Expert Accountant Andrew Poulos Discusses How COVID-19 has Changed Tax Season for Small Businesses

It’s that time of the year again. Americans are filing their taxes after what seemed like a tumultuous year, but no need to panic if you haven’t done so already, as the deadline has been extended until May 17. Our next guest is going to tell us what business owners should be doing right now before the deadline quickly approaches and we’ll also be discussing the effects of the stimulus checks. We are pleased to welcome Andrew Poulos, principal of Poulos Accounting and Consulting.

Transcription:

Jim Fitzpatrick:
Andrew, thank you so much for joining us on the show.

Andrew Poulos:
Jim, thanks for having me again.

Jim Fitzpatrick:
Yeah. So there’s so much to talk about here. I mean, small business owners, as you know, are kind of shaking their head, going what was 2020 all about? A lot of businesses got PPP money. Some of them got two PPP checks, and they want to know, is it going to be forgiven and am I crossing my T’s and dotting my I’s the right way in order for it to be forgiven? And then, lo and behold, they changed the deadline on the taxes for this year, from April 15th to May 17th. So there’s a lot to unpack, as they say, on today’s show. So let’s start in the beginning. What are you telling your clients right now with regard to the PPP money that they’ve received, and how to make sure that they apply for that forgiveness?

Andrew Poulos:
Sure. Yeah, a lot of obviously moving parts, Jim, since 2020, with the pandemic stimulus money, PPP. So we’re just, it seems like every other day something’s changing, which makes it difficult to navigate the process and try to assist our clients. But overall, we’ve been working with our clients and still are working with our clients to try to get full forgiveness. It seems that every bank has sort of been making up their own rules when it comes to timelines for forgiveness, when they open up their forgiveness platforms. There just seems to be no consistency amongst banks. It’s been sort of a moving target.

Andrew Poulos:
We’ve had some, actually, I should say, quite a bit of success in helping our clients get a hundred percent forgiveness. We still have our own clients and other small business owners out there that we talk to and we’ve heard from that are still trying to get forgiveness. I tell folks, just make sure you have your documentation. Everything needs to be documented, because this is a documentation game. If you can prove it, you get forgiveness. If you can’t prove it, or the funds haven’t been used for the right reasons to meet the guidelines, then you’re just not going to get forgiveness and you’re going to get stuck with a loan that was intended to be forgiven. So it really boils down to documentation, which is one of the things that small business owners typically are challenged with, even outside of COVID.

Andrew Poulos:
We see it time and time again, where they don’t keep documentation, they don’t keep sufficient records. It sort of becomes a challenge when you start dealing with any government agency, whether it’s the IRS, SBA, banks, or anyone else, if you don’t have all your ducks in a row and you can’t prove your facts. Even if you’ve done the right thing, it boils down to being able to prove what you used the money for to be able to get forgiveness.

Jim Fitzpatrick:
Right. And in large part, if you’ve got the payroll documentation, that you kept your employees on the payroll for I guess two and a half months, because you got two and a half times that amount, for the most part, and I think some of your rent was covered and things like that. But for the most part, if you’ve got your payroll documentation in line through either your payroll provider or if you’ve got, you know, if you’re doing your own payroll, which is kind of crazy today, that small businesses would take that on. But if you have that, then are you pretty much 90% there?

Andrew Poulos:
I would say so. Look, most of the small business owners, small businesses used the fund solely for payroll purposes. They were trying to keep afloat, paying their employees without it being out of the business’s pocket. So if you’ve got documentation, particularly if you’re using, you may get questioned a little more, sort of get run through the ringer a little bit more if you’re doing your own payroll in-house. Banks just want to make sure, obviously, because anyone can drum up some information, right? It doesn’t mean that you’ve used it for that purpose.

Andrew Poulos:
So if you’re using an outside accounting firm or payroll company, they’re going to accept that documentation. If you’re doing it in-house, probably most likely what’ll happen is they might ask for some copies of cleared checks or some bank statements to provide just another layer of documentation to make sure that you have satisfied the requirements. If you used part of the money to pay rent, certainly then, or utilities, the other allowable expenses, as long as you can document those with a copy of a check, and an invoice or a billing statement, you should be fine. So we haven’t really had any major obstacles or challenges with the businesses we’ve dealt with, other than just having them compile the documentation. It’s been rather simple.

Andrew Poulos:
Initially, there was going to be the FTE rule. That sort of went by the wayside, to where if you used the payroll and you have had to reduce employees because of COVID, then you’re still going to get forgiven. So we haven’t seen any issues with that, which was a big concern initially for us, because a lot of restaurant clients and retailers and hospitality didn’t have the business to bring back all their staff. And that was a concern. But that has turned out to be, at this point, really a non-issue.

Jim Fitzpatrick:
There was talk about companies that received 100 or $150,000 or up to that amount, not having to go through this process. Is that true? Is that a situation where if I’m a small business owner and received $100,000, I don’t have to worry about filling out the forgiveness forms?

Andrew Poulos:
Well, you still have to apply for forgiveness. So regardless of the amount, you still have to apply for forgiveness. At 150 or less, it’s more of a streamlined process. You provide some documentation to the bank, they review it. It’s a simple one-page application that they send back to you to sign off, that you basically verify and then just test the facts that you’ve used the money, obviously, for payroll, you’ve met all the requirements, and they kind of move it along. So from that perspective, yeah, it’s a much more simplified process than running your small businesses through the ringer when they just don’t even have the ability to manage all the stuff on their own. So yeah, that has worked well, as well.

Andrew Poulos:
But again, this is all just, it’s been literally just a bunch of moving targets since last May, when this program was rolled out by the Trump administration, and now it’s been carried forward to the Biden administration. So there’s always something changing, which makes it difficult for us as accountants and professionals to be able to help our small business clients navigate through everything, because what we tell them today could literally be different three days from now. That’s the process that we’ve encountered, which is mind boggling, because we’ve never had these circumstances before.

Jim Fitzpatrick:
Sure. But what you’re saying is that the deadline to apply for forgiveness is really based on the individual banks and not something set by the government?

Andrew Poulos:
No, the deadline is, it’s supposed to be 10 months from the time that you finish using the funds, either your eight or your 24 week period right now. So there’s literally businesses that have probably until late spring, beginning of summer to actually apply for forgiveness. The process that was varied amongst banks was when they opened up their platforms for forgiveness, when they started accepting applications, what type of application, for example, the streamlined one, or they required documentation that the next bank next door may not have required. So there was the inconsistency, and there’s no conformity amongst the banks.

Andrew Poulos:
As far as the SBA is concerned, the SBA laid out the program and said, hey, this is what we want in order to approve full forgiveness. And you’ve got, for example, 10 months after your eight week or your 24 week period ends, most businesses probably when they figured out that it expanded from eight to 24 weeks, started using the money over a 24 week period or somewhere in between, just so they could make better use of the money versus rushing to use eight weeks’ worth and then they’re basically back to square one, where they were when the pandemic hit, especially if they didn’t have the business and the sales to be able to use all the money within eight weeks.

Jim Fitzpatrick:
Sure, sure. So let’s switch gears a little bit and talk about this extension to May 17th to file your taxes. I’m assuming this is for both business, as well as personal, right?

Andrew Poulos:
Well, what we do know right now is it’s personal. They extended the deadline after March 15th. So based on that interpretation, is that you should have filed an extension for any sort of corporate taxes, and they shifted the deadline, they extended the deadline from April 15th to really May 15th, which is a weekend. So it goes over to Monday of May 17th. So that’s more so for individuals or any other deadlines that come about on April 15th.

Andrew Poulos:
Hopefully, everyone has taken action to apply for an extension back on March 15th, that if they operate as an S-corporation or partnership, any sort of — entity where that deadline comes way before April 15th. I had called it that this would happen. We needed it to happen. The IRS opened up filing season about four weeks late this year. Throw in the American Rescue Plan that made unemployment partly non-taxable, and that you just got a lot of moving parts again, where you’re just in the middle of tax season, and returns would be going in incorrectly at the end of the day. So this had to happen.

Jim Fitzpatrick:
Sure, sure, absolutely. So what are some of the big factors? What are some of the calls that you’re getting, the concerns from small business owners that they ask you for your advice on during these times?

Andrew Poulos:
Sure. I mean, most of what we’re seeing right now is PPP forgiveness, is it taxable, how’s it going to be treated, because it was back and forth with that. CARES Act, people intended it to be non-taxable. The IRS has come out and said — vague language, that any funds you use with PPP money would not be deductible, which effectively sort of made it taxable.

Andrew Poulos:
Then, of course, that got clarified in a future legislation that passed there, making it non-taxable. So right now, one of the biggest challenges we’re facing as a firm and helping our clients is making sure that their books are well documented and accounted for everything correctly, so they can get benefit out of the deductions of the PPP money, making it non-taxable, that and kind of planning for 2021, because a lot of businesses are still struggling. Some are doing better than others. Some are doing better than they were last year. But overall, there’s just, across the board, everyone’s at different places right now.

Andrew Poulos:
We’re just trying to navigate as far as first PPP forgiveness that may be on their tax return for 2020, others who got forgiveness in 2021, and how does that impact their 2020 corporate return? And then, of course, the second round of PPP that’s out there right now. There’s another layer to that in the whole mix of things.

Jim Fitzpatrick:
That’s right. That’s right. And I would assume some of the same rules apply on the second go around that did on the first?

Andrew Poulos:
Yeah, virtually the program’s just about the same. The main rule, or sort of the main requirement that was thrown in that wasn’t a requirement in round one, is that the business has to be able to document at least 25% or greater in revenue decline in any quarter of 2020, compared to that same quarter of 2019. So that started eliminating a lot of small businesses who got money the first round. The whole intent with this was, you know, the government wants to help businesses that are struggling, but they don’t want to make it a free fall like the first time, where everyone was running to get money, and a lot of times, perhaps, situations where businesses were doing well and they didn’t really, truly need the money. So that sort of capped out who was able to get it.

Andrew Poulos:
That, again, makes it a little more challenging this time. Because again, you’ve got small businesses a lot of times who are just not good with keeping books and records. And so now you need financial statements to provide to the bank so that you can be able to document your revenue decline. And a lot of businesses are struggling with that aspect of it, trying to get books and records together at the 11th hour before the program closes on March 31st, unless it’s extended.

Jim Fitzpatrick:
That’s right. That’s right. For those of you listening out there, entrepreneurs, small business owners, and the like, that are listening to Andrew right now, if you do not have an accountant on your team and on your side that you’re working with each month to keep your books clean and to make sure that they’re on top of all of the different laws that affect your business, get one right now. Don’t do another thing after hearing this conversation and watching this video.

Jim Fitzpatrick:
Andrew is a great guy and clearly knows his stuff. He’s a great way to go. But if it’s not Andrew, find somebody, because these are times that really require a professional on your team that knows all of these different tax laws, many of them that you just heard here today, that Andrew is talking about. He’s on top of it with his clients. He can be on top of it for you and your case. But as I said, if you don’t go with Andrew, find somebody, because these times can be very difficult to navigate.

Andrew Poulos:
It’s a situation where trying to navigate these tax laws and accounting as a small business owner on your own is probably something that is not wise for any small business. I mean, we hear the saying all the time from the government, that they’re going to simplify the tax code. They’re going to make things easier. They’re going to make taxes –. The reality is, every legislation that comes around just complicates things a whole lot more for everyone.

Andrew Poulos:
And of course, I don’t think anyone planned for COVID. None of us saw this coming, and none of us were able to plan for it. But you just throw in PPP one, PPP two, forgiveness, and you can just see where we’re at. I just don’t see, I mean, I can tell you if I wasn’t doing this for a living in a professional — into it every day, following up on laws and trying to help clients, I don’t know if it wasn’t my background, if I’d be able to navigate this stuff on my own. It’s just a process, and any small business owner trying to navigate this on their own just to save a little bit of money every month in accounting and tax fees is probably doing themselves a disservice and their business a disservice.

Jim Fitzpatrick:
Yeah, I completely agree. And as a small business owner myself, I know that I’ve been in hot water before, because I didn’t jump on with a good accountant, and it cost me, and it’s not something that you want to find yourself in the middle of. So get a good accountant. And as I said, Andrew does a phenomenal job with all of his clients. That’s why we love when he comes on here to talk to our audience, because he knows what he’s talking about.

Jim Fitzpatrick:
So, hey, let me ask you a quick question. Somebody wrote in and asked the question, during COVID, their landlord gave them four months rent free to keep their business going. Do they owe taxes on that free rent?

Andrew Poulos:
With everything going on, most likely not. It depends on who the landlord is. The most common thing that we’ve also seen is, and we’re still trying to navigate right now and figure out how it’s going to be treated from a tax perspective, is the SBA covering SBA loans of monthly payments, six months, I believe six months’ worth. So that is still a moving target, in essence, of trying to figure out how the IRS is going to navigate these. And the reason I say that, because everyone associates the PPP funds being tax-free, meaning that you can get them forgiven and that you can now deduct the expenses that you use that money for, with everything being tax-free.

Andrew Poulos:
But that’s not necessarily the case, because the Department of Health and Human Services was giving out grants to the medical professionals. And now that, come to find out, they’re starting to issue 1099s for that money.

Jim Fitzpatrick:
Oh boy.

Andrew Poulos:
So all these medical professionals and doctors were getting, not all, but those who got money, just assumed because of PPP, that everything, that they wouldn’t have to pay taxes or count that as revenue. So we’ve got a lot of moving targets as to what’s going to happen. We don’t, you know, in this situation here with the — we don’t know if the landlord issued a 1099 for that money. So I would venture to say, I would say probably, hopefully not, but it’s just open for discussion because of everything going on and really no clear definition as to what now, outside of PPP, what else is going to be tax-free.

Jim Fitzpatrick:
Yeah, for sure. For sure. It sounds to me, too, like the IRS might be a little bit more forgiving because of COVID, on some issues for small business owners.

Andrew Poulos:
I would probably say on some issues, Jim, but again, it’s the IRS.

Jim Fitzpatrick:
Yeah, you never know.

Andrew Poulos:
You’re going to see a lot of late filing penalties come out from the IRS. We are dealing with one right now where a small business owner hadn’t filed an extension because they just didn’t have the ability to file an extension in the middle of tax season last March, with COVID going on. It was just something that just missed at the time. And at the end of the day, the return got filed. The return got assessed a late filing penalty. We filed a case to try to get that penalty abated, and we used COVID, the pandemic. And the IRS came actually a couple of days ago, sent us a reply letter back that that’s not reasonable cause.

Andrew Poulos:
I mean, and last year they told everyone that they would be mindful and take into consideration obviously COVID, but I just don’t know what’s going to come of this. All I can say is this, there’s going to be probably, and this is not going to be the only one, there’ll be probably tens of thousands of small businesses who didn’t get an opportunity to file the timely extension. Either they thought because the deadline got moved, that included business extensions, businesses that were moved, also, which weren’t. So it’s just a lot of moving targets. As I tell all our clients and any other business owner I speak to, get your books ready and make sure you’re compliant and you do things the right way. You’re better off going on extension if you have elements that are unsure of.

Andrew Poulos:
Initially, it was PPP, now maybe free rent and then maybe money you got in a grant from a local county or city or an organization. If you’re unsure if it’s taxable or not, or how that’s going to be treated, it’s best to go on extension and just wait for future guidance to come out, rather than rushing to file a return that then subsequently we find out is incorrect, and then we have to go back and file an — return, which only complicates things for the business.

Jim Fitzpatrick:
Right, right, for sure. Andrew Poulos, that’s why we love having you on the show, because you have all the answers.

Andrew Poulos:
I don’t know about that, Jim, but certainly — trying to provide some good facts. I don’t know if I have all the answers in this environment.

Jim Fitzpatrick:
I don’t know that anybody does, right? This is crazy. But you’ve got most of the answers, and so your words here are very comforting to a lot of small business owners. And as we both agree, if you don’t have an accountant right now on your side and on your team, get one, and I’ll say it again, Andrew is an awesome accountant for small business owners. So if you’re listening to this and you need an accountant, Andrew is probably the way to go. So, Andrew, thank you so much for joining us once again on the Atlanta Small Business Show. We very much appreciate it.

Andrew Poulos:
Thanks for having me on again.

Jim Fitzpatrick:
Thanks.


The Atlanta Small Business Network, from start-up to success, we are your go-to resource for small business news, expert advice, information, and event coverage.

While you’re here, don’t forget to subscribe to our email newsletter for all the latest business news know-how from Atlanta Small Business Network.

LEAVE A REPLY

Please enter your comment!
Please enter your name here