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EPISODE 84: Accounting Alphabet Soup

Steve Levy, a CPA with Four Quadrants, joins Casey and Jarrod to update our listeners on the current news and status of PPP, HHS, ERC, and EIDL.

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EPISODE 84 TRANSCRIPTION

Announcer:
Hello, everyone. Welcome to the Millionaire Dentist Podcast brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.

Casey Hiers:
Hello and welcome. This is Casey Hiers back at it again in the Millionaire Dentist Podcast studio. Co-host Jarrod Bridgeman joins us.

Jarrod Bridgemen:
Hey, good morning.

Casey Hiers:
And special guests, Steve Levy.

Steve Levy:
Good morning.

Jarrod Bridgemen:
Hey, welcome, Steve.

Casey Hiers:
Now for our audience who doesn't know, I have nicknamed Steve, Pipes and the reason is, we recently went to a minor league baseball game and Steve sang the national anthem. And when I say sing the national anthem, he sung it in a similar style to the Chicago Blackhawks hockey guy who sings it deep and powerful. Steve, tell us a little bit more about your singing, those pipes that you have.

Steve Levy:
Well, I've got a pretty long background in singing that I won't go into a whole lot now, but I've been singing since I was five and went to the School of Music for Voice and Accounting and perform professionally with the Indianapolis Symphonic Choir. So I've had a chance to keep those pipes fresh. And I love the nickname, Casey, love it.

Casey Hiers:
Yeah, besides being an attorney, besides being a certified public accountant, a CPA. The singing was impressive. So to our audience, if I refer to Steve as Pipes, that is Steve as well.

Jarrod Bridgemen:
So not your favorite actor Wesley?

Casey Hiers:
Snipes. No, Pipes. And Wesley Snipes has tax issues apparently and Steve or Pipes would not have tax issues because he is an amazing CPA.

Jarrod Bridgemen:
That's right.

Casey Hiers:
Guys, our topic today, we're going to call it the alphabet soup update for our listeners, PPP, EIDL, HHS, ERC. There's a lot of letters and a lot of things that have been going on as a business owner over the past year and a half. And we wanted to bring Steve in for an update because he does this all day, every day. We know a lot of practice owners get nickel and dime from their accountants and external teams for this information. And so Steve agreed to come in and just give an update on the alphabet soup situation that we have. Let's just start out with a real easy one. What's new with the PPP round two, Steve?

Steve Levy:
Well, most companies received the PPP round two loan between January and March of 2021, so 24 weeks from that time you received the money should have passed or will be complete soon. So as an aside to make the forgiveness process as clean as possible, we generally suggest companies wait until the full 24 week covered period is complete before applying for forgiveness.

Casey Hiers:
So if they do that before, what could go wrong?

Steve Levy:
They may not have enough payroll costs to have full forgiveness. We can be sure that if they wait for that full 24 weeks, it'll go through, they'll have plenty of payroll costs for a full forgiveness.

Jarrod Bridgemen:
Because if you do it too early, they would be just guesstimating on what their expected cost would be.

Steve Levy:
That very well be or it's a cutoff that it's going to be say 20 weeks and they don't have enough. So they're short the amount that they needed to spend with those PPP funds.

Casey Hiers:
So timing is everything and with this very much the case.

Jarrod Bridgemen:
So then if someone's listening to this and they hear that, but I guess the question is what are the next steps with that then?

Steve Levy:
So once your 24 weeks are up, you should be able to start applying for forgiveness for PPP round two, you should be receiving an email from your lender, that they are ready for you to apply for forgiveness. Banks are ready to clear this from their books and they want you to go ahead and do it.

Casey Hiers:
Check your junk folder, right?

Steve Levy:
Yes, please.

Jarrod Bridgemen:
You are supposed to get the email.

Steve Levy:
Yes, absolutely. Now as most PPP round two loans are 150,000 or less. It will involve the much simpler process that doesn't require any documentation. And most companies have spent way more than the amount of the loan on payroll during the 24 week period. So forgiveness should be a breeze and much quicker than round one. And we've helped our clients with the process for round one and are helping with round two as well. Now, if your loan is more than 150,000, forgiveness is a little more involved and does require some documentation, but still pretty straightforward.

Casey Hiers:
When you say some documentation, what do you mean by that?

Steve Levy:
Well, then you have to start proving the payroll that you spent. You've got to provide payroll reports, you've got to see how many employees you had at the start of those 24 weeks versus what you have at the time of applying and see if you've shrunk in employees, which may have an effect on the total amount of forgiveness, or if there are reasons that you have shrunk in the amount of employees, such as, there's various reasons that are permitted that won't hurt you as far as when you apply for it.

Casey Hiers:
A lot more red tape, a lot more detail, if you get over that number. Okay, that's helpful. So let's say, I'm a practice owner and I received one or more payments under the HHS provider relief fund program. What do I need to report? Do I need to report anything? Is there anything I need to be aware of or that I would need to do as a practice owner?

Steve Levy:
Yeah, so many practices have received these funds and we've helped folks with that and getting the funds. And at first, they were sort of vague about, do you need to report, how do you report? Well, many have received an email from the government in mid-June from either HHS or HRSA, they're kind of similar organizations, mentioning an update to this process.

Steve Levy:
Now nobody should be worried about the reporting as it should be straightforward since the funds could be spent on healthcare-related expenses. And also as a lost revenue reimbursement that most practices had during that time. The key takeaway is that the reporting is done based on when you receive the funds. And there's a chart in this email that most received. For example, if you received the over $10,000, and if you received less than that during that period, you don't have to report, but over $10,000 between April 10th and June 30th, 2020, you would need to submit a report between July 1st, 2021 and September 30th, 2021. So we're in that period now of reporting.

Jarrod Bridgemen:
So they've got about six weeks left.

Steve Levy:
Yeah, exactly. So through the end of September of this month to report, if you got money from April 10th to June 30th of last year.

Casey Hiers:
So what happens if you don't report? You forget to report? Your team doesn't report it?

Steve Levy:
Well, they haven't really clarified and what that means, it is a legal requirement to do so, and it is a condition to receive the funds.

Casey Hiers:
So you're opening up yourself to some vulnerability potentially down the road.

Steve Levy:
You certainly are. We've had in other situations, we've seen that if the reporting isn't done, they may say, are you sure you want to keep the funds, and most really do want to keep the funds. So I don't want folks to be worried about it necessarily, but I do want to stress that the reporting can't be ignored and it is a legal requirement.

Steve Levy:
Now, most have received the funds between July 2020 and December 31st, 2020. And that reporting window starts January 1st of next year and goes through March 31st of next year, so that's where we're going to see a lot of folks needing to report. And just like the PPP funds forgiveness, we're helping out with this process as well, as much as we can.

Casey Hiers:
When the majority of the communication, you're getting a singular email from the government, most likely?

Steve Levy:
Yes and we've seen those forwarded and we've analyzed them and analyze the rules. But like the rules said, it can be a lost revenue reimbursement or healthcare expenses paid, which what else are dentists going to spend on? Healthcare.

Casey Hiers:
Pretty broad. So that's a good thing.

Steve Levy:
Absolutely.

Jarrod Bridgemen:
So I should stop deleting everything that comes from the government in my email account? Got it.

Jarrod Bridgemen:
Steve, before you and I had talked about the employee retention credit or the ERC, just to remind a couple of people what that is, if you don't mind, give me just a really quick brief description of that, and then tell me if anything has changed or been new about it.

Steve Levy:
Absolutely. Well, the employee retention credit, and especially I'll focus on 2020, it is a credit that can be per employee, can be a $5,000 per employee credit for wages paid during certain periods.

Jarrod Bridgemen:
Gotcha, okay.

Steve Levy:
And in order to be able to take that credit, there's two things that need to happen, first, and you can choose either one or both, it depends on what applies. First that your gross receipts for a quarter have dropped at least 50% compared to the quarter in the prior year or that your state experienced a shutdown, a government-mandated shutdown. And so the wages paid during that shutdown would also qualify. So that's a brief summary on that.

Jarrod Bridgemen:
Okay, that's good, so since last we had mentioned that, has there been any new changes, developments, anything that's come across?

Steve Levy:
There's been a lot.

Jarrod Bridgemen:
Oh okay.

Steve Levy:
Quite a bit. And it's come very recently. The IRS just last week, and even yesterday has been releasing rules that are providing important clarifications on key issues. One issue involves whether or not owner and spouse wages could be included in the credit calculation, which if they could, could lead to an increase of $10,000 for the ERC in 2020 and potentially more for 2021.

Steve Levy:
However, the rules essentially said that for a 50% or more owner or the owner spouse with living relatives, either one, if they have living relatives, their wages could not be included due to some complex constructive ownership rules. I don't want to get into those rules, but I will say this has actually been the position we at Four Quadrants had taken all along versus what we've seen out there in terms of assumptions. So it felt good to be on the right side.

Jarrod Bridgemen:
Justify the advice.

Casey Hiers:
You feel vindicated, right?

Steve Levy:
Absolutely.

Casey Hiers:
The little more of the conservative approach, a little more sound not speculative.

Steve Levy:
Absolutely.

Casey Hiers:
Gotcha. Good. Anything else on the employee retention credit to be aware of?

Steve Levy:
Yeah, actually just yesterday, the IRS said for the gross receipts test, and just to reiterate that test means that you have to have a drop of 50% in gross receipts in a quarter compared to the prior quarter that forgiven PPP funds, which actually go in income, they can be ignored for this test and that certain grants could also be ignored as a safe harbor for this rule as well. They didn't talk about HHS, if those funds could be ignored, they just had specific ones on the restaurant industry.

Jarrod Bridgemen:
What does this mean? I kind of get what you're saying, but it could be ignored, how does that affect it?

Steve Levy:
So if you're calculating a drop in gross receipts from one quarter to the next, then you have to know what gross receipts means and what it includes. A lot of folks assume it's just your revenues, but you may be getting funds from different sources, you're getting interest, which is generally considered gross receipts. It's all like a big bucket of a term. And this rule basically said you can ignore if you have PPP forgiven, you can ignore that because it becomes income.

Jarrod Bridgemen:
So that will be beneficial then, getting it ignored is a good thing.

Steve Levy:
Yes.

Casey Hiers:
What happens if a practice owner goes on vacation for six weeks and their quarter over quarter is less than 50%. Does that come into play?

Steve Levy:
That's a great question. Actually, they don't look into that, it's a straight calculation. So if there is a downturn, for whatever reason, say things are slowing down in a practice, maybe folks are towards retirement and their practice is slowing down, they don't ask the reasons for why, it's just a straight calculation.

Casey Hiers:
Wow. I think I hear people booking some vacations as we speak. How about if a practice owner has received the EIDL loan? When are they required to pay it back? What should our listeners be aware of when it comes to that one?

Steve Levy:
If you've received an EIDL loan, which could be, it's generally around 150,000, that the EIDL loans are at, we're not talking about the EIDL advance so I just want to make that clear. This doesn't include the $10,000 that folks have received, but say they received the EIDL loan, which probably was received around April, maybe later of last year. They keep extending the time for having to pay that back, so they've pushed that into 2022.

Steve Levy:
At first, people were worried that, oh, it's March 2021 and I have to start paying this back, or it could be in default, well that's not the case. They've pushed pretty much all these loans over to having to pay in 2022. Now I will caveat that in saying that the interest does accrue on these loans during the deferment period.

Jarrod Bridgemen:
So they can pay now.

Steve Levy:
You can certainly.

Jarrod Bridgemen:
So if they want to minimize interest expense on the accrued interest, they can certainly start paying now, but they don't have to until next year.

Casey Hiers:
What's the biggest curveball that you've seen with all of this? Let's just zoom back out from a high level. Our clients are getting obviously excellent opportunities and service to maximize all of these, but generally speaking, out there, what's the hard part? What's the curveball? What's the part that could slip through the cracks for some people if their accounting team isn't up to snuff?

Steve Levy:
I would say, just staying up on the rules, being aware of them, and communicating them to the folks that need them. These rules are changing all the time. That's what we've been experiencing ever since back in March 2020, that this ERC has been around for a long time, and we're just getting rules on key issues now. So the game keeps changing and we have to be on top of it, and really everyone needs to be on top of these rules.

Casey Hiers:
Yep. No, that's a great place to leave it I think. Steve Pipes Levy, more than a pretty face and a great singer. You have excellent information that hopefully our listeners appreciate, share with your friends and colleagues who may be struggling with this.

Jarrod Bridgemen:
I think this really helped out a lot to be honest.

Casey Hiers:
There is so much to keep up on, and we'll talk about this in other podcasts, but on top of what producing great dentistry, being a spouse, being a parent, doing a hobby, I mean, this is just so much to keep up on. And so hopefully this has been a help to our listeners out there. Steve, thank you for joining us.

Steve Levy:
Thank you.

Jarrod Bridgemen:
Thank you.

Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener for tuning in. The Millionaire Dentist Podcast is brought to you by Four Quadrants Advisory to see if they might be a good fit for you and your practice. Go over to fourquadrantsadvisory.com and see why year after year, they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.