PPP Update, Employing your child and Free Beer!

Hello all! We can now put this October 15th deadline in the rearview mirror. Today’s topics include an update on PPP loan forgiveness, the benefits of employing your children at an early age, and we’re replacing our usual updates and reminders with a crazy tax deduction story you might enjoy.

PPP Loan Forgiveness

Late last week the SBA issued a new PPP loan forgiveness application. It is called Form 3508-S. The “S” stands for “simple”. The 3508-S application can be used if the PPP loan amount is less than $50,000. The forgiveness is not automatic as the borrower will still need to submit paperwork to their lender proving that they used the PPP loan proceeds for compensation/other forgivable costs. However, with this new form/change there are a few interesting tweaks:

  • The forgiveness amount is not reduced due to a reduction in the salary or hourly rate paid to an employee or due to a reduction of FTE employees.
  • The application requires information related to an EIDL advance, if the borrower received an EIDL loan. However, there is no reference in the instructions for the 3508-S that reduce the forgivable amount for an EIDL advance issued to the borrower. Under previously issued guidance and forgiveness applications, if the borrower received a PPP loan for $50,000 and an EIDL advance for $10,000, the maximum amount that could be forgiven was $40,000. The 3508-S application appears to allow the full $50,000 PPP loan to be forgiven. The SBA may issue new guidance clarifying that the forgiveness amount does need to be reduced for an EIDL advance when filing Form 3508-S.
  • The borrower must initial several bullet points that seem to provide more detailed representation that the funds were spent for authorized purposes.

Previously the idea had been floated that the SBA would implement automatic forgiveness if the loan was less than $150,000. The thought was that automatic forgiveness would be granted by having the borrower sign a statement attesting to using the funds for authorized purposes. With the issuance of the new 3508-S, this idea appears to be in question. Click here to review a copy of the 3508-S.

Employing Your Children

Business owners may be able to obtain significant tax benefits from employing their children. First and foremost, they must be bona fide employees. In other words, they must perform work that is ordinary and necessary for the business, and their pay must be reasonable for the actual services performed. If those criteria are met, you may be able to benefit in a number of ways. Below is a bullet point listing of some of those potential benefits:

  • The business gets to deduct their wages
  • Dependent children may be exempt from payroll taxes
  • Your child may earn up to the standard deduction ($12,400 for 2020) without paying Federal income taxes
  • The earned income may open the door for your child to make retirement plan contributions

Don’t hesitate to call your Bertz, Hess & Co. tax and business advisor to discuss in more detail.

Crazy Tax Deductions

Free Beer – In a promotional scheme in the 1970’s that wouldn’t fly today, a gas station offered free beer instead of trading stamps (the 1970s equivalent of credit card or store points). The owner deducted the beer as an advertising expense, and the IRS said no. But in Sullivan v. Commissioner, the taxpayer won in Tax Court.
Your Bertz, Hess & Co. tax and business advisor will be happy to discuss any of these topics.
Thank you and enjoy the weekend!
News > PPP Update, Employing your child and Free Beer!