Nick Magone, CPA, CGMA, CFP®

Traveling for Business and Pleasure: What’s Deductible?

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Business owners who travel out of town on business may choose to extend their trips and take a little time to relax and see the sights. When a trip is partly for business and partly for pleasure, various expenses may still be deductible.

Domestic travel

A self-employed individual whose trip is primarily for business may deduct the full cost of the travel itself (such as airfare or train fare) even though some of the trip is devoted to personal activities. Additionally, various other expenses allocable to business, such as lodging and 50% of meal costs incurred on the business days, may also be deductible.

If a trip is primarily for personal reasons, the entire cost of the travel is a nondeductible personal expense. However, expenses incurred while at the destination that are directly related to the taxpayer’s business may be deducted.

Foreign travel

The deductibility rules for combined business/pleasure trips outside of the U.S. are a little more complicated in some respects. Even if the primary purpose of the trip is business, the cost of the travel itself generally has to be allocated, and only the business portion is deductible. However, no allocation has to be made — and the full travel cost is deductible — if:

  • The trip lasts for no more than seven consecutive days (excluding the day of departure but including the day of return); or
  • Personal days total less than 25% of the total days spent on the trip (including both the day of departure and the day of return); or
  • The taxpayer can establish that the opportunity to take a personal vacation was not a major consideration for the trip. For these purposes, business days include days when business is conducted for only part of the day, days spent traveling to and from a business destination, and weekend days or holidays that fall between two business days.

With smart planning, self-employed business owners can maximize their write-offs for combined business/pleasure travel.

The Paycheck Protection Program — What’s Next? Part II: Loan Forgiveness

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Eligibility and usage are key factors in determining whether a small business will have its loan forgiven. In Part I of this post, we looked at eligibility factors.

Once PPP funds are received, what are the best practices to maximize your opportunity to have your loan forgiven? It may sound obvious, but make sure you’re using the funds for the forgivable purpose. These include the following:

  • Payroll costs (if you’re self-employed, these costs include the net profit amount from your business, as reported on your 2019 tax return)
  • Interest payments on mortgages incurred before 2/15/20
  • Rent payments on leases dated before 2/15/20
  • Utility payments under service agreements dated before 2/15/20

However, according to the SBA, not more than 25% of the forgivable loan amount (the amount of the loan used to pay forgivable expenses) may be attributable to non-payroll costs. In other words, at least 75% of the loan must be used for payroll costs.

If you have already laid off or furloughed workers, try to restore employee headcount and salary levels by 6/30/20. If you do so, any headcount and salary reductions that occurred between 2/15/20 and 4/26/20 will be ignored.

We’ve responded to many business owners who’ve indicated there is no work for employees, so “I will not bring back employees until there is work.”  NO. The intent of the funds is to keep a small business’ work force in place until the stay-at-home order is lifted. Once you obtain the funds, call employees and advise them you are paying them with PPP funds.

Keep in mind that you don’t have to rehire the same employees, and rehired workers don’t actually have to perform customary work duties. Before taking action, you should consult with your labor and employment attorney to work out the terms for rehiring workers.

We have been hearing from many business owners who offered reemployment to furloughed employees, who subsequently declined the offer. The Department of Treasury has recently come out with FAQ 40, which states the loan forgiveness of a company will not be reduced if an employer offered to rehire the same employee, but the employee declined the offer.  The Department of Treasury’s response in part states that “SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation.” The response goes on to say, “Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”

Recordkeeping is key to forgiveness
To maximize the potential forgiveness, start planning now. Here are some thoughts:

  • Establish a separate checking account for the PPP funds. If a separate account cannot be established, develop a reconciliation of how the funds were used for payroll, rent and utilities. Keep in mind the maximum eligible payroll to be paid by the PPP is the equivalent of $100,000 divided by pay frequency.
  • Review headcount to the base year of 2/15/19-6/30/19. A decline in headcount will result in reduced forgiveness.
  • If it appears because of an inability to rehire your entire workforce there will be remaining funds, consider bonuses to your employees outside of your normal pay cycle.
  • Make certain all mortgage documents, leases and utility bills arose prior to 2/15/20.
  • Keep payroll records available, especially those from 2/15/19-6/30/19, to document headcount for the period 2/15/20-6/30/20.

Some additional thoughts on loan forgiveness
It would be naïve to think the rules for forgiveness would be left unchanged given the FAQ activity recently issued by the SBA and Department of the Treasury.  Given we can expect to see more FAQs, let’s answer some more possible questions revolving around forgiveness.

  1. What if my business is profitable during the period subsequent to using the funds?
  2. What if additional guidance is issued and it changes my eligibility?

The SBA seems to be leaning toward advising companies to NOT request forgiveness in the two circumstances above.  Will it mean the initial assessment of eligibility is unjustified?  Not necessarily, since there is a “good faith certification.” If facts and circumstances have changed dramatically since you were eligible, you may not want to seek forgiveness if the rules change based on what is known today.  The important thing to keep in mind is the certification that was made in the PPP application.  The penalties are severe if there is an intent to deceive (fraud).  The SBA seems to understand that a business could not have anticipated all factors dictating its need of PPP funds.

So, if you do apply for loan forgiveness, how soon? A business is eligible to apply for loan forgiveness after eight weeks. This coincides with the period for usage of the funds. The bank has 60 days to process the forgiveness paperwork. This means depending on the when the PPP funds are received, a business should count six months from the date of receipt and count back 60 days. Why? The six months coincides with the deferral period for the loan and repayment commences after the deferral period expires.

To ensure forgiveness is received in a timely fashion, allow for 60 days from submission of paperwork, but no more than four months after expiration of the eight-week payment period.

One thing is certain with PPP funds — there is more uncertainty than certainty in the interpretation of the law. Put your business in the best possible position to have its PPP loan forgiven. The key is to plan and document your eligibility and usage in advance.

As always, if we can be assistance in modeling your businesses’ repayment or helping to understand the law, please reach out.

The Paycheck Protection Program — What’s Next? Part I: Loan Eligibility

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As one of the largest loan programs in American history was rolled out to help small businesses, it’s not unexpected to see many questions and responses by the U.S. Treasury in the form of FAQs to help clarify the government’s intent with respect to PPP funds eligibility and usage. But are they leaving businesses with more questions than answers?

Eligibility and usage are cornerstones as to whether a company will have its loan forgiven, or whether its owners, officers and directors will be subject to penalties and criminal prosecution for making an application when their company has alternative access to capital, such as the cases involving Ruth’s Chris Steakhouse and Shake Shack.

In a recent tweet, Zachary Warmbrodt of Politico stated, “Marco Rubio says the names of business that received PPP loans will be made public. ‘Treasury, SBA is eventually going to have to release that. I always thought they were going to have to, and if they don’t, we’ll make them do it.’”

The message being sent by the government? All companies need to be prepared to justify eligibility and forgiveness. Let’s start with a look at eligibility.

Eligibility: As simple as it looks?
At first glance of the CARES Act, the only eligibility requirements were that a business had to have no more than 500 employees. For companies with a NAICS code beginning with 72 (hospitality and restaurants), their employee count was based on a per-location basis. In addition, there had to be economic uncertainty resulting from COVID-19 impacting the business — a rather broad statement.

The SBA, in consultation with the Department of the Treasury, has issued guidance in the form of FAQs 31 and 37 as it applies to large companies (publicly held) and private companies (the rest of us).

Here’s what FAQ31 for public companies states in part: “Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that ‘current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

Translation: It’s important to keep in mind that this is your certification, meaning banks may rely on a borrower’s certification regarding the necessity of the loan. In other words, just because your bank processes your loan application, that doesn’t mean you’re necessarily eligible for the funds.

FAQ 37 for private companies simply states see FAQ 31. So, what does this mean for the rest of us? To avoid problems, every business needs to document how it arrived at needing the funds based on the economic uncertainty surrounding COVID-19. Sounds simple, but consider these real-life examples:

  1. If a business doesn’t experience a significant revenue decline, but has a decline year over year of cash, does it qualify?
  2. Does a business where the business owner has some financial means qualify? Should this small business owner be required to liquidate investments or a 401(k) to infuse capital into their business?
  3. What about a small business with an established line of credit with a personal guarantee by the business owner? Should the small business owner be required to access these funds with a personal guarantee without regard to the PPP funds and jeopardize the small business owner’s personal financial well-being as well the well-being of the business?

I recently attended a webinar with some SBA representatives, where responses to most questions were referred to the Department of Treasury for additional guidance. However, there was much discussion regarding the above fact patterns.  In substance, the representatives continued to mention “good faith representation” regarding economic uncertainty.  At no time did anyone state that having a line of credit or a high net worth owner(s) would be a detriment to seeking the funds and being eligible. All stated it’s based on facts and circumstances and all factors should be considered in determining eligibility.

Economic uncertainty doesn’t only pertain to current conditions, but also the future economic impact on small business — meaning no one really knows how the economy will behave once the country is reopened. Receiving these funds may be the difference between survival, bankruptcy, or reduced work force.

In anticipation of being asked to justify your PPP application, have the following information ready:

  1. Business factors you were seeing which led you to change your business model from salary cuts to headcount reductions to overall expense reduction. One page is enough for a summary.
  2. Current and future impact on revenue/order cancellations.
  3. Impact on accounts receivable collections.
  4. Factors which led you to retain your employees.
  5. Concerns about the future which led you to apply for funding.
  6. Inability to access capital and liquidity
  7. Unwillingness or inability of a business owner to put funds into the business

[Important update 5.6 — Repayment date has now been extended to May 14, 2020. Borrowers do not need to apply for this extension.]
Although not all-inclusive, this should you give something to consider if and when the question is asked.  Keep in mind if a business is ineligible, it has until May 7, 2020 to return the funds with no repercussions. One thing the representatives on the webinar agreed upon is there will be more guidance, so stay tuned.

The Dos and Don’ts of Expanding Your Finance Team

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According to the Bureau of Labor Statistics, the employment of accountants and auditors is projected to grow 11% from 2014 to 2024, faster than the average for all occupations. So, it’s no surprise that your firm may be considering the expansion of its team.

Finding the right people for accounting and finance industry jobs can be a challenging task. Here are some valuable reminders to keep in mind to effectively recruit and hire:

Do research and set goals. With the money and resources at its disposal, how much new staff if your firm capable of accommodating? What can it reasonably accomplish? Are your goals specific and measureable? Analyze the stats and data you have available to make projections on how your business will fare in the future — and if more staff can better support its goals.

Do write precise job descriptions. To fill accounting and finances positions, a specific skillset, education and personality is often desired. Be sure to write detailed descriptions with pinpointing the job requirements and responsibilities. Highlight the niche experience and proficiencies that are required, so you attract the right candidates from jump.

Do leverage employee referrals. Within the next two years, 50% of the U.S. workforce is expected to be made up of millennials. Did you know that employee referrals are the most successful recruiting tactic for this demographic? By establishing an employee referral program, you can incentivize your employees to recommend suitable professionals, while helping your firm save time and money spent on recruiting.

Don’t forget the job boards. Seventy-one percent of finance and accounting professionals use online job boards like Indeed and Monster to search for open positions. Take advantage of both free and paid job options to get your firm’s available positions out there.

Don’t make these key interview mistakes. In today’s age, there are more than a few fair hiring laws to remember, from the Equal Pay Act to the Americans with Disabilities Act. One small misstep toward noncompliance and your firm could be liable for a costly settlement. During the interview, keep these subjects off the table:

  • A candidate’s age, except for proof that they’re at least 18 years of age
  • Affiliations, union membership or social clubs they may belong to
  • Marital or family status
  • Ethnic background or citizenship, except for proof that they can legally work in the U.S.
  • Criminal record, other than if they’ve been convicted of a crime
  • Personal aspects, e.g. home ownership or finances
  • Gender, race or religion

Don’t rush the process. When you’re battling the clock, you’re more likely to hire the wrong people, and a bad hiring decision can set you back. Focus on interviewing qualified candidates and hold out on an offer until you find the right one. Don’t waste time on someone who doesn’t win over your confidence.

Do stay consistent — and stay fair. Protect yourself and your firm by keeping interviews equal and unbiased. Adhere to a hiring process that asks all candidates the exact same questions.

A recent survey by Accounting Today revealed that accounting talent is increasingly hard to find. Robert Half research reports that 65% of CFOs say it’s challenging for them to find candidates. At Magone and Company, we know that hiring the right team is critical to your success. And finding the right candidate is worth the wait.

 

7 essential skills to succeed in finance (and they’re not related to numbers)

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To excel as a financial professional, you need a specialized skillset that goes beyond financial expertise, crunching figures and analyzing operational successes. Because if you can’t perform other basic functions of your job, it’s impossible to fulfill the full potential of a financial position.

Today’s financial professionals need to master these seven non-financial skills:

  • Marketing. You’ll never get anywhere if you can’t market your professional knowledge to your niche market. Potential clients need to know how you can help them better manage their assets. This starts by understanding your personal, as well as your firm’s own strengths, and how to best translate the benefits you can provide.
  • Communication. For a financial pro, verbal, nonverbal and written communication skills are non-negotiable — from the ability to communicate clearly while translating complicated data to recommending the best courses of action to your clients and constituents. Communicating nonverbally especially requires a keen awareness of any possible interpretations of gestures, expressions or body language that can affect how the message is received.
  • Relationship management. Your role at your firm involves lots of number crunching, but it all comes down to meeting the needs of your clients. From listening and understanding different personality types to asking the right questions and resolving conflicts, people skills are key to your job function.
  • Presentation. You know that old saying, “It’s not what you say, but how you say it”? When it comes to discussing financial information, this applies — particularly if you’re delivering not-so-great news.That’s why the finance industry needs professionals who can pitch ideas, present proposals and discuss sensitive data with all types of people.
  • Project management. As a busy financial professional, you need to effectively manage time and budgets, and meet tight deadlines, all while staying organized and paying close attention to the smallest details. With so many balls in the air, your project management skills should be in tip top shape to avoid any oversights or overdue projects can kill your credibility.
  • Problem-solving. With any job, you must be prepared and equipped to troubleshoot issues as they arise — without cracking under pressure. Taking swift and professional action will help resolve problems in a timely matter, without affecting the flow of business. That’s why finance professionals should be at the top of their game when it comes to everyday problem solving.
  • Tech savvy. We’re in the midst of a digital transformation, and financial professionals who want to keep up with the times are required to stay current with the latest software and programs. Developing good technical skills and adapting to new technology is critical for any firm that want to grow and stay competitive.

To succeed in finance, it takes more than a keen knowledge of numbers. By combining an ability to analyze data with the skills to project manage, communicate and acclimate to changing technology, your firm’s financial department will be primed for greatness.

Navigating the new business normal

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No business sector has been spared the fear and uncertainty we’re all currently mired in.

As a firm, Magone & Company has been busy on several fronts — helping business clients seeking financing from the Small Business Administration (SBA) in the form of Economic Injury Disaster Loans (EIDL), applying for the Paycheck Protection Plan (PPP), and getting ahead of the continued business challenges to come.

If this is the new normal for the foreseeable future, here are some tips to help navigate it:

  • Cash is king. If you haven’t already done so, negotiate with landlords and vendors for some accommodation on your payment terms.
  • If you received a PPP loan, bring back your workforce and pay them within 8 weeks of receipt to ensure loan forgiveness. If you have not already done so, establish a separate account for these funds and transfer them into your operating account when paying payroll and related expenses. Keep in mind to reduce the payroll for the fund transfer for any employee making more than $100,000 annually, or $8,333 monthly/$4,166 semi-monthly. If the funds are used to pay payroll in excess of $100,000 they will not be forgiven.
  • If you have an existing credit facility, make certain you are diligent with loan covenants. Making certain to communicate immediately with lenders if you will not be meeting the various covenants — especially reporting covenants for annual financial statements.
  • Update your budgets and cash flow projections. If you don’t usually prepare them, prepare them now! You can’t go by the seat of your pants when negotiating vendor terms, rent and/or mortgage deferral.
  • Stay in touch with your banker. Let them know what changes you have made in your business, how business has been in the last six weeks, and your projections for the remainder of the year.
  • Make informed decisions. As difficult as it is to consider pay reductions, furloughs or terminations, be realistic when reviewing updated budget and cash flow numbers to determine if your business can support your previous headcount.
  • During this period, communicate with customers and vendors. More is better. Let your customers know you’re open for business, and your vendors know you’re still in business and paying their invoices.

The government has stated its desire to replenish the PPP in the amount of $250 billion, so if you missed out on the first round of funding be ready to submit your application for the next round of funding.

Of course, this is general information. Be sure to check with your accountant or financial advisor for guidance specific to your situation. Don’t have anyone to help? We invite you to check in with our team for assistance with any aspect of your business operation or future strategy.