Small Business

3 tax resolution strategies from the IRS

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Whew, tax time has passed! Or has it? While taxes are a fact of life, tax problems shouldn’t be. If you find yourself in hot water with the IRS, they’ll come to collect what you owe by any means possible — from garnishing your wages to putting a lien on your property. Luckily, there are valuable tax relief options out there to help resolve your tax debt and get you back in good standing with Uncle Sam.

#1 First time Penalty Abatement policy
The IRS doesn’t like being ignored, and if you don’t respond to their initial notices, pricey penalties will keep accruing. But under its First-time Penalty Abatement policy, the IRS may provide administrative relief from a penalty that would otherwise be applicable.

#2 Offer in Compromise (OIC)
You’ve probably seen or heard advertisements from tax relief firms that claim they can settle your tax debt for less than the full amount. An Offer in Compromise can help get your debt down to a manageable payment. To even be considered, you must ensure you’re in compliance and file any unfiled tax returns.

#3 Structured payment plan
Can’t pay the lump sum you owe in full? Your specific tax situation will determine which payment options are available to you, including a short-term payment plan (120 days or less) or a long-term payment plan (an installment agreement that’s longer than 120 days).

Ready for a fresh start?
Effective since 2011, the IRS’s Fresh Start Initiative aims to help more individuals and small businesses take advantage of the flexible programs available to settle tax debt. For details, contact Magone & Company at (973) 301-2300 to schedule a no-obligation consultation and learn more about your options.

When disaster strikes, how thorough is your business continuity plan?

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Whether you operate a small company or helm a large corporation, every business is susceptible to events beyond its control. Whether it’s a data breach, a weather disaster or communicable disease outbreak, a solid business continuity plan can help minimize the impact on daily operations and help your organization come out on top.

Your business continuity plan is a dynamic tool that documents the procedures and processes to get back to business as quickly as possible. The time spent developing and maintaining a comprehensive plan is an investment in your company. So, from emergency communications to facilities management, make sure these five areas are covered:

#1. Emergency management. Do employees know who’s in charge in the event of an emergency? Are they aware of appropriate measures to take? Even the best employees won’t automatically know what to do without a plan in place. Appropriate emergency responses should be clearly outlined, and test runs and drills made part of your standard operating procedure.

#2. Crisis communications. When a disruption or threat arises, how do you notify your team, customers, vendors and the greater community? Your plan should specifically address notifications, communication channels and expectations regarding any change in business operations.

#3. Facilities maintenance.  Office space, storefronts, warehouses — are your facilities equipped to withstand nature’s elements? A continuity plan can help ensure that your facilities are resilient, with the ability to tolerate or recover from the potential damage.

#4. Security. Chances are your critical records and data are stored electronically, so can your IT systems hold up against tampering or hacking? Is company data regularly backed up, both on-site and remotely? Are measures in place to protect your inventory, merchandise or equipment? Keeping physical and intellectual property, data records and other valuable materials safe from harm, theft or loss is another vital function of your business continuity plan.

#5. Health and safety. At the end of the day, what’s more important than the well-being of your employees and customers? If a workplace catastrophe occurs, your people are counting on you to protect them. Your business needs systems in place that offer a line of defense against any conceivable threat.

Room for improvement
Even if your business continuity plan is complete and in effect, your work isn’t done. As technology evolves and employees come and go, the plan should be regularly updated. Experts recommend meeting with key stakeholders annually to review and modify the plan. Then, share it across departments and business units, and gather feedback from the entire company to make sure nothing’s being overlooked. When everyone is on the same page, you can best ensure an organized, safe and timely recovery.

Preparing for the storm
There’s no better test of your organization’s resilience than the occurrence of an adverse event — but don’t wait for disaster to implement or evaluate your plan. Build your defense now, and make it a regular part of your strategic planning processes.

Interpreting the new CARES Act: What it means for your business

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The much-needed support for small businesses and non-profit organizations has been realized by the passage and signing on Friday March 27, 2020 by the President of The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which introduces the Paycheck Protection Program as a key provision in Title I — the Keeping American Workers Paid and Employed Act. In an effort to get our clients and friends information quickly, there may be revisions to the below as we take a deeper look into the law.

What is it?
The Paycheck Protection Program provides $349 billion in 100% federally guaranteed loans to small businesses and 501(c)(3) nonprofit organizations. Because many businesses have already laid off workers as a response to the pandemic, the program can be retroactive, with the covered loan period running from Feb. 15 to June 30, 2020, which allows previously laid off or furloughed employees to be returned to payrolls.

Who is eligible?
Any business or non-profit organization with not more than 500 employees is eligible, or otherwise qualifies as a “small business” under SBA size standards published in 13 part 121 of the CFR. More importantly, small business includes within its definition sole proprietorships, independent contractors and self-employed individuals.

How are the number of employees determined?
Generally speaking, the normal rules of attribution apply. Meaning any business that is controlled through voting, managerial, economic or influence would be counted toward the 500-employee cut-off for this program. The only exception is for hotels and restaurants as long as the number of employees is less than 500 per physical location.

How is the loan amount determined?
The loan amount is determined by reference to monthly payroll costs for the one year period prior to the loan. Payroll costs include:
1. Salaries, wages, commissions or similar compensation, up to $100,000 per employee
2. Cash tips
3. Payment for vacation, parental, family, medical or sick leave
4. Healthcare and retirement benefits
5. State and local taxes on wages
6. Payments of any compensation to or income of a sole proprietor or independent contractor that is wage, commission, income, net earnings from self-employment or similar that is not more than $100,000 in 1 year, as prorated for the covered period

Any compensation paid to employees outside the U.S. is excluded.

Once the monthly average of the above is determined, it is multiplied by 2.5. The business receives the lesser of 2.5x the monthly average payroll or $10,000,000.

I’m self-employed or an independent contractor and have no employees. How do I compute the loan amount?
If you are self-employed, or an independent contractor the rules above apply to you, except you will use your first $100,000 of self-employed income to determine the average monthly payroll. The law specifically states “the sum of payments to of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as pro-rated for the covered period.”

Although not clear, we imagine your self-employed health insurance can also be included in the computation. In addition, self-employed and independent contractors will be required to submit documentation substantiating such classification such as payroll tax filings, 1099-MISC and other information.

What expenses can I pay?
The money received can be used to pay the following:
1. Payroll costs
2. Payments for the continuation of group health care benefits, which includes paid sick, medical and family leave and insurance premiums
3. Employee salaries, commissions or similar compensations
4. Payments of interest on any mortgage obligation. However, the payment cannot be used for prepayment of or payments for principal.
5. Rent
6. Utilities
7. Interest on any other debt obligations that were incurred before the covered period.

How do I apply and what are terms?
Application for the loan will be made with your local banker who is an authorized SBA lender. The federal government is pushing for rapid adoption and expects to have numerous additional lenders in place in the weeks to come. We still don’t have clarity as to how the application process will work or when an application can be submitted. However, the normal requirements of the SBA will not be enforced such as personal guarantees, collateral, and unable to obtain credit elsewhere. Normal fees of the SBA will also be waived.

What we do know is there is a loan forgiveness provision, provided the funds are used as follows:
1. Payroll costs
2. Interest on certain mortgage obligations
3. Rent and utilities
In addition to using the funds on the costs above, there are provisions to maintain the ratio of employees during February 15, 2020 through June 30, 2020 to the number of employees for the same period in 2019, or for the period January 1, 2020 to February 29, 2020. The amount of forgiveness is also reduced by the amount that total salary or wages of any employee is reduced by more than 25 percent. However, anyone who makes more than $100,000 is not subject to this limitation as the wages above $100,000 were not included in the computation.

The amounts forgiven are excluded from gross income for federal income tax purposes.

To the extent the funds remain or are not used for the expenses above, the funds are required to be repaid over a maximum maturity of 10 years with an interest rate not to exceed 4%.

Other considerations
We have received many calls from our clients and colleagues regarding paying employees who are paid by person seen (in the case of non-profit organizations in behavior health) or commission. The question is how is the rate of pay determined? Our recommendation is to set the rate of pay based on a historical average of commission or persons usually seen based on prior year records for the employee. Remember, the funding is to allow a business or non-profit organization to retain their employees.

We understand these are uncertain times and we are committed to keeping our clients and friends informed as information becomes available.

Paycheck Protection Program just passed by Congress

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The Paycheck Protection Program (PPP) is now awaiting sign-off by President Trump. Below are some key provisions in anticipation of its signing. All details need to be vetted and changes can occur. We’re watching this closely. Here’s what we currently anticipate:

A completely new, temporary lending program to aid small business. The bill will provide roughly $350 billion to support loans through the new “Paycheck Protection Program,” which Congress designed to keep employees on the payroll and save small businesses. The Small Business Administration (SBA) will stand up a completely new program that will only nominally be part of the existing SBA Section 7(a) loan program. To expedite the funding of the new loans, the Treasury Department and SBA will expand the number of participating banks and credit unions; captive finance companies may also be included.

Minimal eligibility requirements. Any business operational on February 15, 2020, that paid salaries and payroll taxes will be eligible, but there is a limit of no more than 500 employees. Fortunately, the bill includes provisions to waive normal affiliation rules which should be applicable to many dealers. For dealers, there will be no test for total revenue.

Borrower certification to obtain loan. Borrowers will be required to make a good-faith certification that the loan is necessary due to economic conditions caused by COVID-19 and that it will use the funds to retain workers and maintain payroll, lease and utility payments.

Loans with terms NOT found in traditional bank loans. Lenders will not require application fees, closing costs, collateral or personal guarantees. The maximum interest rate will be 4%, and the first six months’ payments (principal and interest) will be automatically deferred. Finally, the lenders are not expected to perform credit analysis, because the loans will be 100% guaranteed by the SBA.

Maximum loan amount. The maximum amount will be 250% of an employer’s average monthly payroll (based on a 12-month look back from the date of the loan), but NOT MORE than $10 million.

Permitted uses of the loan. The loan can be used for “payroll costs,” which include salary, commission, or similar compensation (up to an annual rate of pay of $100,000 per employee); employee group health care benefits, including insurance premiums; retirement contributions; and covered leave from February 15, 2020, to June 30, 2020. Permitted uses also include payments of interest on mortgages, rent, utilities and interest on any other debt obligations that were incurred before February 15, 2020.

Loans may be forgiven. In general, borrowers will be eligible for loan forgiveness equal to the amount of certain expenses spent during an eight-week period after the origination date of the loan. These expenses are payroll costs, interest payments on any secured debt incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.

Percentage of employee retention related to amount of loan forgiveness. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year, and by the reduction in pay of any employee in excess of 25% of the employee’s prior-year compensation. However, to encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire previously laid-off workers by June 30, 2020, will still qualify and not be penalized for having a reduced payroll during the loan period.

No effect on Federal Income tax. Canceled indebtedness under this program will not be included in the borrower’s taxable income.

Loan amounts not forgiven. Any loan amounts not forgiven at the end of one year will be carried forward as an ongoing loan with terms of a maximum of 10 years at 4% interest or less.

We hope you’re finding these posts of value, and will keep you informed as new information becomes available.

 

SBA disaster relief for small businesses & nonprofits in NJ and other states

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Small business owners and nonprofit agencies may have been tossed a lifeline from the U.S. Small Business Administration, which just named New Jersey and several other states a declared disaster state in the wake of the Coronavirus pandemic.

This declaration will allow New Jersey small business owners and non-profit organizations impacted by COVID-19 to apply for SBA Economic Injury Disaster Loans (EIDLs) that provide financial assistance to help support their businesses.

EIDLs are secured loans up to $2,000,000 as determined by the SBA, with a maximum interest rate of 3.75% for small businesses — less if you are a non-profit organization. These working capital loans are designed to help small businesses and most private, non-profit organizations of all sizes meet their ordinary and necessary financial obligations like payroll and vendor payments that cannot be met as a direct result of a disaster.

These loans are intended to assist through the disaster recovery period, so we encourage every small business and nonprofit that qualifies to register and apply ASAP whether or not you ultimately end up requiring assistance. Note that these loans cannot be used to refinance long-term debt of a business.

Questions? The Magone & Company team of business advisors is here to help. Contact us if we can be of assistance.

Tackling your own business tax issues? Bad idea

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Running a small business means wearing multiple hats — from salesperson to HR manager to collection agent. But should you add tax expert to your growing list of duties?

You may think preparing tax returns for your small business is no big deal. After all, there’s no shortage of tax software options and apps on the market that can help simplify the do-it-yourself route. But before you fill out the endless forms and scan a mountain of receipts, consider these three compelling reasons to leave your taxes to the professionals:

  1. It’s too easy to make a mistake. Even a small business tax return can span dozens of pages. And with so many figures and numbers, there are literally thousands of opportunities for an error to occur. Inadvertent blunders could mean hefty overpayments. Or worse, they could trigger an audit and tie your up business for months.
  2. If there’s an audit, you’re left to fend for yourself. The IRS is increasingly setting its sights on the small business community, and that means you have a target on your back. As an individual taxpayer, your chances of being audited are less than 1%. But as business owner who’s filing a Schedule C, the odds are far higher. Would you know how to proceed without the knowledge of a trusted tax professional?
  3. The tax laws are always changing. Even if you’re an expert on the current tax code, that expertise will not last long. Every new year brings a slew of changes, and many directly impact small businesses. If you rely on your own knowledge, you could miss a vital update that could save your firm money or get hit with a penalty that you didn’t know existed.

Putting a price tag on peace of mind
 Having your taxes professionally prepared can be one of the best investments you make this year. If you don’t already have a trusted tax professional on your team, give Magone & Company a call at (973) 301-2300.