For many small businesses, the grand reopening is still on hold. The rapid spread of the Delta variant of COVID-19 has mired a variety of companies in diminished revenue and serious staffing shortages. In response, the Small Business Administration (SBA) has retooled its Economic Injury Disaster Loan (EIDL) program to offer targeted relief to eligible employers.

A brief history

The EIDL program was in place well before 2020. However, the federal government has ramped up the initiative’s visibility while trying to help small businesses during the pandemic.

With the entire country essentially declared a disaster area, the CARES Act established an enhanced EIDL program for small businesses affected by COVID-19. It offered lower interest rates, longer repayment terms and a streamlined application process.

The American Rescue Plan Act upped the ante, offering eligible companies targeted EIDL advances that are excluded from the gross income of the person who receives the funds. The law stipulates that no deduction or basis increase will be denied, and no tax attribute will be reduced, because of this gross income exclusion.

Latest enhancements

The SBA’s most recent enhancements to the EIDL program offer “a lifeline to millions of small businesses who are still being impacted by the pandemic,” according to SBA Administrator Isabella Casillas Guzman. (Eligible employers include not only small businesses, but also qualifying nonprofits and agricultural companies in all U.S. states and territories.)

First and foremost, the loan cap has increased from $500,000 to $2 million. Eligible small businesses can use these funds for almost any operating expense, including payroll and equipment purchases. Funds can also be applied for certain debt payments. Specifically, the SBA has expanded the allowable use of EIDL funds to prepay commercial debt and pay down federal business debt.

In addition, the agency has implemented a new deferred payment period under which borrowers can wait until two years after loan origination to begin repaying their COVID-related EIDLs.

Application details

If you believe your small business could qualify and benefit from these newly enhanced EIDLs, first identify how much money you need and how soon you need it. The SBA is offering a 30-day “exclusivity window” to approve and disburse loans of $500,000 or less. Approval and disbursement of loans of more than $500,000 will begin after this 30-day period.

The agency has also rolled out a streamlined application process that establishes “more simplified affiliation requirements” modeled after those of the Restaurant Revitalization Fund. The deadline for applications remains December 31, 2021. As is the case with any government loan, it’s better to apply earlier rather than later in case funds run out.

Help with the process

For further details about the new and improved COVID-related EIDL program, go to sba.gov/eidl. And don’t hesitate to contact us. We can help you determine whether your small business qualifies for one of these loans and, if so, assist with completing the application process.

© 2021 Covenant CPA

Before the COVID-19 pandemic hit, the number of people engaged in the “gig” or sharing economy had been growing, according to several reports. And reductions in working hours during the pandemic have caused even more people to turn to gig work to make up lost income. There are tax consequences for the people who perform these jobs, which include providing car rides, delivering food, walking dogs and providing other services.

Bottom line: If you receive income from freelancing or from one of the online platforms offering goods and services, it’s generally taxable. That’s true even if the income comes from a side job and even if you don’t receive an income statement reporting the amount of money you made.

Basics for gig workers

The IRS considers gig workers as those who are independent contractors and conduct their jobs through online platforms. Examples include Uber, Lyft, Airbnb and DoorDash.

Unlike traditional employees, independent contractors don’t receive benefits associated with employment or employer-sponsored health insurance. They also aren’t covered by the minimum wage or other protections of federal laws and they aren’t part of states’ unemployment insurance systems. In addition, they’re on their own when it comes to retirement savings and taxes.

Pay taxes throughout the year

If you’re part of the gig or sharing economy, here are some tax considerations.

  • You may need to make quarterly estimated tax payments because your income isn’t subject to withholding. These payments are generally due on April 15, June 15, September 15 and January 15 of the following year. (If a due date falls on a Saturday or Sunday, the due date becomes the next business day.)
  • You should receive a Form 1099-NEC, Nonemployee Compensation, a Form 1099-K or other income statement from the online platform.
  • Some or all of your business expenses may be deductible on your tax return, subject to the normal tax limitations and rules. For example, if you provide rides with your own car, you may be able to deduct depreciation for wear and tear and deterioration of the vehicle. Be aware that if you rent a room in your main home or vacation home, the rules for deducting expenses can be complex.

Keeping records

It’s important to keep good records tracking income and expenses in case you are audited by the IRS or state tax authorities. Contact us if you have questions about your tax obligations as a gig worker or the deductions you can claim. You don’t want to get an unwanted surprise when you file your tax return.

© 2021 Covenant CPA

The COVID-19 pandemic has affected various industries in very different ways. Widespread lockdowns and discouraged movement have led to increased profitability for some manufacturers and many big-box retailers. The restaurant industry, however, has had a much harder go of it — especially smaller, privately owned businesses in economically challenged areas.

In response, the Small Business Administration (SBA) has launched the Restaurant Revitalization Fund (RRF). It was established under the American Rescue Plan Act (ARPA) signed into law in March. The RRF went live for applications on May 3, and the SBA is strongly urging interested, eligible businesses to apply as soon as possible.

Who’s eligible?

Funds are available for restaurants, of course, but also many other similar types of businesses. Food stands, trucks and carts can apply, as well as bars, saloons, lounges and taverns. Catering companies may also file an RRF application.

In addition, the program is available to snack and nonalcoholic beverage bars, as well as “licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products,” according to the SBA.

For some restaurant-like businesses, on-site sales to the public must comprise at least 33% of gross receipts. These include bakeries; inns; wineries and distilleries; breweries and/or microbreweries; and brewpubs, tasting rooms and taprooms.

How much funding is available?

Under the ARPA, the RRF received a total of $28.6 billion in direct relief funds for restaurants and other similar establishments that have suffered economic hardship and substantial operational losses because of the COVID-19 pandemic.

The dollar amount an eligible business can receive under the RRF will equal its decrease in gross revenues during 2020 compared to gross revenues in 2019 — less the amount of any Paycheck Protection Program (PPP) loans received. Other amounts must be excluded from 2020 gross receipts as well, including:

  • SBA Section 1112 debt relief,
  • SBA Economic Injury Disaster Loans,
  • SBA advances (targeted and otherwise), and
  • Local small business grants.

Overall, the RFF may provide a qualifying establishment with funding equal to its pandemic-related revenue loss up to $10 million per business and not more than $5 million per physical location. Recipients must use funds for allowable expenses by March 11, 2023.

What will we need to apply?

A timely, properly completed application is critical to acquiring this funding. An applicant business must submit documentation of its 2020 and 2019 gross receipts, as well as at least one of the following:

  • A federal tax return,
  • A point of sale report, or
  • Externally or internally prepared financial statements.

Warning: Internally prepared financials could significantly delay SBA review of your application.

You’ll also need to disclose the amount of any PPP loans you’ve received. However, the SBA’s online application system should provide this information automatically.

Get started now

To get started, register for an account at restaurants.sba.gov. The SBA advises applicants to first download a sample version of the application here. Our firm can help you identify necessary documentation and navigate the process.

© 2021 Covenant CPA

In a society increasingly conscious of well-being, with the costs of health care benefits remaining high, many businesses have established or are considering employee wellness programs. The Centers for Disease Control and Prevention (CDC) has defined these programs as “a health promotion activity or organization-wide policy designed to support healthy behaviors and improve health outcomes while at work.”

Yet there’s a wide variety of ways to design and operate a wellness program. How can you ensure yours fulfills objectives such as reducing absenteeism and controlling benefits costs? Build it on a solid foundation.

Pandemic changes

Clearly, many business owners believe in wellness programs. Well before the COVID-19 pandemic, a 2017 study of 3,000 worksites by the CDC and researchers at the University of North Carolina found that almost 50% of those employers offered some type of health promotion or wellness program.

Since the pandemic hit, the focus of many wellness programs has begun to shift away from physical health to overall well-being. This means helping employees with improving their mental health, managing their finances and adjusting to remote work. (Some research has found that wellness programs don’t significantly improve short-term physical health or medical outcomes.)

Total leadership commitment

Whether it’s an existing wellness program or one you’re just starting, ask yourself a fundamental question: Who will champion our program? The answer should be: leaders at every level.

If a business takes a “top down” approach to wellness — that is, it’s essentially mandated for everyone by ownership — the program will likely struggle. Likewise, if a single middle manager or ambitious employee tries to lead the effort alone, while the rest of management looks on lackadaisically, the effort probably won’t meet its objectives.

Successful wellness programs are driven by total management buy-in — from the C-suite to middle management to leaders in every department.

Cultural alignment

A wellness program needs to be a natural and appropriate extension of your company’s existing culture. If it feels forced or “tone deaf,” employees may ignore the program or reflexively push back against it rather than approach it enthusiastically or simply with an open mind.

For example, if your business culture tends to be low-key and you engage a wellness vendor (such as a speaker) who shows up with a loud, flamboyant presentation, your staff may not appreciate what you’re trying to accomplish. Your wellness program’s materials and content should match the tenor and feel of your existing internal communications.

Ultimately, look to establish a “culture of wellness” at your company. For businesses that have never emphasized (or perhaps even discussed) healthy habits and lifestyles, doing so can present a great challenge. Be patient and persistent, bearing in mind that a cultural shift of this nature takes time.

Risks vs. benefits

These are just some of the foundational elements of an employee wellness program to bear in mind. We can help you estimate the costs and assess the risks vs. benefits of establishing or revising such a program.

© 2021 Covenant CPA

The COVID-19 pandemic has often made the due diligence process for business acquisitions more complex and time-consuming. But if you’re buying a company, it’s critical to dedicate your full attention to this part of the M&A process — not only to confirm that the selling business is as valuable as you believe it to be, but to protect against fraud. Plan early to engage a fraud expert to review financial statements and other documents for signs that you could be dealing with a dishonest seller.

Subtle warning signs

When reviewing a seller’s financial statements, forensic experts look for subtle warning signs of fraud. These include excess inventory, a large number of write-offs, an unusually high number of voided discounts for returns, insufficient documentation of sales and increased purchases from new vendors. Another suspicious sign is increased accounts payable and receivable combined with dropping or stagnant revenues and income.

Fishy revenue, cash flow and expense numbers and unreasonable-seeming growth projections warrant further investigation to determine whether financial statements represent fraud or they’re evidence of unintentional errors or mismanagement. The latter is common in smaller companies that don’t have their statements audited by outside experts or that may not have adequate internal financial expertise.

Systematic manipulation

To determine whether unusual income numbers indicate systematic manipulation, experts often consider whether owners or executives had the opportunity to commit fraud. A lack of solid internal controls makes financial statement fraud more likely. Regulatory disapproval, customer complaints and suspicious supplier relationships can also raise red flags. If warranted, a forensic expert may perform background checks on your target company’s principals.

It’s important to note that some accounting practices adopted to present a business in the best light may be perfectly legal. However, if your expert finds evidence of intentional fraud — particularly at the executive level — you’ll probably want to rescind your acquisition offer. In less serious cases, you may simply need to make purchase price adjustments or even change the deal’s structure.

Negotiating protection

An indemnification clause written into the purchase agreement can protect you if a seller lies about matters that affect your acquisition, such as fraud. But negotiating these clauses can be tricky since sellers tend to push for a narrow definition of “fraud” and for limits on liability. The fact remains that if a seller has committed fraud, it’s better to uncover it before the M&A transaction goes through.

Contact us with your questions about M&A fraud and for help evaluating your potential business acquisition.

© 2021 Covenant CPA

New year, new fraud to watch out for

Whew, you made it through 2020! But don’t rest easy yet. Unfortunately, fraud perpetrators enjoyed a profitable year, and there are signs they may continue to feed off Americans as long as the pandemic is active. Here are several scams to watch for in 2021.

PPP fraud

Struggling small-business owners have welcomed last month’s 11th hour extension of the Paycheck Protection Program (PPP). They aren’t alone: Fraudsters skilled at falsifying loan applications are also likely rubbing their hands in anticipation.

The Justice Department has brought charges against at least 80 individuals for stealing $127 million from the first PPP. Law enforcement expects to charge more (likely many more) con artists as evidence is uncovered. Indeed, the House Select Subcommittee on the Coronavirus Crisis claims that at least $14 billion in PPP loans were improper. Not all of these cases were outright fraud, but there’s evidence that some business owners and lenders ignored PPP guidelines.

To help prevent further misuse of these loans, $50 million has been allocated to the Small Business Administration for PPP fraud prevention and audits. To avoid unnecessary scrutiny or legal trouble, business borrowers should make sure they understand all eligibility requirements for PPP loans and are qualified before applying.

Vaccine cons 

Consumer scams related to the pandemic also are still going strong. Even before COVID-19 vaccinations gained FDA approval, fraudsters conned many Americans (primarily via email and online ads) into paying for nonexistent cures and preventive treatments.

This past month, the FBI and several other federal agencies warned that perpetrators are now advertising COVID-19 vaccine “early access” for those willing to pay a fee or submit medical and other personal information. Make no mistake: These are fraud schemes. To receive a vaccine, visit the Food and Drug Administration (fda.gov) or Centers for Disease Control and Prevention (cdc.gov) websites or consult your physician to learn when you will be eligible.

Pet scams

Fraudsters took note when many Americans adopted pets to provide companionship during the pandemic. The Federal Trade Commission is warning about fake ads picturing puppies, kittens and other pets for sale or adoption. The fraudsters typically first request an amount that sounds reasonable up front. Once they receive that, they ask for more and more … for vet bills, health certificates, shipping and anything else they can come up with. Needless to say, there are no actual pets.

You can avoid falling for such scams by performing extensive due diligence. For example, get the name and address of the seller (and verify them) and arrange for a videoconference to see the pet in the possession of the seller. Even better, adopt an animal from a shelter you can visit in person.

Staying safe 

There are a lot of fraud threats out there these days. For help combating consumer and business fraud, contact us.

© 2021 Covenant CPA