March 2022 Orange County Networking and Business Events Calendar

A group of professional chat casually, indicative of Orange County networking opportunities in March 2022.

The Best Networking Opportunities in Orange County in March 2022

We are living in an exciting era of networking and business opportunities in Orange County. Whether online or in-person, spreading the word about your business has never been easier. To help you plan ahead, we have put together this calendar of not to be missed events in March 2022.

Here are ten great opportunities to network, learn, and help your business to thrive.

ACG OC – Women in Leadership Power Lunch

When: March 3rd from 11:45 AM to 1:15 PM

Where: Capital Grill

ACG Orange County is a great source for meeting up with people interested in making investments and building middle-market companies.

Santa Ana Young Entrepreneurs

When: March 4th from 1:30 PM to 3:00 PM

Where: Logical Thinking For Business Owners

If you are learning the skills of business ownership or are in the preliminary stages, this event is for you. As a member of the Young Entrepreneurs Group, you will meet a couple of times a month with like-minded people to brainstorm business ideas, talk and collaborate.

This event is free to attend.

Climate Day at Expo West 2022

When: March 8th from 8:00 AM to 7:00 PM

Where: Anaheim Convention Center

This event will help your business build the connections needed to make climate actions possible. Join industry leaders for inspirational keynotes and get real-world advice you can use. Space is limited, so act now!

Mission Viejo Networking In-Person Meetup

When: March 8th from 4:30 PM to 7:00 PM

Where: Union Market at Kaleidoscope

This event is not about passing and collecting business cards. It is about building and nurturing real business relationships.

This event is free to attend.

Grow Your Business Networking

When: March 9th from 4:00 PM to 6:00 PM

Where: Country Club Drive

Network In Action is starting a new group in the Mission Viejo area. They provide networking, masterminding, social media marketing, and entrepreneurial training opportunities. All this will help you grow your business in whatever direction you need.

This event is free to attend.

A CA beach at sunset with several palm trees, intended to represent SoCal life and SoCal networking opportunities.
Want to network in SoCal? You’ve come to the right place. We highly recommend networking at the beach whenever possible.

Start-up CPG Alley Rally at Expo West

When: March 10th from 7:00 PM to 10:00 PM

Where: Bowlero Anaheim

Celebrate with us the first return of Startup CPG to Anaheim since 2019 in this fun-filled soiree and networking event. Startup CPG is the national network for emerging brands working toward improving the world’s food system. There will be a dedicated area for Backpack Brands; these are the products / founders who are too early/small to have a booth at the Expo. There, they will show off their samples/prototypes.

Tickets: $35 – $65

Start-ups Fund Raising Program

When: March 12th from 9:00 AM to 10:00 AM

Where: Online Event

Learn how to raise funds for your Start-up business. Event host, Lakshman Singh is a start-ups mentor. He has more than a decade of extensive experience in the field.

Tickets: $30 – $75

Irvine Virtual Job Fair

When: March 14th from 11:00 AM to 2:00 PM

Where: Virtual

Each year, JobFairX helps thousands of seekers find their next career move. Past participants have included Apple, Amazon, and the TSA. Whether you are looking for a new career move or just curious about the job market, this event is for you.

Business Networking 1 Day Training

When: March 18th from 9:00 AM to 5:00 PM

Where: Regus – California, Irvine – Irvine Spectrum

A training session focused on improving your networking skills and successfully developing a network of business connections. You will also learn the tools and techniques to plan a successful, strategic approach to networking and develop your personal communication skills. This will help you build effective business relationships.

Network After Work

When: March 24th from 6:00 PM to 08:00 PM

Where: Descanso Restaurant

Network After Work is a leader in networking events. Join them for an evening on the town with other local business owners, entrepreneurs, and professionals. There, you will have an opportunity to increase your brand’s visibility and build relationships with like-minded people.

This event is free for members to attend.

Mark up your calendars and get your business ready for a fruitful March. Need a partner you can count on? Reach out to My OC Bookkeeper. We provide bookkeeping, accounting, and outsourced CFO services and can help you take your business to the next level. Reach out to us today! Or, click on the surfers to learn more.

Know of a great orange county networking opportunity that we missed? Let us know and we’ll add it to our calendar.

Is the Name I Want for My CA Business Available?

A building with a sign saying "Your Name Here", symbolic of the process of checking to see if the name you want for your business is available.

How to Do a Business Name Search in CA

So you are ready to setup your great new California business when it occurs to you: how do I find out if the business name I want is available? Don’t worry, there’s actually a pretty easy process for this. Why is there a process in the first place? That’s because the state of California – like other states – doesn’t want multiple businesses using the same name, which seems pretty reasonable to us.

In addition to ensuring your name is unique, you’ll also need to follow the CA Business Naming Guidelines. (Don’t worry, this is pretty easy to do.)

So, just follow our step by step process below and soon you’ll have a shiny new business name.

Step 1: Follow the CA Business Name Guidelines

Suffice it to say, if the name you want is illegal, well then it’s not available.

  • If you are forming a Limited Liability Company, “limited liability company”, “L.L.C.”, or “LLC” must be part of your name. (But if you don’t like any of those you can always setup a dba with a different name. For more on dbas check out our detailed guide on setting setting up a business in CA.)
  • Using certain words in your business name such as “University” or “Doctor” or “Attorneys at Law” may necessitate further registrations and regulatory steps. Obviously, if you aren’t a doctor or a bank CA doesn’t want you implying you are via your name.
  • Don’t use words that imply that your business is a government agency like the FBI or CIA. The government doesn’t like this.
  • If you want to go deep into the weeds on this issue, you can read the CA Secretary of State business name regulations here.

Step 2: Do a CA Business Name Search on the CA Secretary of State Website

This is where things start to get exciting. The CA Secretary of State website is actually pretty user friendly, so this process should be pretty easy.

  • Go to the CA SOS search page.
  • Depending on whether you want to start a Corporation, LLC, or LP, select the appropriate business type in the Search Type field and search for the name that you want.
The CA Secretary of State Business Name Search Portal
The portal on the CA SOS website where you search for your desired business name.
  • Hopefully there won’t be a business using your desired name. If there is, be sure to check the status column. If it says dissolved, then depending on how long they have been out of operation you may be able to get the name after all. (Reach out to the CA SOS for the latest rules in that regard.) If not, you’re out of luck – but hopefully you have a good backup in mind.
  • If you click on a name that comes up after running a search, you can obtain further information about the company such as its location, when it was registered, and whether it has completed its basic ongoing regulatory requirements. This may not be very helpful now, but after setting up your company you may want to come here periodically to ensure you haven’t fallen behind on anything. (And believe me, MANY companies fall behind. It’s a headache, and can be expensive. Don’t fall behind.)
  • If you don’t see the name you desire than you are likely good to go, but there is a slight chance there is a very similar name that didn’t come up. In rare cases, for example, a pre-existing business may have used the plural form of a word while you may have used the singular. (Cat LLC vs. Cats LLC.) If this is the case you won’t be able to get your name because your name won’t be considered unique. To avoid this you can fill out a Name Availability Inquiry Letter and send it in to the Secretary of State’s office. They will let you know with complete authority whether the name you desire is currently available. Keep in mind though that even if the name which you thought was available actually isn’t, the CA SOS office will simply tell you this when you attempt to register it, so you’ll find out eventually one way or another.

This is a simple and quick step that can help you avoid headaches down the road. If someone already has a strong web presence either with the name you want or something similar to it, it may be worth considering coming up with something different. Depending on what you do, competing with another website may be something to avoid, even it they are out of state. Not only that, if someone has a website with the name you want they may have already registered the name with the state of CA (or may be in the process of doing so) – so take extra care when searching the CA SOS website.

In addition to a basic Google search, you can pop into GoDaddy to see if someone owns the URL desired, and if not that is where you can buy the URL.

Step 4: Reserve the Name You Want If Necessary

If you’re not quite ready to setup an LLC but want to ensure that the name you want will be available you can reserve it for 60 days by filling out a Name Reservation Request. There is a $10 fee and the request must be either mailed or dropped off at the Secretary of State’s office in Sacramento. If need be you can re-reserve the name but there must be at least a one day break between each 60 day reservation and you must refill out the form.

Optional Bonus Step: Check the Trademark Directory and/or Trademark Your Name

Most small to medium sized businesses aren’t too worried about trademarks. But if you want to be extra cautious you can check the US Patent and Trademark Office database. If you find a name similar to yours in the database you probably will be best served to choose something different. If you don’t want to do that then you should speak to a lawyer before proceeding. If you are planning on creating a brand that will be national in scope than you may want to trademark the name, otherwise there are likely better ways to spend your money. If you decide you do want to get a trademark, follow the instructions on the USPTO website. It’s not a terribly difficult process and shouldn’t take more than a couple of hours of work.

A man smiles and reaching out his arms while confetti falls, symbolic of the excitement of getting the name you want for your business.
Yay! The name you want for your business is available! Now on to building the business…

Step 5: Setup Your Business with the Desired Name

If everything has gone smoothly so far than you should be good to go. Now all you need to do is determine the kind of business structure you want to use and go through the steps necessary to set it up. For help with choosing the appropriate business structure and setting them up, check out this great post on setting up a business in CA. Whatever you choose, proceed with confidence that the name you want is available. (Unless of course someone takes it just before you, which is a bummer, but quite unlikely – and if it happens the state of CA will let you know.)

There you have it, 5 steps (plus an optional bonus step) to answer the oft-burning question: Is the Name I Want for My CA Business Available? Need more help with your business? My OC Bookkeeper is Southern California’s premier bookkeeping, accounting, outsourced CFO and business consulting firm. We can help you with everything from day to day bookkeeping to setting up your initial accounting processes to building complex financial models. If it has to do with accounting or business finance, we know how to do it.

Want to learn everything you could ever want to know about setting up a business in CA? Watch the video below.

How Do You Setup a Sole Proprietorship in CA?

A glass shop door with an open sign, symbolic of setting up a sole proprietorship in CA.

Everything You Need to Know About Setting Up a CA Sole Prop in 5 Simple Steps

Before starting a new business in California, you first need to decide what type of business entity you want to form. In general, a Sole Proprietorship is easy to establish in CA. In fact, you don’t even need to register with the California Secretary of State to set it up.

Be aware though. Sole Proprietorships are risky. This type of business does not provide the owner with any protection against business liabilities. This means that you will be personally liable for all of your business’s debts.

Here are the five simple steps you should take to start a Sole Proprietorship in California.

Step 1: Choose a Name for Your CA Sole Prop

In California, you can choose any name for your Sole Proprietorship as long as it is not the same or similar to an already registered business name, providing it isn’t misleading to the public. For example, you cannot choose a business name that contains the word government. To check the availability of a name, check the California Secretary of State website.

That having been said, the default name of a Sole Prop is the legal name of the owner. In most cases, however, business owners choose to use a different business name. (Obviously a good business name can help your customers understand the type of product or service your Sole Prop provides.) In order to change the name you need to file a dba. How do you do it? Read number 2.

Step 2: File a Fictitious Business Name Statement

This process is also called filing for a DBA or “doing business as”. The owner of a Sole Proprietorship must file for a DBA if they do not intend on using their surname. In California, you can file a Fictitious Business Name Statement in the county recorder’s office where your business is located.  

The filing fees are $26. From the start date of your business, you will have 40 days to file a DBA statement. To complete the process, you must follow the county’s requirements for publicizing your new business name. This often involves a predetermined list of local papers where you have to publish the information. Just ask the clerk for some info on this and they’ll provide it.

A street sign of California Ave with palm trees in the background, symbolic of starting a sole prop business in California.
How do you setup a sole proprietorship in CA? Simple, just keep reading and you’ll know.

Step 3: Obtain Required Licenses, Permits, and Zoning Clearance

This step depends on the nature of your Sole Proprietorship. Some businesses need to obtain one or more licenses or permits from the state. Fortunately, California provides a comprehensive database of every license and permit required for any kind of Sole Prop. This will guide you through the process and help you better understand the required documents for your Sole Proprietorship.

Just visit the California Governor’s Office of Business and Economic Development CalGold website. Type in your county and city and you will get a list of all the required permits and licenses for your business activity. You will also find useful information that will help you file and obtain these documents.

Step 4: Obtain an Employee Identification Number (If Necessary)

As a Sole Proprietorship owner, you will not automatically need an Employer Identification Number (EIN). However, under certain circumstances, you might need to obtain one. For example, if you want to hire employees, you’ll need to have an EIN.

You might also need this nine-digit number for tax reporting purposes or to open a bank account. Check with the tax authorities in California to learn if your Sole Proprietorship is required to take this step. Registering for an EIN is done through the IRS. This process can be completed online at the IRS website.

Step 5: Do the Things Any New Business Owner Should Do

Anyone starting a new business, regardless of if it is a sole prop or something else, should consider setting up a bank account, obtaining any necessary insurance, and potentially setting up a business credit card and or line of credit. These are basic for most businesses regardless of the type of entity or industry.

That’s it! Now, you’re ready to start your new business and will never ask yourself how do you setup a sole proprietorship in CA again! (Although if you do you can just come back and reread this article…) Want to learn even more about setting up a business in California? Check out this awesome blog post which breaks down everything you need to know about starting a business in CA, including the difference between all of the business types (Sole prop, LLC, etc.)

Starting a new business in California? We’ve got your back! You can count on My OC Bookkeeper for the best bookkeeping, accounting, outsourced CFO, and business strategy services in California. Reach out to us now and let’s do great things together!

Want to learn everything you could want to know about starting a business in CA? Watch the video below. It’s great, trust us we know, we made it. (We’re not biased, it really is great.)

Taxes in CA – Everything You Need to Know

A pile of papers and tax forms, symbolic of the tax considerations for businesses in CA.

Special CA Tax Considerations for Businesses

Starting a new business in CA is exciting.  There’s the initial ideation and snagging your first client.  There’s the first deposit that hits your bank account and the first time you realize your income is covering your expenses.

What’s less exciting is dealing with taxes. Unfortunately (or fortunately perhaps) that is something that every business has to deal with, and not understanding the tax environment can cause your business all kinds of problems. So read on to learn everything you need to know about taxes in CA. We promise it won’t hurt too much.

California Minimum Tax

If you are a corporation or an LLC operating in the state of California, you’ll be subject to the annual state minimum tax of $800. Even entities that are registered in a different state but operate within California are also subject to this minimum tax. 

For new businesses formed in 2021 and 2022, there is a waiver in place for the minimum tax in effect for the first year the entity is in business.  However, if you are a corporation and your actual tax is higher than the minimum tax, you’ll still be required to pay the tax.

California LLC Fee

This California LLC surprises a lot of LLC owners.  There’s a fee-based solely on your revenue figure, regardless of your net income.  The fees range from $0 – $11,790 based on your annual revenue.  This one can be challenging because expanding revenue does not always coincide with expanding profit.

If your business operates on a calendar year, you must prepay your estimated LLC fee each year by June 15th with the remainder due by the following April 15th. 

Secretary of State Fee & Statement of Information

It’s worth mentioning that the California Secretary of State requires the regular filing of a Statement of Information with the state.  For corporations, the statement is due within 90 days of registering your corporation and then annually for the life of your corporation.  For LLCs, the statement is required within 90 days of setting up the business and then every other year thereafter. 

The filing can be completed online and usually takes less than 10 minutes to complete, and the fee is under $50 but varies by entity type and year.  Though the Secretary of State sends out reminder postcards, if you overlook the filing, you will get a notice 1-2 years later with a penalty of $250 that cannot be waived.  Additionally, each entity has its own due date based on when the entity originally registered making it easy to overlook.

A line of palm trees at sunset, symbolic of doing business in CA and the tax considerations associated with that.
CA is a beautiful place and with a thriving business community (and palm trees) – but there are some important things you should know about taxes in CA, so read on.

Difference Between Federal and California Depreciation

California adheres to many of the federal tax rules, but not all of them.  The federal depreciation rules are a notable exception.  In recent years, the federal government has allowed taxpayers to claim bonus depreciation of 50-100% depending on the size of the business, type of asset, and year.  California has not adopted the bonus depreciation rules which means that you may have significant mismatches between your federal and California deductions.

One of the most notable implications is on new vehicle purchases.  For example, in 2021, businesses were allowed to claim up to $18,200 for standard passenger vehicles whereas California limited the first-year deduction to $3,670. 

In later years, the depreciation on a vehicle in California may exceed the federal allowed amount, this mismatch can make tax planning more difficult.

Real Estate Withholding Tax

If you’re selling property in California, whether it’s your own home or an investment property, California will want you to withhold state tax from escrow.  This often comes as a shock to homeowners and investors.  While you can avoid withholding if you do not have any taxable gain, you will have to certify the lack of gain to the state. 

Form 593 walks you through the calculation of the gain on sale and requires different withholding depending on the type of entity (or individual) that owns the property. 

Capital Gains

California doesn’t differentiate between long term and short terms capital gains, and it also doesn’t have different tax rates for qualified dividends.  In California, for anything included in your taxable income, then it’s taxed at the same rate.  This is true for both individuals and corporations. 

For people used to the federal favorable tax treatment of certain types of income, this can come as a shock at tax time.

The Good News About Taxes in CA – Pass Through Entity Tax (PTET)

Though most of the items above are either bad news or pitfalls to watch out for, there is good news for business owners in the golden state.  For 2021-2026, the years in which there is a state and local tax (SALT) deduction cap on individual tax returns, the state of California has created a pass-through entity tax (PTET) that allows business owners to pay a business tax and get a dollar-for-dollar credit on their individual tax returns. 

Because business taxes are allowed as a deduction under federal law, paying this tax through your business effectively negates the SALT cap on your individual return and makes the tax paid through your entity fully deductible. 

It’s not that simple though.  There are strict rules on who can participate (sole proprietorships and single-member LLCs are out of luck) and if you elect to participate you must pay 9.3% of your business’s taxable income to the state of California – you don’t get to decide how much of your profit is paid in for taxes. However, each owner of the business has the option to opt-in independently.

With all of These CA Taxes, Is It Still Worth Doing Business Here?

Of course! While California has its fair share of regulations and taxes, it also has a thriving business environment that has been creating awesome businesses for years. (It also happens to be a great place to live.) Just remember to be careful about satisfying your business’s regulatory and tax requirements so you don’t end up hurting yourself in the long run.

If you want to dive even deeper and learn everything you could ever want to know about starting a business in CA, check out this great article on the subject. Or, if you want to go direct to the source, familiarize yourself with the CA Secretary of State website, there is all kinds of important info there.

Need some help with anything that has to do with taxes in CA? Reach out to My OC Bookkeeper. We are California’s premier bookkeeping, accounting, outsourced CFO, and business advisory firm and help businesses all over California.

Want to learn everything you need to know about starting a business in CA? Check out the great video below.

What is the Best Method for Deducting Vehicle Expenses in CA?

An old car with CA plates, symbolic of choosing the best method to deduct vehicle expenses in CA.

Is the Actual Expense Method or the Mileage Rate Method Better for CA Business Owners?

As a business owner, you’re probably well aware of the fact that you only pay taxes on your net income which means you can write off some of the expenses that occur in your everyday life.  If you need a vehicle for business purposes (and, as car-based as life is in California, nearly every business owner needs a car), then you can write off a portion of the expenses related to owning the car. 

But how do you determine how much of your vehicle expenses are eligible to be deducted against your business income and how do you calculate the deduction?

You have two options when it comes to calculating your car expenses – you can either use the actual expense method or the mileage rate. 

So, what is the best method for deducting vehicle expenses in CA? Well, it kind of depends. Read on to find out more.

What counts as a business mile?

Regardless of which type of expense calculation you decide to use, you need to start by calculating your business mileage for the year. Business mileage includes any time you drive from one workplace to another.  If your primary work location is your home, then driving from your home to a client site would count as business mileage.  If your business includes a physical location but your primary work location is your home, the mileage you rack up driving to the office would also count.

If you meet clients for business meals or run out to the store to get office supplies, those miles also count as business miles.

In order to justify your business mileage expense, you should keep a log of your mileage including the date of the trip, purpose, and destination.  If you met with a client, you should note that as well.

How do you calculate the vehicle expense using the mileage method?

The mileage method (once you’ve calculated your business mileage) is the easier method for calculating your business vehicle expense.  You take your total business mileage for the year and multiply it by the standard mileage rate to get your total deduction.

California adheres to the federal mileage rate which is 58.5 cents per mile for 2022.  As you can see, the expense adds up very quickly with every 10-mile trip giving you a $5.85 deduction against your taxable income.

But once you’ve calculated your mileage deduction, you can’t take any additional expenses against your vehicle.  The 58.5 cents per mileage is supposed to cover all of your expenses including gas, repairs, and maintenance.  So, what if your expenses are more than 58.5 cents per mile?  Then you need to consider using the actual expense method.

A line of cars in traffic, representative of the importance of choosing a vehicle expense deduction method for CA businesses.
If you own a business in Southern California you’ve been stuck in traffic. The next time you’re in traffic – think about the best vehicle expense deduction method for your business!

How do you calculate the vehicle expense using the actual expense method?

With gas over $5/gallon in many parts of California, it’s very likely that the federal mileage rate will not cover all of your vehicle expenses.

Under the actual expense method, you take your percentage of business vehicle use for the year and multiply that percent by your total expenses.  The business usage percent is calculated by the business mileage divided by the total mileage. 

Your total vehicle expenses include the following:

  • DMV registration fees
  • Interest paid on the purchase of a vehicle
  • Lease payments
  • Gas
  • Maintenance (carwashes, detailing, replacement parts)
  • Repairs
  • Tires
  • Depreciation on a purchased vehicle*

*Depreciation of a vehicle varies by several factors including the purchase price of the vehicle, federal/state rules which change annually, and the weight of the vehicle.  For example, the entire purchase price of a heavy vehicle (over 6,000 pounds) can be written off in the first year for federal purposes, whereas a small sedan can take a maximum of $18,200 for federal purposes in 2021 and $5,600 for California.  Because the rules change each year, you should check with your tax advisor if you’re considering the purchase of a new business vehicle.

Once you’ve added up your total vehicle expenses, you take the total and multiply it by the business use percentage.  As you can see, this method requires maintaining more records but often results in a higher deduction.

Can you switch between methods?

For each vehicle, you need to choose one method of calculating your expenses for the year.  However, if your business owns multiple vehicles, you can choose which method to use for each vehicle.

Once you have used the actual expense method for a vehicle, you can never use the mileage method for the vehicle.  So, you should consider your long-term plans prior to opting for the actual expense method. 

Interested in learning more about taxes? The websites below are a good place to start.

CA Franchise Tax Board

CA FTB Free Tax Help

IRS Info on Vehicle Deductions

So, as you can see, the best method for deducting vehicle expenses in CA really depends on the situation. Why do we know so much on the topic? We’re My OC Bookkeeper, Southern California’s premier bookkeeping, accounting, and outsourced CFO firm. We help businesses all over SoCal tackle all kinds of challenges so if you have some, reach out to us today. Click on the surfers to learn more!

Everything You Need to Know About PPP Loans

A hand holding several hundred dollar bills, symbolic of the money businesses received through PPP loans.

Our Introduction to Paycheck Protection Program (PPP) Loans

Regardless of what industry your business operates in, the past few years have been a crazy ride. From government-mandated shutdowns to supply chain problems to changing consumer tastes, every business has been affected in some way by the pandemic.

Fortunately, the government stepped in with various loan programs and grants to assist small business owners to weather the storm. Motivated by a desire to keep small businesses in operation and preserve jobs, the government loan programs were available to most small businesses. The Paycheck Protection loan program was by far the most popular pandemic program for small businesses because if the loans were used for approved expenses, the loan were eligible for full, tax-free forgiveness.

What are PPP Loans?

In the early days of the covid pandemic, the U.S. government responded to cries for assistance from small business owners by creating PPP loans. The loans were created to quickly disperse funds to small businesses to prevent excessive business closures. To obtain a loan, a business simply had to prove they were in existence prior to the pandemic and certify that the ongoing uncertainty made the funds necessary to the ongoing operation of the business.

Based on the minimal requirements for the loan, most small businesses qualified for the program. The initial allocation of funds for the program was quickly exhausted but congress allocated additional funds.

What’s the difference between PPP Loans and EIDL Loans?

The government created two concurrent programs to assist small business owners. The first was the PPP loans. The second program was the EIDL loan and grant program.

Under the original rules, a small business was only eligible for either the PPP loan program or the EIDL loan program, however, that rule was later changed to allow businesses to participate in both programs. The only restriction was that the same expenses could not be counted towards both programs. So, if a payroll expense was used to obtain PPP forgiveness, that payroll expense could not be counted as paid for with the EIDL loan funds.

Who was eligible?

All types of businesses were eligible for PPP loans including corporations, partnerships, and sole proprietorships. Sole proprietors were able to use their net income from their Schedule Cs to calculate their own income and quality for a loan even if they had no other employees. Non-profit organizations were also eligible to participate in the loan program.

To be eligible for PPP loans, small businesses had to certify that the loans were necessary to keep the business in operation. Beyond that basic requirement, businesses had to have less than 500 employees or be a part of certain industries that were eligible to count the number of employees by locations (such as restaurant chains).

What do I need to know about accounting for PPP Loans?

When the loan was initially received, it should have been booked as a long-term liability based on the repayment terms and the fact that forgiveness was not guaranteed. A separate loan account should have been created to track the PPP loan.

If you were eligible for loan forgiveness and successfully had your loan written off, you should make a journal entry to debit the PPP loan account you created and credit a new account under other income titled “PPP Loan Forgiveness.” It’s important that the PPP loan forgiveness income be separated from the company’s normal business income.

Various tax forms, a tax letter, a calculator, and a cup of coffee, symbolic of discussion of the tax treatment of PPP loans.
How will PPP loans affect your taxes? Read on to find out!

Are Paycheck Protection Program Loans taxable?

When Congress initially approved the PPP loan program, the PPP loans and the forgiveness was intended to be tax-free for the businesses. However, the IRS initially disagreed with the way the law was written and said that the loan forgiveness income was tax-free but then the expenses paid for with the loan funds could not be deducted. This created a lot of headaches for small businesses that had counted on the tax-free income.

A later vote by Congress adjusted the rules to allow the PPP loan forgiveness income to be tax-free and the expenses paid for with PPP loan proceeds were deductible for federal tax purposes.

However, the vote for the favorable tax treatment of the loan and related expenses was limited to federal income taxes. Each state then had to decide whether to follow the federal rules for the taxation of the loans.

In California, the loans and related expenses were only allowed if the business could show that they had at least one quarter in 2020 where its revenue was 25% lower than the same quarter in 2019. There were additional rules for determining the eligibility of new businesses. Adding to the confusion was the fact that the California rules for the PPP taxation were not decided until March 2021 well after the end of the year.

Will PPP loans be offered again?

Though the future is always uncertain, it seems very unlikely that the government will approve any future PPP loans. The initial PPP loans were created quickly in response to an immediate need to provide financing for small businesses as the economy ground to a halt. Though the pandemic is still going strong, businesses, schools, and government offices are operating near capacity.

If any loans are offered in the future, it’s likely that the loans would have different approval criteria, and forgiveness, if available at all, would be harder to come by. The PPP loans, while well-intentioned, mostly provided benefits to business owners which was not the intent.

Overall, the PPP loans filled a very real need for small business to have quick access to capital at the beginning of the covid pandemic. Despite the complications related to the use of the funds, accounting, and taxation of the funds the PPP loan funds were a huge benefit for many small business owners.

Want to learn even more? Take a look at the resources below:

U.S. Small Business Administration

U.S. Department of Treasury

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