Top Impacts of the American Rescue Plan for Small Businesses

The American Rescue Plan, passed in March 2021, includes several provisions and extensions that target small business owners

Key takeaways:

  • The American Rescue Plan included the following:
    • More PPP funds allocated
    • Other small business loan programs continued
    • New grants targeting specific businesses, including restaurants and venues
    • Tax credits extended to support employers

The Biden Administration’s American Rescue Plan Act of 2021 was effective as of March 2021 and aims to support Americans through the pandemic and subsequent economic upheaval. Under this plan, relief came in the form of additional stimulus checks, tax provisions like the child tax credit and earned income tax credit, and several aspects that focus on bolstering small businesses.

While this plan builds upon previous relief packages from 2020, there are important new provisions and extensions. Here is a look at some aspects of the American Rescue Plan that are relevant for small business owners.

More PPP funds

Paycheck Protection Program (PPP) loans have helped many businesses stay afloat over the last year-plus. These loans, first created in 2020 to respond to the pandemic, cover payroll costs to prevent layoffs and allow employers to bring back workers they had to furlough. 

Loans were available for up to 2.5 times a business’s monthly payroll expenses, with a max of $10 million for first-draw loans and $2 million for second-draw loans. If an organization follows all guidelines on how these funds must be used, they’re entirely forgivable. 

The American Rescue Plan added $7.25 billion to the PPP and specified more qualifying groups, including local digital news companies and agricultural organizations. While this round of the program ended on May 31, 2021, current borrowers are still eligible for loan forgiveness. You can apply to have your PPP loan forgiven once all funds have been used according to the terms, any time until the loan maturity date hits. 

If you received a PPP loan, make sure you apply for forgiveness within 10 months after the last day of your covered period.

Other small business loans

Another loan program allocated new funds in the American Rescue Plan was the Economic Injury Disaster Loan Program, which is still taking applications. Eligible small businesses, nonprofits, and agricultural businesses with 500 or fewer employees can apply, and the maximum loan amount is $500,000. Other terms are:

  • 3.75% fixed interest rate for businesses
  • 2.75% fixed for nonprofits
  • 30-year terms
  • No penalty or fee for pre-payment

Organizations can use the loans for working capital and normal operating expenses. The American Rescue Plan dedicated an additional $15 billion to the program. These funds are intended to help businesses that didn’t get a loan in the full amount they previously requested.

Grants for small businesses

There are a few small business grants to also keep on the radar. One is the Restaurant Revitalization Fund established in the American Rescue Plan. This fund provides financial support to restaurants and similar businesses to stay in operation. Support can equal pandemic-related revenue losses—up to $10 million per business and $5 million per location. As long as the funds are used for the applicable expenses by March 11, 2023, recipients don’t have to repay anything.

In addition to restaurants, organizations like bars, breweries, wineries, inns, caterers, and bakeries may be eligible for this grant. The fund prioritizes businesses owned by women, veterans, and socially and economically disadvantaged individuals. 

Another grant program to know is the Shuttered Venue Operators Grant Program. Eligible businesses include theaters, museums, and concert venues, and they must have suffered at least a 25% revenue decline in 2020 compared to the same quarters in 2019. This program was created in 2020 but allocated more funding under the American Rescue Plan.

Tax provisions for small businesses

Now, let’s walk through some of the most significant tax provisions that impact small business owners. Here are key tax credit programs that the American Rescue Plan extended:

  • Employee Retention Credit: This credit is available through December 2021. Businesses can offset their payroll tax liability by up to $7,000 per employee per quarter with this credit, and the maximum benefit is $28,000 per employee for 2021 for businesses with a decline in revenue or temporary closure because of the pandemic. A 20% decline in gross receipts during one quarter makes a company eligible.
  • Paid Leave Credits: Paid sick and family leave credits for small and midsize businesses have been extended through September 2021 so organizations can offer paid leave to workers who have an illness, need to quarantine, or must care for someone. The tax credit for paid sick leave equals the wages paid up to two weeks, limited to $511 per day and $5,110 in aggregate. The limit for paid family leave is $12,000 for up to 12 weeks.

Additionally, the American Rescue Plan allows businesses to exclude Economic Injury and Disaster Loan grants from gross income, and the exclusion won’t result in a deduction denial, tax attributes reduction, or basis increase denial. The restaurant revitalization grants mentioned above are treated similarly.

Consult tax experts with any questions

The tax rules often change, especially as the government still attempts to provide relief to those suffering during the pandemic. When you’re not sure how new laws may impact you or your business, talk to an expert. You never want to leave money on the table that could help you stay afloat.

The Provident CPA & Business Advisors team is on top of the changing tax laws, and we can help you plan for tax time and set up a responsive business plan. Contact us today to get started.

Why Small Businesses Need Accurate Forecasting

What is forecasting, how can small business owners do it right, and why should they?

Key takeaways:

  • Small business forecasting is making future predictions based on actionable business data
  • 4 tips for forecasting:
    1. Understand qualitative vs. quantitative forecasting
    2. Start with expense forecasts
    3. Create multiple forecasts
    4. Master cash-flow forecasting
    5. Stay flexible

Small business owners just starting out can quickly become overwhelmed by all their responsibilities. Business modeling, cash flow analysis, operations, hiring staff, and much more need to be worked out so the organization can start turning a profit as fast as possible. 

Financial forecasting may seem overwhelming and almost unnecessary with all these other moving parts to worry about. Some business owners think that an accurate estimate is nearly impossible, and they may have no idea where to start. 

But forecasting is an integral part of growth and long-term success. Here’s some perspective on this concept, along with tips for doing it right.

What defines small business forecasting?

Forecasting uses available data to predict future outcomes. It requires an analysis of the past and present to understand what’s likely to happen. Forecasting isn’t just for large companies, however—it becomes critical to growing a small business, and entrepreneurs are wise to embrace the concept early.

Small business forecasting requires creating the right financial statements, such as income statements, a business budget, and a balance sheet. The budget works in close conjunction with forecasting: the forecast predicts what will happen, and the budget helps the business get there. The other documents show business owners the facts as they happen. Forecasting also requires knowledge about what’s going on in the market since any economic changes can significantly impact the bottom line. 

Forecasting helps a business stay on track, informs key decisions, helps owners understand if the current conditions are sustainable, and allows them to tackle possible issues proactively. For example, a component of forecasting accounts for tax responsibilities, and doing that correctly means the organization isn’t surprised come April.

4 tips for small business forecasting

Let’s walk through some key considerations and tips to getting started with small business forecasting:

1. Understand qualitative vs. quantitative forecasting

Qualitative forecasting is likely where you’ll begin. This is the process of making predictions when you don’t have a lot of data on hand. For example, you may not yet know what kind of expenses you’re dealing with or how the business model will fare. Qualitative assessment requires a bit more intuition and an overall market evaluation. 

In contrast, a quantitative forecast uses data that you gain over time while running the business. It’s important to understand these formats, as you will undoubtedly utilize both approaches. 

2. Start with expense forecasts

Many business owners mistakenly start with revenue forecasts. Instead, focus on expenses, which are much easier to grasp when you’re just starting out. List out fixed costs, such as rent, vendor bills, salaries, and marketing costs, along with variable costs, including the cost of goods sold and contract labor expenses. Keep in mind that advertising and legal expenses are often much higher than expected, so build a conservative buffer for those categories.

3. Create multiple forecasts

It’s helpful to create different forecasts: at least one for a best-case scenario and one for the worst-case possibility. You don’t want to be overly optimistic or overly pessimistic, so generating multiple projections allows you to see what the middle may look like.

Include both aggressive and conservative elements, and you’ll have a better idea of how to reach your goals and whether you’ll be able to hold up even if the worst should happen. 

4. Master cash-flow forecasting

Healthy cash flow is critical to a successful business. And creating cash flow forecasts can keep you pointed in the right direction very early. 

How much cash is going out versus in each month? Start tracking this data immediately to get a head start on cash flow forecasting. While things will probably change—whether unexpected expenses arise, clients are lost, or there is another economic downturn—conducting cash flow analyses and forecasting as you go helps plan for tighter months. And you can proactively cut costs where needed.

5. Stay flexible

Be prepared to make ongoing changes to your financial documents. Forecasts help you plan, but you need to be willing to take on whatever comes. Some months may be more than ideal, where others are a struggle. Think about how you can cut the biggest expenses or investments should it be necessary. Get creative with how you attract new customers. 

Just remember that the more prepared you are, the easier it is to pivot later. If the pandemic has taught us anything, it is always best to stay open-minded and flexible.

How Provident CPA & Business Advisors can help

No matter how long your business has been in operation, forecasting is an essential component of financial planning. Not only does it help you align data to goals, but it also helps you understand if your business will be successful long term.

If you have no idea where to start or just need some assistance, Provident CPA and Business Advisors is here to help. Our team of experts can assist you with growth and profit improvement strategies while ensuring you minimize taxes as a small business owner.

To learn more about our financial and business support services, contact Provident CPA and Business Advisors today.

Succession and Estate Planning: Differences and Commonalities

While the two share some components, they have very different implications

Key takeaways:

  • Succession planning helps business owners or leaders plan for the transition when they leave the business
  • Estate planning is focused on how your personal wealth will be distributed and managed after you’re gone
  • Most people need an estate plan, but not everyone needs a succession plan
  • Planning both together helps optimize unique tax obligations 

It isn’t always easy to face the reality that one day you won’t be around. But taking steps to protect your assets, business, and personal wealth now will help you leave things the way you want after you pass. And part of that effort for entrepreneurs involves having the right succession plan in place to protect their legacy.

Many people go through the estate or succession planning process without considering how the two are intertwined. Let’s walk through these essential planning processes and some key ways they differ—but influence each other.

What is succession planning?

When you own a business, succession planning helps you develop a strategy for what happens when you leave it, whether you want to pass it to the next generation, sell to an outside buyer, or allow your family to distribute the associated assets when you die.

Succession planning answers these questions:

  • Who will take over after you’re gone?
  • What will the staff and management structure look like?
  • How will the transition be handled?
  • What are the goals for the future organization?
  • Should the business be sold instead of continuing to operate in the family?
  • What will the tax implications be?
  • How can I lower the tax burden?

For a succession strategy to succeed, roles must be clearly defined, and all details must be outlined. The goal is to ensure that everything continues to operate when a leader (or leaders) passes away, retires, or sells. 

What is estate planning?

Estate planning, of course, is about passing along overall wealth rather than a business. A person’s estate refers to their assets, including their financial accounts, car, properties, investments, valuable possessions, life insurance, and more. Estate planning aims to create a strategy for distributing these assets after someone passes or becomes incapacitated.

Estate planning answers the following questions:

  • Who will manage your financial affairs?
  • What beneficiaries will receive your property, financial accounts, and other assets?
  • Who will be the guardian for your children’s care if they are minors?
  • Who will be responsible for your debts?

The planning process includes creating a will, a living will, and/or a trust. The will outlines precisely how assets will be distributed to beneficiaries but usually has to go through probate, which can take a while, is a public record, and may be stressful for any heirs. Funding a trust allows individuals to avoid probate while providing unique tax benefits and methods to protect the assets.

An estate plan considers all of these moving parts so that the wealth you’ve worked hard to build can be distributed and managed according to your wishes.

The differences and similarities of succession and estate planning

Most people need an estate plan, whereas not everyone needs to worry about succession planning. If you don’t own a business or aren’t involved in a family business, you won’t need to go down that path. 

Succession planning can become heated fast. Not only are you figuring out what to do with the business, but other stakeholders will have opinions about what should happen. Your family members could disagree with your choices, and things could become emotional and stressful quickly. But without a plan, the business will have no clear goals or direction, there may be no clarity about who is in charge, and things can fall apart quickly. So it’s wise to start and solidify this process as soon as possible.

Similarly, estate planning helps you put out potential fires after you’re gone or incapacitated. When you have everything outlined, there is no question about your wishes and what should happen. Loved ones might be unhappy with your choices—but with a strong estate plan, there’s little they can do about it. And you don’t necessarily want any heirs to deal with a lengthy, frustrating probate process when they’re already handling a tragic loss. 

Both of these processes are key to tax optimization. Estate planning helps you ensure that there won’t be surprising tax liabilities for your heirs once you’re gone, and succession planning both improves the business while you own it and prepares for an eventual—and smoother—transition. 

One good example of structuring things well is considering a family limited partnership. This business type can help reduce the tax liability when shifting wealth to other family members. These partnerships limit your taxable estate because you are transferring business assets to your heirs. Business interests will also qualify for the gift tax exclusion when you pass them on.

Talk through your succession and estate planning questions with a professional when you’re ready to put strategies in place to protect your loved ones.

Contact Provident CPA and Business Advisors

Succession planning is one of the best steps you can take right now to ensure your business is set up for success after you’re no longer around—ideally in happy retirement. Provident CPA and Business Advisors is here to help you create a plan with the proper steps for a smooth transition. We can also help you understand the implications of your chosen business structure and minimize your taxes as part of an estate plan.

Contact Provident CPA and Business Advisors to learn more.

What Changed About Excess Premium Tax Credits?

The IRS announced that taxpayers with excess advanced premium tax credits didn’t have to report the excess for 2020

Key takeaways:

  • Premium tax credits are available to some eligible taxpayers who get health insurance coverage through the Marketplace
  • Usually, taxpayers must report any excess advance tax credits on their tax returns, and it may increase their tax liability
  • For 2020, the IRS announced that taxpayers did not have to file Form 8962, Premium Tax Credit, or report excess credits on their individual returns—but 2021 is back to normal

The American Rescue Plan Act of 2021 introduced several changes to give taxpayers additional relief during the COVID-19 pandemic. Eligible Americans received another round of stimulus checks, supplemental unemployment benefits were extended, and the Child Tax Credit and earned income tax credits were expanded for 2021, among other changes.

Another change in the law that the IRS announced in April was the suspension of the increase in tax liability for any excess advance premium tax credit payments for the 2020 tax year. What is this excess tax credit, and what changed?

What are excess premium tax credits?

Eligible taxpayers can claim a premium tax credit (PTC) for their health insurance plan using Form 8962, Premium Tax Credit. This credit lowers the monthly insurance premium they pay. The amount is based on a taxpayer’s income estimate for the year and other household information outlined on an application for Marketplace health insurance coverage.

Typically, those with a PTC must pay the difference between their advance PTC (APTC) payments and what they qualify for based on annual income. This discrepancy is usually repaid on a yearly tax return, and filers use Form 8962 to calculate the amount of their PTC compared to the APTC. 

The form tells taxpayers whether they have to pay more in taxes that year or whether they can claim a net PTC. Conversely, if taxpayers used less PTC than they qualified for that year, they get the difference as a refundable credit. Put simply: the excess APTC is the amount that a taxpayer used in advance payments that exceeds their PTC.

Who is eligible for premium tax credits?

Not all taxpayers who get Marketplace health coverage are eligible for a premium tax credit. The IRS outlines the following eligibility requirements:

  • If a taxpayer or their family member were enrolled in Marketplace health insurance coverage for at least a month in a year when they were not eligible for affordable coverage through an employer or for Medicare, Medicaid, TRICARE, or another government plan
  • If a taxpayer’s premiums for at least one of those months is paid by the due date of their tax return
  • They are within certain income limits:
    • Household income must be at least 100% but no more than 400% of the federal poverty line for the applicable family size
  • They don’t file a married, filing separately return
  • They aren’t claimed by someone else as a dependent 

Taxpayers with healthcare insurance coverage purchased outside of the Marketplace are not eligible for the PTC. Eligibility factors vary based on where taxpayers live, their family size, and the cost of available insurance coverage.

Changes that applied to the 2020 tax year

In April 2021, the IRS announced that taxpayers with excess premium tax credits did not have to file Form 8962 as they usually would to report those excess credits. Taxpayers also did not need to report the excess on their regular Form 1040 when filing their individual tax returns

The American Rescue Plan Act of 2021 suspended the requirement to pay taxes of all or part of their excess APTC for 2020. However, there is no change in the process for taxpayers claiming a net PTC for 2020, so they still had to file Form 8962 with their individual tax return if applicable. 

If a taxpayer already filed their 2020 tax return with an excess APTC before this announcement was made, they didn’t need to file an amended return or contact the IRS. The IRS automatically reduced the excess APTC to zero, so no further action was required, and the agency reimbursed taxpayers who paid the excess APTC.

Form 1095-A, Health Insurance Marketplace Statement, is the document taxpayers should check with their tax preparer to find the amount of allowable PTC versus the APTC.

At the moment, this change only applies to 2020 taxes. The process was the same for prior tax years, and 2021 taxes will generally return to normal. But the APTC did extend to this year “eligibility to taxpayers with household income above 400 percent of the federal poverty line by lowering the upper premium contribution limit to 8.5 percent of household income.” 

And if you paid the excess and qualified for an automatic refund but did not receive it, be sure to contact the IRS or speak with a tax professional.

Getting help on your taxes

To stay abreast of changes and opportunities, contact a tax professional who understands temporary tax law adjustments and can advise accordingly. 

The team at Provident CPA and Business Advisors are experts who understand how evolving rules may impact you or your business. We also ensure that you pay the least tax legally possible while helping you plan for a successful future.

Contact our team today to learn more about our tax and business advisory services.