Archives for June 2020

IRS Installments Agreements — When You Can’t Pay Your Taxes in Full

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Despite the IRS being slammed right now due to the pandemic, millions of Americans still owe back taxes for previous years. And they are increasingly finding themselves unable to pay up all at once. An installment agreement is just one of many tax relief options that may help you settle with the IRS or lower your amount owed.

COVID-19’s impact on collections
The current pandemic has forced many businesses to shut down or modify how they do business —including the IRS. Not only is the agency busy processing their usual tax returns, it’s also tasked with processing the stimulus payments for millions of Americans. To top it all off, the IRS is scrambling to adjust to the new filing deadline (July 15, 2020), while a large portion of its workforce is working from home, making things slower than usual.

As a result, the IRS announced its “People First Initiative”, taking unprecedented actions to ease the burden on Americans facing tax issues. These new changes range from postponing certain payments related to installment agreements and Offers in Compromise, to limiting certain enforcement actions.

When the bill comes due
Despite their immediate actions, the IRS will soon flip the enforcement switch back on. Come July 15th, a lot of people who made higher income in 2019 will likely owe back taxes. Failure to pay your tax bill immediately may result in penalties and interest on the balance due after July 15th. If you find yourself unable to pay in full, an installment agreement may help you settle your tax burden over a period of time.

How installment agreements work
The IRS divides their installment plans by taxpayers who owe more than $50,000 and less than $50,000:

Taxpayers owing less than $50,000 may request an installment agreement via the IRS website, by mailing Form 9465-FS Installment Agreement Request or by phone at (800) 829-1040. You’ll need to provide your Social Security number, date of birth, caller ID from your recent IRS notice, PIN number or AGI, bank address, employer address and the proposed monthly payment amount.

Taxpayers owing more than $50,000 may request an installment agreement by filling out form 433-F Collection Information Statement. This form requires information regarding your bank accounts, lines of credit, real estate, total number of dependents, assets, credit cards, wages, non-wage household income, monthly living expenses, down payment amount and proposed monthly payment.

Installment agreements require a minimum monthly payment of $25, and can vary from 120 days to 60 months, depending on your ability to repay. Installment agreements that take more than 120 days also require a set-up fee. You may be eligible for a decreased fee if you meet their low income guidelines. Also note that the IRS charges a reinstatement fee if you don’t pay your bill and your agreement goes into default.

Help is a call away
At Magone & Company, we can help you navigate the IRS maze and help ensure that you’re on the right payment plan. Don’t hesitate to reach out at (973) 301-2300 to schedule a no-obligation, confidential consultation to explain your options to permanently resolve your tax issue.

Returning to Business: The COVID-19 Comeback

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Business leaders across the country are focused on overcoming the onslaught of challenges brought on by COVID-19. For many, it was a revelation of strengths and weaknesses. Others with more adaptable business models may have been able to weather the storm and come back poised for growth — but not so fast. Literally.

As business gets back on track and your phone starts ringing again, you may be thinking ahead about expansion plans. Perhaps you’d started some acquisition due diligence before the pandemic hit. Or a quarantine brainstorm has you exploring a product line extension or new service offering.

Keep in mind, the world has changed, and reopening and expanding all at once may not be very realistic. Set a timeline, prioritize your most important actions and be wary of these six mistakes before taking the plunge:

#1 Not prioritizing your spending wisely

If expansion is the ultimate goal, you need to get your ducks in a row ASAP. While investing in hiring and staff training may be a priority, chances are inventory may also need to be purchased, and your marketing budget may need a boost to get things off the ground. Put the money where it’s needed most now.

#2 Letting quality suffer

You’re ramped up and ready to spring back into action. But as your business becomes fixated on quantity — whether it’s servicing more customers or increasing production to keep cash coming in — it’s easy to let quality fall to the wayside. Keep in mind that first and foremost, you’re in business to provide superior products and services. If buyers lose faith, you may have a hard time repairing the damage.

#3 Not having enough cash on hand

As you’re growing, you may find that spending starts to outweigh revenue. Just because money is coming in the door doesn’t mean you can’t suffer from cash flow problems. These days, budgeting and accurate cash flow projections are more crucial than ever before.

#4 Dropping the ball on customer service

Customer expectations may be somewhat unrealistic if they’re looking for the same pre-pandemic level of service, especially in hard-hit sectors like hospitality or personal care services. If you don’t have the staff to handle a sudden flood of calls, inquiries and orders or appointments, your customers may not be as forgiving as you’d like. Planning and communication go a long way in  managing buyer expectations.

#5 Putting all your eggs in one basket

Companies on a path toward growth can set themselves up for failure by depending on one particular customer, vendor or employee for the majority of their success. The truth is, your employee of the month may be one job offer away from working for the competition. Plus, vendors you relied on prior to the pandemic may not be in the position to immediately support your business at the same volume.

#6 Not scaling your technology

Every growing business needs technology that can grow with it, ensuring all systems and processes are running efficiently. From data storage solutions to cloud-based applications, what does your business need now, and what technology may it require down the line? Consider the increase in remote working that you may have adopted in recent months. Do you have the technology to sustain this model and add more employees to the mix if necessary? Don’t invest in solutions that aren’t going to serve your size, goals and budget for the future.

The tortoise or the hare?

Sometimes, in the race to grow, it’s better to step back and take your time to the finish line — especially now as your business settles into the new normal. You want to avoid costly mistakes that can hurt your business and set you back even further. Not sure where to start? At NJ CPA firm Magone & Company, we can help you plan for a growth strategy that sets you up for long-term success. Reach out to us today at (973) 301-2300.

Breaking News: Senate Passes House PPP Update

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The U.S. Senate passed the House version of Paycheck Protection Program (PPP).  The President is expected to sign the legislation.

Here are the changes to the PPP:

  • Increases the time period for usage from 8 weeks to 24 weeks;
  • Reduces the amount to be spent on payroll from 75% to 60%. However, if a business does not use at least 60% of the funds on payroll, none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale;
  • Allows recipients of PPP loans to also defer their payroll taxes;
  • Allows small businesses full loan forgiveness without regard to rehiring all full-time employees lost due to the pandemic, as long as the business can demonstrate an inability to operate at the same level it did prior to February 15, 2020;
  • Increases the time period to apply for a loan from June 30, 2020 to Dec 31, 2020; and
  • Increases the repayment timeframe from 2 years to 5 years with interest unchanged at 1%.

Forgiveness is a detail-oriented process to present to the lender, and will require a business to demonstrate how the money was spent via underlying supporting source documentation, such as payroll tax returns or registers, as well as invoices. Nothing in the proposed legislation changes this aspect of forgiveness.

There continues to be many unanswered questions, we encourage each of you to review your process and documentation. If you require assistance, please call us at (973) 301-2300, we’re here to help.

PPP Update: Here We Go Again

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The more things change…Well, the more they change. 

Late last week, the House passed revisions to the Paycheck Protection Program (PPP) and if passed by the Senate (looks as though that will happen), will be signed by the President.  Once passed, it will change my prior comments on forgiveness. Barring changes by the Senate, here is the proposal by the House:

  • Increase the time period for usage from 8 weeks to 24 weeks;
  • Reduce the amount to be spent on payroll from 75% to 60%;
  • Allow recipients of PPP loans to also defer their payroll taxes;
  • Allow small businesses full loan forgiveness without regard to rehiring all full-time employees lost due to the pandemic, as long as the business can demonstrate an inability to operate at the same level it did prior to February 15, 2020;
  • Increase the time period to apply for a loan from June 30, 2020 to December 31, 2020; and
  • Increase the repayment timeframe from 2 years to 5 years

What’s forgivable?
Eligible payroll costs
Eligible payroll costs include salaries, wages, bonus, commissions, etc. as well as others previously defined in the Interim Final Rules. However, the most recent guidance states for owner-employees, self-employed individuals and general partners the amounts paid to this group are capped at the lesser of 1) $15,385 ( the equivalent of 8 weeks of $100,000 annual salary) per individual; or 2) the 8 week equivalent of their applicable 2019 compensation. For owner-employees, it includes retirement plan and medical insurance payments to arrive at the $15,385.  For self-employed and general partners these are excluded in arriving at the $15,385.

Observations:  For owner-employees (typically those employed by corporations) the total is capped at $15,385, whereas for non-owner employees the amount included for forgiveness can be greater as it includes employer retirement plan contributions and employer-paid medical insurance in addition to the salary.

There is no defined percentage at this time as to who qualifies as an owner-employee.  More importantly, how will the Small Business Association (SBA) and Treasury apply owner-employee definition for employed family members? In other words, similar to the overall limit of $15,385 for owner-employees, self-employed individuals and general partners owning multiple businesses, will SBA and Treasury limit overall compensation for a family group under attribution rules? I expect there will be further guidance on both points.

Other covered costs
Costs such as mortgage, rent and utility obligations are eligible for forgiveness so long as they were in place or incurred before 2/15/20.  What’s clearer is mortgage and rent obligations include both real and personal property. Unlike payroll, these costs must be incurred or paid during the 8 week covered period of the loan.
The proportion of other covered costs eligible for forgiveness remains at 25% of the forgivable costs.

Timing for forgiveness
The forgiveness application defines two options for calculating covered payroll costs:

  • Covered Period: “…The eight-week (56-day) Covered Period of your PPP loan. The first day of the Covered Period must be the same as the PPP Loan Disbursement Date.
  • Alternative Payroll Covered Period: “Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date.”

The application states how payroll and non-payroll costs paid and incurred during the applicable period may be forgiven. For example, amounts eligible for forgiveness may include pay earned during a pay period, but paid after, or utilities and rent incurred prior to the 8-week period.  However, be sure not to count it twice.  In other words, if the cost is counted as incurred and subsequently paid it counts as an eligible expense once.

Forgiveness is a detail-oriented process to present to your lender, and will require a business to demonstrate how the money was spent via underlying supporting source documentation, such as payroll tax returns or registers, as well as invoices.  The more logical the underlying support the easier the process will go and the more likely all of your eligible costs will be forgiven. Although there continues to be many unanswered questions, we encourage each of you to review your process and documentation.  If you require assistance, please contact us — we’re here to help.