief provisions
Here’s what you need to know about the Paycheck Protection Program (PPP) loans and other business relief provisions of the recently-passed American Rescue Plan Act.
PPP loan application deadline extended. The deadline to apply for PPP loans is now May 31, 2021.
Sick leave extended. If your business provides sick leave for COVID-related reasons, you might get reimbursed for the sick pay through a tax credit.
Businesses which voluntarily provide sick leave through September 30, 2021 qualify for the credit. There are limits for each employee. However, for employees who took 10 days of sick leave in 2020 using this same provision, they can take another 10 days beginning April 1, 2021.
Refundable tax credits are available through September 30, 2021.
Covered reasons to get the tax credit now include sick leave taken to get COVID testing and vaccination, and to recover from the vaccination.
These benefits are also extended to self-employed workers.
Family Medical Leave Act Provisions extended.
Additional coverage is now available through September 30, 2021.
Qualified wages for this provision move to $12,000 (up from $10,000) however the credit was not increased.
The Family Medical Leave Act also applies to the self-employed.
Big increase in Employee Retention Credit.
Businesses can get up to a $28,000 tax credit per employee in 2021, up from a $5,000 maximum credit in 2020. This credit can be claimed through Dec. 31, 2021.
There are many more provisions in the close to $2 trillion dollar spending package, including money given to states. As everyone digests this new 500-plus page piece of legislation, more clarifications will be forthcoming from the IRS and other sources.
Many business owners hire their children, their spouse, or other family members to work in their business. Sometimes this works out well. Other times it causes problems. Let’s look at the pros and cons of putting family members on your payroll.
Hiring your children
Hiring your kids for a summer or part-time job usually has more tax advantages and fewer drawbacks than hiring other relatives. The financial advantage is that if you’re paying your child to do useful work, the business gets a tax deduction for the wages paid. Your child will probably pay little or no income tax, and the after-tax wages stays in the family.
Follow certain steps to make sure the wages are fully deductible. The child must be doing a real job that helps the business, and the wages must be reasonable for the work performed. Keep detailed records of hours worked and pay salary regularly, preferably on the same schedule as other employees. In other words, treat your child just like any regular employee.
In addition, depending on how your business is organized and the age of your child, you may be able to avoid paying Social Security, Medicare, and unemployment on their wages. To qualify, you must be a sole proprietor or a husband-wife eligible partnership and your child must be under the age of 18.
Hiring your spouse or other relatives
An advantage to hiring your spouse or other relatives is that you have an employee whom you know well, and who may be more motivated or more flexible than a non-family member. And in many family-owned businesses, it’s a powerful way to train the next generation who will take over leadership.
That same familiarity can bring disadvantages, however.
Few families are without some internal or intergenerational conflict, and that can be disastrous if it spills over into the workplace. You must also consider the effect on other employees. Any sign of favoritism or unequal treatment can cause resentment and ruin the motivation of other employees.
Be cautious moving forward
There are plenty of businesses where hiring family members has worked out just fine, but other businesses where it didn’t work out.
So think long and hard before you bring family members into the business. Talk to them and to your key employees beforehand so everyone understands and is comfortable with their roles in the company.
Here are some suggestions to help you master the art of documenting and organizing your business now and in the future.
Document policies and procedures. Write down daily responsibilities, skills needed to complete tasks related to these responsibilities, and the location of all paper and electronic files. Appoint and cross-train backup staff to ensure these daily tasks are done.
Document your succession plan. It may not be for another 10 or 20 years, but documenting your succession plan is critical for both you as the owner and for your employees. Consider how much longer you plan on owning the business and who you have in mind to take over after you leave. If you currently don’t have a successor in mind, document your plan to either train or find this person(s).
Document your tax planning strategy. Be aware of possible tax incentives, such as credits for hiring certain workers and accelerated depreciation available for acquiring business assets. For example, for asset purchases, retain receipts and record the purchase details. These details include the type of equipment, the acquisition date, the amount of the purchase, the date you began using the equipment, and a schedule of related set-up costs.
Organize your daily documents. Organize your desk by shredding documents with sensitive information and scanning older papers into computer files. The most efficient method is to scan, file, and shred as soon as you are finished with a document. If you don’t have time, consider assigning document organization to specific employees and making it a task to be completed on a daily basis.
You’re busy, and you may feel that organizing your records will take more time than you have available. But spend a minute and consider how using these organizational tips may save you not only time, but money as well.
If you or your business received funds from the Paycheck Protection Program (PPP), the recently passed Emergency Coronavirus Relief Act of 2020 will help to dramatically cut your tax bill. Here’s what you need to know.
Background
The PPP program was created by the CARES Act in March 2020 to help businesses which were adversely affected by the COVID-19 pandemic. Qualified businesses could apply for and receive loans of up to $10 million. Loan proceeds could be used to pay for certain expenses incurred by a business, including salaries and wages, other employee benefits, rent and utilities.
If the business used at least 60% of loan proceeds towards payroll expenses, the entire amount of the loan would be forgiven.
The Dilemma
While the CARES Act spelled out that a business’s forgiven PPP loan would not be considered taxable income, the legislation was silent about how to treat expenses paid for using PPP loan proceeds if the loan was ultimately forgiven.
Congress intended for these expenses to be deductible for federal tax purposes. But since the legislation was silent on this issue, the IRS swooped in and deemed these expenses to be nondeductible.
There was considerable debate over the latter half of 2020, with Congressional politicians explaining that their intent was that the expenses be deductible and the IRS responding “Too bad, they’re nondeductible.”
The Solution
Congress overruled the IRS’s position in the Emergency Coronavirus Relief Act of 2020. The legislation officially makes deductible for federal tax purposes all expenses paid for using proceeds from a forgiven PPP loan.
Stay tuned for updates as to how this new legislation affects your business.
With the onset of COVID-19, small business banks are more nervous about potential loan losses than ever. Here are several tips for your business to maintain a great working relationship with your lender. These same tips can also be used if you want to plant seeds with your banker for potential future loans.
Produce timely financial statements. Your lender may require you to produce financial statements over the duration of your loans to ensure that you have enough cash to make consistent, on-time payments. Strive to produce up-to-date financial statements and send them to your bank before they ask for them. Not only will timely financial statements make your lenders happy, the pro-active nature of your financials will show a level of transparency to them. Be prepared to include a note explaining major changes and schedule regular phone calls to go over the business.
Implement solid internal controls. How does a lender have faith that the dollar amounts on your financial statements are accurate? By properly implementing internal controls. You’ll have a happy banker if your company can provide evidence that your internal controls are operating properly.
Communicate. If your business encounters turbulent financial waters, the best thing to do is immediately let your lender know about it. Better yet, by keeping in constant communication, your lender will most likely be able to spot if your business starts experiencing a downturn and will try devising a plan before you begin missing payment deadlines.
Remember, your banker probably has their hands full right now. These tips allow them to spend more time on their problem loans, and one of them will not be yours.
Raising prices can be fraught with risk during good economic times. So what happens if you try to raise prices during bad economic times?
As Hamlet would say, “Ah, there’s the rub.” If you raise prices, you risk losing clients to competitors. If you don’t, decreasing revenue or rising costs can capsize your company. So what’s a small business supposed to do?
The Art of Pricing
Raising (and, sometimes, even lowering) prices can be a balancing act. As with any major business decision, pricing should take into account various factors. Here are several to consider.
Analyze costs. First, you need to carefully analyze the costs needed to bring your products or services to market. Such expenses might include raw materials, storage, personnel, advertising, delivery, rent, equipment, taxes and insurance. Failure to cover all these costs in your price will inevitably lead to shrinking profits.
Establish profit margin. Next, it’s important to establish an acceptable profit margin. This is where the art of pricing begins. To find your company’s sweet spot with regards to pricing, consider researching competitors in your region to determine their pricing for comparable products, raising your finger to the wind to discern the business climate and asking your customers about their preferences.
Listen to your customers. Your customers will tell you if you raised prices too high. They’ll either continue to buy your product or seek out a competitor.
Consider incremental price increases. Small, incremental price increases tend to be more palatable to customers than a few large changes. We see this every day in the rising cost of gasoline, utilities and taxes. Many customers can handle incremental inflation…just don’t shock them with a huge increase all at once.
When considering pricing, it’s important to take a long, hard look at both your costs and the quality of your products and services. Customers will generally pay a premium for goods and services that provide greater value. Successful business owners endeavor to increase both the actual quality of their products and the perception of that quality in the minds of customers. Do both well, and a price increase may be in order.
