Corporate Expenses Covered by Officers or Shareholders.

If you play a major role in a closely-held corporation and take on corporate expenses personally, you may wonder if such expenses paid on behalf of the corporation will be deductible.  These costs may wind up nondeductible both by the officer and the corporation unless proper steps are taken.

In general, you can't deduct an expense you incur on behalf of your corporation, even if it is a legitimate "trade or business" expense and even where the corporation is financially troubled. This is because a taxpayer can only deduct expenses that are his own. And since your corporation's legal existence as a separate entity must be respected, the corporation's costs aren't yours and thus can't be deducted even if you in fact pay them. What's more, the corporation won't be able to deduct them either because it didn't pay them itself. Therefore, it shouldn't be a practice of a corporation's officers or major shareholders to cover corporate costs.

On the other hand, if a corporate executive incurs costs which relate to an essential part of his duties as an executive they may be deductible as ordinary and necessary expenses related to his "trade or business" of being an executive. If you wish to set up an arrangement providing for payments to you and safeguarding their deductibility, a provision should be included in your employment contract with the corporation stating the types of expenses which are part of your duties and authorizing you to incur them. For example, you may be authorized to attend out of town business conferences on the corporation's behalf at your personal expense.

Alternatively, to avoid the complete loss of any deductions by both yourself and the corporation, an arrangement should be in place under which the corporation reimburses you for the expenses you incur. This will at least allow the corporation to deduct the amount of the reimbursement.

Please contact us if you would like assistance regarding any of the above or if you wish to discuss any of these matters further.

Part 3 of 3 - Federal and State Emergency Small Business Programs

The chart below compares grant and loan programs available at the state level for Illinois and Indiana businesses.  Please contact us with any questions.  This information is current as of 4/4/2020.

 



Program/ Benefit	Illinois Small Business Emergency Loan Fund	Downstate Small Business Stabilization Program	Indiana Rapid Response Loan Fund
Type	Loan	Grant	Loan
Purpose	Inexpensive financing opportunity for business affected by Coronavirus	Quick relief for businesses affected by Coronavirus	Inexpensive financing opportunity for business affected by Coronavirus
Amount	Up to $50,000	Up to $25,000	Up to $25,000
Eligibility/ Eligible Expenses	Working Capital; 50% of loan must be used for payroll	Working Capital; costs incurred after date of grant award	Wages, insurance premiums, other expenses
Applicable Dates	4/1/2020	Until funds are exhausted
Restrictions		Proof of Urgent Need required
Other Info	Low interest loan of up to $50,000 with 5 year repayment period, 6 month payment deferral, 3% interest rate	Grant of up to $25,000 per business based on 60 days of working capital	Loan up to $25,000 at 3.75% rate
Eligible	Business outside City of	Under 50 employees, not	Not agricultural enterprises,
Businesses	Chicago, Under 50 employees	located in an ineligible	religious or charitable
	and $3 M in revenue; Must	community or county; must	organizations or businesses with
	experience at least 25% decrease	demonstrate urgent need in	1/3 or more of revenue from
	in revenues; Not available for	relation to the COVID-19	gambling activities
	non-profits or farms	emergency and commit to
		retaining jobs
Employee limits	50	50
Self Employed?		Yes, but must employ at least one person other than the owner
How to Apply	https://app.smartsheet.com/b/fo	In conjunction with local	https://www.response.indycham
	rm/c75a9b0557564704a73a0afc	government (city, village,	ber.com/loans
	1eba81b2	county)
		https://www2.illinois.gov/dceo/
		CommunityServices/Community
		Infrastructure/Pages/DownstateS
		mBizStabilizaition.aspx

Part 2 of 3 - Federal and State Emergency Small Business Programs

The chart below compares payroll tax credits and deferral options available at the federal level.  Please contact us with any questions.  This information is current as of 4/4/2020.

 

Program/ Benefit	Payroll Retention Credit	Payroll Delayed Deposit	Sick Pay	Emergency FMLA
Type	Payroll Tax Credit	Deferred payment	Payroll Tax Credit	Payroll Tax Credit
Purpose	Employer relief for keeping employees on payroll when business if fully or partially suspended	Employer relief for keeping employees on payroll	Mandatory pay protection for potentially ill employees (ill, quarantined, or seeking diagnosis) and caregivers (of ill, quarantined, or seeking diagnosis, or child(ren) whose school/place of care is unavailable)	Mandatory pay protection for employees who are caregivers of child(ren) whose school/place of care is unavailable due to COVID-19
Amount	50% of wages (including allocable health plan expenses) per employee, $5,000 max credit per employee	Employer's share of Social Security, no dollar limits	80 hours @ full pay, Max $511 daily wage ($5,110 total max), or 80 hours @ 2/3 pay, max $200 daily wage ($2,000 total max) if reason is for caregiving; also allocable health plan costs	10 weeks @ 2/3 pay, Max $200 daily wage ($10,000 total max) (first 2 weeks of 12 weeks unpaid under this program); also allocable health plan costs
Eligibility/ Eligible Expenses	Wages & health plan expenses	Pay 50% each by 12/31/2021 and 12/31/2022	Wages & health plan costs	Wages & health plan costs; must have been employed for 30 days
Applicable Dates	3/13/2020 - 12/31/2020	3/27/2020 - 12/31/2020	4/1/2020 - 12/31/2020	4/1/2020 - 12/31/2020
Restrictions	PPP Loans disqualify credit	PPP Loans disqualify benefit
Other Info	No duplication of Sick Pay or FMLA pay used for those credits; No credit available for any period for which employer is allowed a Work Opportunity Credit for the employee		Employer SS tax exempt (not Employee SS tax exempt), Medicare tax applies but employer portion is refundable under credit, Mandatory benefit Employer must post notice of availability	Employer SS tax exempt (not Employee SS tax exempt), Medicare tax applies but employer portion is refundable under credit, Mandatory benefit (12 weeks allowed with last 10 being paid), Employer must post notice of availability
Eligible Businesses	Operations partially or fully suspended as a result of government order limiting commerce, travel or group meetings, or 50% reduction in quarterly receipts from prior year	All businesses	Required for all business with 500 employees or less	Required for all business with 500 employees or less; potential exemption for businesses with 50 or fewer employees
Employee limits	100 or less no rules, >100 limits apply	None	500	500
Self Employed?	No	Yes	Yes	Yes
How to Apply	On payroll return or IRS Form 7200		On payroll return or IRS Form 7200	On payroll return or IRS Form 7200
Comments			Payroll tax credit is considered income to the employer	Payroll tax credit is considered income to the employer

Part 1 of 3 - Federal and State Emergency Small Business Programs

The chart below compares grant and loan programs available at the federal level.  Please contact us with any questions.  This information is current as of 4/4/2020.

Program/ Benefit	SBA Grant	SBA EIDL Loan	SBA PPP Loan
Type	Grant	Loan	Forgivable Loan
Purpose	Quick relief for businesses affected by Coronavirus	Inexpensive financing opportunity for business affected by Coronavirus	Employer relief for keeping employees on payroll
Amount	$10,000	Up to $2 million	2.5 times average monthly payroll costs, up to $10 million ($100,000 wage limit)
Eligibility/ Eligible Expenses	Payroll, COGS, Rent, Mortgage	Same as SBA Grants and more	Payroll, rent, utilities, mortgage interest
Applicable Dates	1/31/2020 - 12/31/2020	1/31/2020 - 12/31/2020	2/15/2020 - 6/30/2020
Restrictions	Reduces any EIDL or PPP loan forgiveness	Cannot use for the same purpose as the PPP loan (same expenses)	Cannot claim payroll expenses that received credit under other programs
Other Info	Emergency advance, funded within 3 days and need not be repaid (see restrictions).	12 month payment deferral, up to 30 year term at 3.75% rate (2.75% for NFP). No personal guarantee for loans under $200,000; May refinance to PPP loan; approval based on credit score	6 month payment deferral, up to 2 year term at 1% rate. Non- taxable forgiveness if used for specified purposes. 75% or more must be used for payroll costs. Forgiveness reduction if certain employee counts are not maintained.
Eligible Businesses	All businesses including rentals and private NFPs; Must have been in operation on 1/31/2020	All businesses including rentals and private NFPs; Must have been in operation on 1/31/2020	All small businesses, including 501(c)(3) NFPs; Must have been in operation on 2/15/2020
Employee limits	500	500	500
Self Employed?	Yes	Yes	Yes
How to Apply	https://covid19relief.sba.gov/#/	https://covid19relief.sba.gov/#/	SBA Lender
Comments	Apply in conjunction with Loan application. MUST check box on loan application indicating interest in grant.	Quick, easy to complete application. Not required to accept loan even if offered.