2020 was a tumultuous year. Beyond anyone’s imagination.
Who could have ever imagined that the entire restaurant industry would be shut down?
With all the bad, there was much in the way of government programs that were good.
It has been a full-time job just keeping up with new laws, application processes and changing rules. Most restaurant owners are over-whelmed so here is a brief run-down of the last 12 months.
The initial PPP became available in April 2020. This kind of program has never been offered before in American history. Generally speaking, PPP was a loan from the government equal to 2 ½ times your payroll prior to the COVID-19 lockdowns. One of the big enticements to PPP was that it was forgivable under certain circumstances. Of course, the rules were complicated. The proceeds were required to be used for specific purposes and there were many questions as to how to comply. Eventually, by the end of 2020, most of the issues got resolved but because there were so many unknowns including how long the shut-downs would last, some operators ended up spending the money prematurely. One good note: If you never applied for the initial PPP you still may do so.
The demand was so great for PPP that Kallas partnered with Independence Business Consulting, a business lending company out of Northville to help process applications. With IBC, we were able to obtain millions of dollars in PPP money for our clients.
Along with PPP loans, the Small Business Administration was offering EIDL loans. An EIDL was a straight loan but terms were extremely favorable – no collateral, 30 year, 3.75%, 1 year deferred payments and the first $10,000 forgiven. You could obtain both a PPP loan and an EIDL loan as long as proceeds were used for different purposes.
The PPP loans can be forgiven. The forgiveness process rules have changed multiple times and the process is still on-going. The last corrections bill in December extending the time to apply for forgiveness and loosened up some of the rules to make it easier to qualify for full forgiveness. Unfortunately, many of the banks that must process the forgiveness applications have still not been able to program their systems to accept applications. PPP loan recipients have, in general 16 months from the time they received the funds to apply for forgiveness. Kallas and IBC will be processing forgiveness applications throughout 2021.
Your employees who were laid off due to COVID restrictions were able to apply for generous unemployment benefits. They could collect the normal unemployment allowed by the State of Michigan with an extra $600 per week supplemented by the Federal Government. As of today, the Federal Government has reduced the supplemental amount to $300 per week. None of the unemployment benefits paid out during COVID will adversely affect your business unemployment tax rate.
PPP Not Included in Income
This is a HUGE deal. In December of 2020, U.S. Congress and President Trump signed a bill that corrected many issues with forgiveness and the initial PPP loan. Even though the IRS fought it, the new law passed. It clarified that the PPP monies you receive or received are not taxable as long as you meet the forgiveness rules. That means if you received, for example $60,000 in PPP money in the first round and you receive another $84,000 in the second round, $144,000 is free – no taxes (as long as you spend it according to the rules and you obtain forgiveness).
2nd round PPP
The second round of PPP is more generous than the first. The first round was 2 ½ times your pre-COVID payroll. The second round is 3 ½ times your pre-COVID payroll. IBC and Kallas are currently applying for the second round of PPP for our clients. You have 6 months from the time you receive the second round PPP to spend it. 60 percent must go to payroll but now you can use 40 percent to pay accounting fees, reconfigure facilities, buy protective equipment or even buy food inventory.
The second round of PPP has already been applied for by Kallas and IBC and some restaurants have received their money. If you have not applied for the second round of PPP, call Kallas at 313-962-6000 or IBC at 248-924-2410 to get started.
Not All Restaurants Will Be Eligible for the Second Round of PPP
To obtain the second round of PPP, you must show a 25 percent reduction in sales in any quarter of 2020. Based on the sales numbers Kallas is seeing across its client base, some restaurants did not experience a 25 percent reduction in sales. In fact, some primarily carry-out or drive-through restaurants experienced sales increases.
Various local grants were available to restaurant owners from $1,500 to up to $20,000. Grants are free money so the competition for limited funds was intense. The grants were issued and administrated mostly by the local counties. Kallas informed clients through our E-Blast system whenever a new grant was offered. Unfortunately, because of the demand from businesses throughout Michigan, grant money was exhausted within minutes of the applications opening.
100% Deductible Business Meals
Business meals prior to 1986 were fully deductible. And this used to be a big source of income to restaurants. Since 1986 they have either been non-deductible or partially deductible. In an effort to help the restaurant industry re-open, the new law signed in December made business meals 100 percent deductible again for 2021 and 2022. If I were a restaurant owner, I would put a big sign on the window saying: “Business meals now 100 percent tax deductible”
FFCRA Tax Credit
If you paid an employee out of non-PPP money while they were absent due to being sick due to COVID or taking care of a sick relative, from April 1, 2020 through March 31, 2021, you could be eligible for 100 percent reimbursement of those wages paid for up to two weeks. This again is a very generous benefit. Certain requirements and proofs are needed to obtain this credit. Call Jordan at Kallas for more info.
ERTC Tax Credit
If you paid employees from sales in 2020 and did NOT use PPP money, you may be eligible for the ERTC (Employee Retention Tax Credit). The ERTC is a powerful tax credit that equals 50 percent of your employee’s pay up to a maximum of $5,000 per employee in 2020 and a maximum $14,000 per employee in 2021.
You can go back to payrolls beginning March 13, 2020 all the way through the second quarter of 2021 to obtain back credits. The credit can be used to reduce payroll taxes you owe and any excess credit can be refunded to you. This credit could amount to tens of thousands of dollars in refunds to you.
The calculations and recordkeeping required for this credit are complex and labor intensive but the amount of money available to you is major. Call Jordan at Kallas to prepare a test to see how much you may be eligible for.