Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
Please note that this blog is based on laws effective in September 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Regardless of the type of business you’re running, it’s safe to say that you’ve likely already been impacted by the ongoing COVID-19 pandemic. With no complete end to the situation in sight, many have begun to try to settle into whatever this “new normal” actually is. This, of course, presents its own fair share of challenges. Once you get your doors opened back up again, if they’re not already, you may start to think about other important events down the line: valuations and appraisals, risk assessments, and succession planning.
Thanks in no small part to COVID-19, many private enterprises and family-owned businesses have been forced to dramatically rethink their points of view on these strategies and other important wealth transition and succession planning topics. As a result, below are some things to take into consideration.
One of the more unfortunate impacts that COVID-19 has had in the last few months involves a decrease in small business values across the board. The fact that both actual and expected revenues and earnings have likely decreased for many organizations, coupled with an increase in interest-bearing debt and liquidity issues in the market at large, all have a lot to do with this issue.
At the same time, it is entirely possible to mitigate risk to that end by keeping a few key things in mind. First and foremost, focus your attention on cash flows, the cost of capital, and growth as much as possible. One of the most critical considerations for a proper business valuation in these times involves figuring out what a recovery from COVID-19 will look like for your organization.
Obviously, certain industries have bounced back faster than others. Likewise, there are certain things that we just cannot know right now – like when a vaccine will be available and what effect that will have on the world. But you can focus on a few key areas – like whether you will experience a full recovery or only a partial recovery, and how long that impact will last – to make better determinations about projected cash flow and other growth-related factors.
On the plus side, all of this represents a unique opportunity for many people to take advantage of low small business valuations to minimize things like estate and gift taxes. Lower business valuations allow business owners like yourself to transfer a greater portion of your business assets and reduce your taxable estate. So, from that perspective, you’ll be able to gift assets against your lifetime exemption that would have previously been considered a taxable event had COVID-19 not occurred at all.
In general, you need to remember that the major goals of wealth transition and succession planning are that you’re attempting to preserve as much of your wealth AND your business as possible. Yes, it’s about making a plan that you can follow over time. But it’s also about being flexible enough to evolve that plan as conditions can (and likely will) change.
This is true for COVID-19’s impact on the supply chain. Even if your small business isn’t being directly impacted right now, the same might not be true of your supply chain partners or even your largest customers. This could have a considerable impact on your own operations, and if your organization is particularly vulnerable to these types of issues, you need to start thinking about ways to mitigate them as soon as you can.
Likewise, you may be one of the lucky few businesses that wasn’t actually negatively impacted by COVID-19 at all. Some industries are absolutely thriving right now – with manufacturers of personal safety gear and even a lot of food and beverage manufacturers being among them. If this describes your situation, it’s likely that you’ve seen a short-term increase in sales and, in all likelihood, profitability. How will this impact the future of your organization? Is this what the “new normal” looks like for you, or will you eventually return to pre-COVID levels? Do you have a way to determine this right now, or is time going to have to tell the story? These are all critical questions that you need to try to answer to make the best possible decisions in terms of succession planning.
In the end, understand that wealth transition and succession planning were always complicated processes, and COVID-19 has not done anyone any favors. No matter what, you need to recognize that this is an inherently specific process. So much is impacted by your own unique circumstances and the facts surrounding your organization. Likewise, your end goals will play an important role in the decisions you make, along with how they may have changed in the last few months.
However, if you’re able to keep these core best practices in mind and look at things through this new pandemic lens, you’ll be able to create the right plan for your objectives with as few potential downsides as possible. If you’d like to discuss wealth transition and succession planning strategies for your business, please contact Cray Kaiser. We’d be happy to help you.
Please note that this blog is based on laws effective in September 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
During the COVID-19 pandemic, the Internal Revenue Service (IRS) furloughed many of its employees or had them work from home to mitigate the spread of the virus. Many IRS offices remained shuttered for months, thus a backlog of millions of pieces of unopened mail, including IRS checks, accumulated in trailers set up outside IRS facilities.
The unopened mail included payment checks, creating a problem for many electronically filed returns with tax due because the IRS computer shows a tax return filed but no payment made. Because the IRS utilizes a significant amount of automation, its computers began automatically generating tax-due notices to those who had mailed in payments. While most IRS facilities have reopened and IRS employees have returned to work, it will take them weeks, if not months, to get all of the backlogged mail opened and processed.
After receiving complaints from taxpayers and members of Congress, the IRS put information on its website about these outstanding payments. They stated that the payments will be posted as of the date when they were received by the IRS, not the date when they process them. In most cases, this will eliminate or minimize penalties and interest for late payments. So, if you mailed a check to the IRS that has yet to clear your bank, with or without a return, the IRS says that you should not cancel or put a stop-payment on the check. However, you should be sure that you have adequate funds in the account from which the check was written, so that the check will clear when the IRS does process it.
Normally, the penalty for a dishonored payment (a bounced check) of over $1,250 is 2% of the amount of the check, money order, or electronic payment. If the amount is $1,250 or less, the penalty is the amount of the check, money order, or electronic payment, or $25, whichever is lower.
To provide fair and equitable treatment during the COVID-19 emergency, the IRS is providing relief from bad-check penalties. The dishonored payment penalty will be waived for dishonored checks that the IRS received between March 1 and July 15 due to delays in processing. However, interest and other penalties may still apply.
The short answer: nothing. The IRS has decided to suspend mailing certain tax-due notices to taxpayers temporarily until the unopened mail backlog is cleared up. So, if you have received a tax-due notice but know that you already paid the tax, the IRS asks that you wait to contact it about any unprocessed paper payments that are still pending.
For now, it’s important to be patient. There’s no reason to send additional correspondence to the IRS as it would just be added to the mountains of unopened mail. And due to high call volumes, giving the IRS a call will be of little use at this time.
If you have any concerns about your uncashed IRS check, please contact Cray Kaiser.
Please note that this blog is based on laws effective in September 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Are you one of the many people in the United States who started working from home this year as a result of the coronavirus pandemic? You’re not alone. And while it is unclear how much longer the nation will be in the grips of this crisis, social distancing practices are likely to remain in place for most organizations. Some of the country’s most recognizable brands, including Facebook and Google, have already announced a work-from-home option that will extend through July 2021 for all of their employees, while others have made the ability to work remotely permanent.
As more and more organizations make the decision that their staff members can work from home either permanently or on a long-term basis, they may need to take a closer look at how nexus laws will be addressed — especially as several state governments are beginning to address work-from-home employees in terms of nexus and on tax revenue.
Traditionally, a state tax obligation is established when a business has a physical presence within its borders. That is what creates nexus. For example, if a Floridian goes to New York for a temporary job placement, they have an income tax obligation in New York for the money that they earn there. And if a Californian company places employees in Texas, then the company would have an obligation to follow Texas laws and pay Texas sales tax.
While New York Governor Andrew Cuomo explicitly continued making temporarily remote employees in New York liable for state income tax when COVID-19 struck, several states (including Massachusetts and Pennsylvania) made clear that the virus-related remote work would not trigger nexus obligations, at least as long as official work-from-home orders or states of emergency lasted. Today, as mandates are being lifted but companies continue to allow or enforce work from home, those states are beginning to reconsider their position.
While not every state has begun to address the tax ramifications of working-from-home due to COVID-19, Congress has. On July 27, 2020 new legislation was introduced with the goal of limiting the amount of state income tax that could be charged on income earned in state to residents of another state. The proposal revises Section 403 of the American Workers, Families and Employers Assistance Act (S. 4318), which says in part:
“No part of the wages or other remuneration earned by an employee who is a resident of a taxing jurisdiction and performs employment duties in more than one taxing jurisdiction shall be subject to income tax in any taxing jurisdiction other than: (A) The taxing jurisdiction of the employee’s residence (B) Any taxing jurisdiction within which the employee is present and performing employment duties for more than 30 days during the calendar year in which the wages or other remuneration is earned.”
The revision would extend the 30 days in part (B) to 90 days for calendar year 2020 “in the case of any employee who performs employment duties in any taxing jurisdiction other than the taxing jurisdiction of the employee’s residence during such year as a result of the COVID-19 public health emergency.”
Although this legislation has not been acted upon, we are hopeful that the federal government can provide overriding guidance on this issue. Without uniform guidance, each state is free to set their own nexus standards.
Nexus is a complicated topic. If you’re looking for additional information on nexus, click here. And as always, Cray Kaiser is here to answer your questions. Please contact us today to discuss how nexus impacts you and your business during the pandemic.
Please note that this blog is based on laws effective in September 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
The Internal Revenue Service (IRS) announced that it would reopen the registration period for federal beneficiaries with children who did not receive a $500 per child Economic Impact (stimulus) Payment earlier this year. Here’s what you need to know:
The IRS urges certain federal benefit recipients to use the IRS.gov Non-Filers tool between August 15 and September 30 to enter information on their qualifying children in order to receive the supplemental $500 payments.
Those eligible to provide this information include people with qualifying children who receive Social Security retirement, survivor or disability benefits; Supplemental Security Income (SSI); Railroad Retirement benefits; and Veterans Affairs Compensation and Pension (C&P) benefits and did not file a tax return for 2018 or 2019.
The IRS anticipates the catch-up payments, equal to $500 per eligible child, will be issued by mid-October.
For those Social Security, SSI, Department of Veterans Affairs and Railroad Retirement Board beneficiaries who have already used the Non-Filers tool to provide information on their children, and who haven’t yet received payment, no further action is needed. The IRS will automatically make a payment in October.
For those who received Social Security, SSI, RRB or VA benefits and have not used the Non-Filers tool to provide information on their children, register online by September 30 using the Non-Filers: Enter Payment Info Here tool. However, anyone who filed or plans to file either a 2018 or 2019 tax return should file the tax return and not use this tool.
Any beneficiary who misses the September 30 deadline will need to wait until next year to claim the Economic Impact Payment as a credit on their 2020 federal income tax return.
Those who received their original Economic Impact Payment by direct deposit will also have any supplemental payment direct deposited to the same account. Others will receive a check. The status of the payments can be checked by using the Get My Payment tool. In addition, a notice verifying the $500-per-child supplemental payment will be sent to each recipient and should be filed with other tax records.
Those who are not required to file a tax return are still eligible to receive an Economic Impact Payment by using the Non-Filers’ tool, but they need to act by October 15 to receive their payment this year. Otherwise, they will need to wait until next year and claim it as a credit on their 2020 federal income tax return.
The Non-Filers tool is designed for people with incomes typically below $24,400 for married couples, and $12,200 for singles. This includes couples and individuals who are experiencing homelessness. People can qualify, even if they don’t work or have no earned income. But low- and moderate-income workers and working families eligible to receive special tax benefits, such as the Earned Income Tax Credit or Child Tax Credit, cannot use this tool. They will need to file a regular return.
If you have questions about the child stimulus payment or stimulus payments in general, please contact Cray Kaiser today.
Please note that this blog is based on laws effective on September, 3 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
This year we have seen the CARES Act, the FFCR Act, the TRACE Act, the SBA providing EIDL Advances along with the most popular PPP loans, and even the IRS pitching in with the EIP money (economic impact payments). So beyond running and leading your business, you are required to have a bowl of alphabet soup, almost daily, to try to stay afloat in understanding how all of this impacts you as a business owner. In this blog, we focus on how business owners are compensated and how they fit into the Paycheck Protection Program (PPP) loan forgiveness computation.
The PPP loan continues to be on the radar of many business owners and the loan forgiveness piece provided under these loans sparks many conversations. There continues to be some uncertainty as to the computations surrounding loan forgiveness, but recently the Small Business Administration (SBA) in concert with the Department of Treasury addressed some of these uncertainties through frequently asked questions (FAQs) to assist borrowers and lenders as they begin to maneuver through the application process.
From the FAQs, it was evident that payroll costs for owners can vary significantly in comparison to employee payroll costs, and even more so when you consider the business entity who is paying the owner’s compensation.
In general, payroll costs include cash compensation such as gross wages, bonuses, tips, commissions, and hazard pay paid during covered period. For sole proprietors or general partners, the cash compensation is based upon net profits or net earnings subject to self-employment and generally reported on Schedule C (Form 1040) or Schedule K-1 (Form 1065). Cash compensation for corporate shareholders is reported on Form W-2. Owner compensation eligible for loan forgiveness will be based upon the amount recognized in 2019 either from the W-2, Schedule C or Schedule K-1 using a factor of 2.5/12. To put it simply: if the 2019 compensation were $80,000; the loan forgiveness piece would be $16,667 ($80,000/12 multiplied by 2.5). So, even though the compensation cap is $20,833, owners are limited to the 2019 reported amounts.
In addition to an owner’s cash compensation, certain other payroll costs paid during the covered period may be included for additional loan forgiveness. These additional payroll costs vary by business entity and are summarized below.
Employer-provided benefits for health insurance, retirement, and state and local taxes assessed on compensation can be included as payroll costs for purposes of additional loan forgiveness. Please note any contributions the owner makes, such as through payroll withholdings, would need to be excluded from the eligible amount.
Retirement contributions paid during the covered period are eligible for loan forgiveness but are prorated using a factor of 2.5/12 of the 2019 amount reported for each owner. Health insurance and state and local taxes assessed on compensation are based upon the amounts paid during the covered period and do not appear to be prorated based upon 2019.
Employer-provided benefits for retirement and state and local taxes assessed on compensation can be included as payroll costs for purposes of additional loan forgiveness. Keep in mind that any portion the owner made directly or through payroll withholdings would need to be excluded. Any 2% or greater owner cannot include health insurance payments paid for by the employer as additional loan forgiveness. This appears to also carry through to family members who are paid as an employee of the S corporation related to 2% greater owners.
The same calculation of 2.5/12 of the 2019 employer contribution for retirement would need to be considered similar to a C corporation.
No additional amounts for health insurance, retirement contributions, or state and local taxes assessed on compensation are eligible for additional loan forgiveness.
As a reminder, loan forgiveness for an employee’s (non-owner) cash compensation is capped at $46,154, assuming you utilize the full 24-week covered period and pay employees $100,000 or greater. Additional amounts may be eligible for loan forgiveness for employer contributions for health insurance, retirement, and state and local taxes assessed on compensation.
The loan forgiveness guidance continues to evolve, and we are committed to assisting you throughout the process. If you have any questions about PPP loan forgiveness for owner compensation, please contact Cray Kaiser today. We’re here to help!
Please note that this blog and the 24-week PPP loan forgiveness templates are based on laws effective in August 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
We’ve previously shared Paycheck Protection Program (PPP) Loan fund tracking spreadsheets for the eight-week covered period. Now, we have created templates for the 24-week covered period. You can click below to download weekly, bi-weekly, monthly, and semi-monthly workbooks. Each workbook contains instructions, the loan forgiveness calculator, determination of your FTE (full time equivalent), actual tracking of costs template, a certification template and two examples so you can “see the math” in action.
Should any questions arise as you complete the calculations in the 24-week PPP loan forgiveness templates, please contact Cray Kaiser at 630-953-4900.
Please note that this blog is based on laws effective in August 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
On August 28, the Treasury Department issued guidance regarding the deferral of payroll taxes going into effect on September 1, 2020. The guidance was a result of President Trump’s Executive Order issued on August 8.
For the period between September 1 and December 31, 2020, employers can opt out of withholding the 6.2% payroll tax that is the employee’s share of Social Security taxes. The deferral is only available to employees that earn less than the equivalent of an annual salary of $104,000. If the employer chooses to defer collection, the taxes would then be due no later than April 30, 2021.
Mechanically, this would mean that if an employer opts in to the deferral program, employees would see an increased paycheck for the remainder of 2020. However, because the taxes are due in early 2021, employees would need to repay the deferred taxes to make the government whole. The net effect of this provision is a short-term, interest-free loan to employees.
The guidance does not speak to the effect of an employee leaving the company after having deferred taxes other than to indicate that if necessary, an employer can make “arrangements” to collect the taxes from the employee.
Complicating matters further, President Trump has indicated that if re-elected, he will forgive the deferred taxes. Forgiveness was not addressed in the guidance, as only Congress can take action to allow for forgiveness.
If you would like to discuss whether your company should opt in to the payroll tax deferral program, please call Cray Kaiser today at 630-953-4900.
Please note that this blog is based on laws effective on June 5, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Congress has continued to legislate for the small business community, specifically targeting the Paycheck Protection Program (PPP) loans. On June 3, 2020, the Senate approved House Bill 7010 which is commonly referred to as the Paycheck Protection Program Flexibility Act of 2020. This bill provides some flexibility to small businesses in complying with the terms of the PPP loan. A few key features of this bill are summarized below.
Exemptions Based on Employee Availability
During the period of February 15, 2020 through December 31, 2020 a borrower may exempt a reduction in the full-time equivalent calculation if the borrower is able to document one of the following:
Repayment Requirement
There was an added provision requiring a borrower failing to apply for loan forgiveness within 10 months after the last day of the covered period to make payments of principal, interest and fees beginning on this date.
The bill is awaiting final approval by President Trump. Soon after his approval, formal guidance will become available. As further information develops, we will update our blog accordingly. Until then, please don’t hesitate to contact Cray Kaiser with any questions regarding the Paycheck Protection Program Flexibility Act of 2020.
These are certainly trying times and we want to reiterate that Cray Kaiser is here for you. As things continue to evolve in light of the COVID-19 pandemic, we at CK are taking additional precautions for the benefit of our team members and our clients.
Effective immediately:
We want to remind our clients of our portal access and your ability to safely and securely share your information with our team. We ask that you email efile@craykaiser.com to request your portal access. This will eliminate the need for you to drop off your tax information at our office.
Thank you for your patience and understanding during this challenging time. We wish you, your family, and your business health and safety. We will continue to support you as best as we can while keeping each other’s health a priority. If any changes occur during the course of the next few days, we will update our website.
Please note that this blog is based on laws effective on May 2, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
We last shared some best practices and next steps once you receive your PPP funds. It’s now time to start tracking your use of the funds to determine the amount to be forgiven. To aid you in this process, we’ve prepared a few Excel workbooks which you can download by clicking the link below. Each workbook contains instructions, the loan forgiveness calculator, determination of your FTE (full time equivalent), actual tracking of costs template, a certification template and two examples so you can “see the math” in action.
Last week, the Treasury issued an FAQ to provide a recovery period to public companies that took PPP loans when they had adequate resources. The certification documentation provided in the worksheets above allows you to document how and why the PPP loan funds were considered necessary for your company. For entities with loan funds in excess of $2,000,000, it may be necessary to substantiate this documentation with projections and financial amounts in the event of an audit. It’s best practice to complete these worksheets regardless of your funding to be ready in the event you are asked. Remember those sleepless nights before receiving the funding? Those are the reasons why you needed these funds!
Some of you may already be two to three weeks into your eight-week covered period, so acting fast to do the math will get you better positioned once the loan forgiveness process is in place. We anticipate more guidance in the upcoming weeks and will keep you informed on our blog as we know more.
There has been a lot of narrative around the computations of the loan forgiveness (including our own) and now it’s time to put those numbers to work! Should any questions arise as you complete these calculations with the PPP loan forgiveness templates, please contact Cray Kaiser at 630-953-4900.
These are certainly trying times and we want to reiterate that Cray Kaiser is here for you. As things continue to evolve in light of the COVID-19 pandemic, we at CK are taking additional precautions for the benefit of our team members and our clients.
Effective immediately:
We want to remind our clients of our portal access and your ability to safely and securely share your information with our team. We ask that you email efile@craykaiser.com to request your portal access. This will eliminate the need for you to drop off your tax information at our office.
Thank you for your patience and understanding during this challenging time. We wish you, your family, and your business health and safety. We will continue to support you as best as we can while keeping each other’s health a priority. If any changes occur during the course of the next few days, we will update our website.
Please note that this blog is based on laws effective on April 2, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
With the ink barely dry on the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, there have already been several hot topics surrounding the benefits it provides. Below are the top 5 tax provisions that we believe will be most impactful to our clients. You are welcome to listen to these key points in podcast format and then scroll down to read more details for each topic.
What It Means:
Eligible taxpayers will receive a payment of up to $1,200 ($2,400 for married filing jointly) plus $500 for each “qualifying child” (under 17 years of age).
What We Advise:
If you have not yet filed your 2019 return, it may be wise to delay filing in order to maximize the advance payment if your 2018 income is less than 2019.
What It Means:
A refundable payroll tax credit for 50% of wages paid between March 12 and December 31, 2020 for the first $10,000 in wages per employee. Eligible businesses will be required to have full or partial suspension and a significant (more than 50% decline) in gross receipts.
What We Advise:
DO THE MATH! In most cases, the benefits of the forgivable Payroll Protection Loan will outweigh both the employee retention tax credit and deferral.
What It Means:
2018, 2019, and 2020 losses can now be carried back 5 years to fully offset income, as opposed to strictly carried forward. This will allow businesses to recoup previously paid taxes, including in higher tax years. After applying the carryback, certain net operating losses can be carried forward and offset 100% of taxable income, instead of only 80%.
What We Advise:
The CARES Act provides opportunities to businesses to review prior loss/expense limitations and determine if returns should be amended to recoup prior year taxes. At CK, we are looking at all of our business clients’ results for this opportunity and amending returns where beneficial.
What It Means:
“Qualified Improvement Property” (QIP) includes any improvement to an interior portion of a building that is nonresidential real property.
What We Advise:
If you have previously placed QIP in service in 2018 and 2019, review with your tax advisor whether it is beneficial to amend returns in order to claim this benefit. If so, utilize the new net operating loss provisions to recoup taxes paid in years prior to 2018.
What It Means:
The required minimum distributions from certain retirement plans (for example 401(k)s and IRAs) are waived for calendar year 2020.
What We Advise:
Tax planning with RMD’s will be critical in 2020. Just because you are not required to take an RMD, it doesn’t mean you shouldn’t. Work with your advisors to project your taxable income, especially in light of tax provisions that could significantly reduce your 2020 taxable income. 2020 might be a good time to withdraw from your plan if you are in a low tax bracket, although the RMD is not required.
In these rapidly changing times, know that CK has your back when it comes to supporting your tax and accounting needs. Please call us at 630-953-4900 if you’d like to discuss how any of these provisions affect you.
These are certainly trying times and we want to reiterate that Cray Kaiser is here for you. As things continue to evolve in light of the COVID-19 pandemic, we at CK are taking additional precautions for the benefit of our team members and our clients.
Effective immediately:
We want to remind our clients of our portal access and your ability to safely and securely share your information with our team. We ask that you email efile@craykaiser.com to request your portal access. This will eliminate the need for you to drop off your tax information at our office.
Thank you for your patience and understanding during this challenging time. We wish you, your family, and your business health and safety. We will continue to support you as best as we can while keeping each other’s health a priority. If any changes occur during the course of the next few days, we will update our website.
