The Paycheck Protection Program (PPP) may have had its share of controversies but to say it didn’t help small businesses would be unfair.
A research paper by Gustavo Joaquim and Felipe Netto investigating the effectiveness of the Paycheck Protection Program revealed that the PPP loans helped reduce job losses at eligible firms by 12.9 percentage points. That’s about 7.5 million American jobs.
About $800 billion in PPP funds was released to businesses all around the country including many small businesses owned by women, veterans, and people of color.
And the best part about this program which was backed by the US small business administration (SBA) is that all loans issued to businesses are forgivable if the set conditions were met.
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Business owners can no longer apply for PPP loans because the program is closed but, existing borrowers can apply for forgiveness.
In this post, we look at everything you need to know before applying for PPP loan forgiveness including who is eligible, the required documents, and how to apply.
Then to close it off, we are going to look at how to reduce the tax bill for your small business by deducting expenses paid using PPP loan money.
It was clear from the start that the PPP loan money would not be included as part of gross income but what was not clear was whether expenses paid with PPP money are tax-deductible.
Congress had to intervene and overturn a decision by the IRS to make the expenses nondeductible. Consequently, any small business owner that had filed their tax returns without claiming a deduction for PPP-related expenses should consider amending those returns to claim the deductions.
For a borrower to be eligible for forgiveness of their Paycheck Protection Program loan, they need to have met the following conditions.
If you are applying for the forgiveness of your first PPP loan and it was less than $150,0000, you just need to fill out the SBA Form 3508s to certify that you complied with the program guidelines.
If you are applying for forgiveness for a second-draw loan that was less than $150,0000 you will need to provide documentation showing a drop of at least 25% in revenue for any quarter of 2020 compared with the same quarter in 2019.
Other than that, you just need to fill out the SBA Form 3508s to certify you meet the requirements for loan forgiveness.
Don’t be tempted to lie though. SBA may request information and documents as part of the review process. Business owners found to be lying may go to jail for up to 30 years or pay a fine of up to $1,000,000.
For businesses that were awarded loans of more than $150,000, they need to go the extra mile and provide proof that they spent their PPP loan on eligible expenses and under the set conditions.
This means they need to attach necessary documents as evidence of payroll expense payments and non-payroll expense payments. For instance, they could attach a copy of third-party payroll reports to prove that 60% of PPP loan money was used on employee salaries.
SBA has a direct forgiveness program that allows you to apply for forgiveness directly from their site. However, not all Lenders are participating in the program.
If your PPP lender is not in the SBA forgiveness program you will have to apply with the lender directly. In most cases, the lender will contact you with application details after the loan coverage period. And to simplify the process for you, some lenders will even autofill some parts of the application form.
However, if your business received a loan of more than $150,000 you will have to apply for loan forgiveness directly with your lender. The application process varies for different but it will largely be guided by the SBA Form 3508.
For the best experience when applying for forgiveness, use the latest version of Chrome, Firefox, Safari, or Microsoft Edge.
When it comes to taking advantage of deductible expenses, accountability is critical. For instance, to deduct expenses paid using PPP loan money, you need to show that the payment was made during the 24-week coverage period and was paid using PPP money.
This sounds easy enough until you factor in other tax-deductible expenses. Unfortunately, a lot of small business owners overpay their taxes every year because of a lack of accountability.
This is where we come in.
Bonsai Tax is a software that will track your expenses so that you can easily write them off when filing taxes.
We have done the math and with our expense tracker, you could end up saving up $5,600 every year through deductions. Also, your tax bill will never catch you unaware because Bonsai Tax can estimate your quarterly tax by analyzing your spending.
You can test the software for 14 days at zero cost. It also comes with a 30-day money-back guarantee. We will refund your money if after 30 days you are not satisfied with our services.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?