Jude Guerin, CPA,
Partner, AG Dental CPAs & Advisors (an LDA premier events partner)
We are five, long months into the COVID-19 crisis, and I’m sure everyone is just as ready for the three letters ‘P-P-P’ to be erased from their memory as we are at AG Dental CPAs. The constant changes, confusion, misinformation, and lack of timely guidance has stressed nearly all our dentists to their limits. On the bright side, for those that received a PPP loan, the money came at a critical time for their practices and served as a key piece in keeping everything afloat for the weeks and months of closure. Fast forward to the middle of June, many dentists are open and working hard to rebuild their schedules and collection numbers, while having the benefit of a healthy bank balance due to the PPP infusion. There are steps to be taken at this time to ensure you maximize the benefit of the PPP loan and receive forgiveness. We will cover the most essential areas below.
Tracking Your Funds
Many loan recipients set up separate bank account for their PPP funds. This has proven beneficial for multiple reasons and is a great idea. The primary benefit has been the ability to keep track of how much money from the PPP amount has been spent on eligible expenses. Another valid reason for a separate account relates to the forgiveness process. The use of a separate account will allow loan recipients to limit the information submitted to their bank and the SBA, which is the government. Not having to send bank statements from your primary operating accounts restricts the visibility of your practice’s intimate details. As we tell our clients, less is best when dealing with the government.
Using a PPP fund tracker spreadsheet will also prove helpful by the end of this process. These are easy to find at this point. Request one from either your bank or CPA. Banks will be the first set of eyes on your forgiveness application. They will be overwhelmed with these applications. Therefore, providing an easy to read summary of your fund use should help to streamline your forgiveness application. Again, a good thing.
Using Your Funds
I’m sure everyone who received a PPP loan took the same deep breath as us when the news was released extending the original 8-week time frame to use your funds to 24 weeks. It was rumored for weeks before it actually happened, but it still provided a nice relief. The additional 16 weeks allows the majority of recipients to easily use their funds without having to prepay a full summer of rent, bonus employees unnecessarily or put their mother-in-law on payroll. We are advising practice owners the simplest method is to use 100% of their funds on payroll. This will streamline the forgiveness process by requiring only payroll reports.
Timing Your Forgiveness Application
You do not want to be an early adopter in the forgiveness application stage. In May, banks began prematurely releasing forgiveness applications. This created unnecessary stress on loan recipients who began analyzing the requirements. There will be multiple iterations of this application between now and the end of 2020, so in an effort to save your valuable time from being wasted, we suggest waiting until closer to the end of 2020 before considering filling out the form. Let other eager recipients spin their wheels on the intricacies of the form. Giving the process time to unfold, adapt and change has been a good strategy throughout this crisis and will be true with the forgiveness application as well.
Remaining Questions to Consider
As of the writing of this article in the middle of June, there are lingering questions. For example, varying information on retirement and its eligibility for forgiveness exists. We know employee retirement match contributions on payroll inside the 24-week time period is forgivable. The same cannot be stated for employee owners and their retirement contributions. Avoiding relying on any retirement contributions as part of your forgiveness money would be prudent at this point.
The full-time-equivalent (FTE) rules and measuring dates are not set in stone and will likely continue to change. The safest option is to have your FTE count at the end of your 8 or 24 weeks back to at least the count as of February 15, 2020. There are safe harbor rules and exceptions that will provide a safety net for loan recipients in terms of FTE count, but the specific details and required documentation is not known.
The biggest and potentially most impactful remaining question revolves around the deductibility of forgiven PPP expenses. The Internal Revenue Service has indicated forgiven expenses will NOT be deductible as business expenses. This could create a significant tax bill depending on the size of a practice’s PPP loan. For example, consider a dental practice that received $100,000 in PPP funds. They used $100,000 of the funds on payroll and received 100% forgiveness. At the end of the year, the practice net income shows $20,000, but on their tax return, the taxable net income will be $120,000. The addition of $100,000 of “income” will cost the practice owner anywhere from $22,000 to $37,000 in taxes. There are ongoing discussions related to allowing these expenses to be deducted, but as of the middle of June, the expenses are not deductible. This is absolutely a topic that practice owners need to discuss with their CPAs as they do tax planning for 2020 to avoid a surprise tax bill in a year where it is desperately not needed.
In closing, like the common saying, the only known aspect of the PPP process is that change is certain. We suggest taking prudent steps to ensure your loan will be forgiven, including communicating with your financial professionals regarding your plans and the status of your practice, staying tuned into news releases from the LDA and ADA regarding changes or updates to the PPP program, and being proactive in tracking the money. These loan opportunities are not common, but when utilized correctly, they provide a great source of financial liquidity for recipients.
Jude Guerin, CPA, is a partner with AG Dental CPAs & Advisors, an LDA premier events partner and member of the Academy of Dental CPAs. AG Dental CPAs & Advisors provides traditional accounting services, as well as dental consulting, for over 130 dentists in the Southeast United States. If you would like more information, visit www.agdentalcpas.com or call (225) 767-1020.
