Author Archives: c29455507

A Team Member Versus a Contractor

With the tax season extension deadline ending, clients are always scrambling to get their information in at the last minute, despite numerous requests from having to get their information received in a timely manner.  In general procrastinators is what makes the world go around, and there is no getting around it.  However, there is always a fine line between people who are trying to help and those who just simply are punching a clock.

Just like employees who feel undervalued or disrespected at work, they often lose interest in doing their job so they will go through the motions and productivity is lost.  There becomes no buy-in for that person as far as what the company’s objectives are to achieve a better life for themselves or those around them.  There’s often resistance for change.  A lack of innovation or “thinking outside of the box” mentality is what eventually ensues.  Again, just punching a clock.

Well business owners work with a variety of people outside of their employees, including their legal professionals, accounting professionals, vendors, social media professionals, tax professionals, IT professionals, etc.  This is the team that they have which is who is supposed to help make them successful, but again it is about how they not only trust that team but also how they earn their respect.  Do they go out of their way to offer you solutions or do they you ignore during times of crisis and will “get back to you” when they can.

Everyone has challenges and many people have lost the meaning of what is a request versus a need, versus what they feel is an entitlement because of our inherent need for instant gratification.  Personally, I work with a variety of clients that I learn about their business as much as possible.  Research and offer potential tax saving solutions, help with tax planning strategies, take care of their books to make sure they have accurate financials that can be defended properly.  Going above and beyond for those clients who want me as a team member and who are not only willing to respect and value me for that service, but also compensate accordingly because it helps make them more money in the long-term.

People who want to just get by and pay for the bare minimum, offer no appreciation for the people they work with, they get a contractor.  Emails and phone calls get responded to when they can, whatever is agreed upon is just that and nothing more.  The adage “you get more flies with honey than you do with vinegar” is never more apparent than today in 2020.  No, you do not always have to pay an outrageous premium for a service to be successful, but showing appreciation and respect makes a bigger difference than any amount of money can ever do.

Within everyone’s own professional life, including my own, sometimes you just need to accept the fact that it is just not worth the check but your own peace of mind not to bend over backwards for someone who can’t be appreciative of what you bring to the table, nor compensate you for your time, because you can never make more than 24 hours in a day.

Dwayne J. Briscoe

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The Payroll Protection Program (PPP) of the Small Business Administration’s debt relief program for forgiveness are due, so it’s important to begin determining what expenses will be covered and will you have enough expenses to substantiate the loan document requirements.  Below are key points as well as a helpful Excel® spreadsheet to utilize.  Coverage starts from the date of receipt of the actual loan into your bank account.

  • Eligible payroll costs paid on the day that paychecks are distributed through electronic transfer or paper check distribution during the Covered Period or Alternative Payroll Covered Period
  • Each individual employee may not exceed an annual salary of $100,000, as prorated for the Covered Period. Count payroll costs that were both paid and incurred only once
  • Include only payroll costs for employees whose principal place of residence is in the United States
  • Employer taxes and unemployment are NOT to be included
  • Benefits including: 401(k) employer contributions such as match and profit sharing , health, vision, and dental insurance can be included
  • Employee headcount and compensation levels must be maintained
  • Not more than 25% of the forgiven amount can be allocated to non-payroll costs, but at least 60% of payroll costs must be allocated for forgiveness
  • Non-payroll costs include: business mortgage interest payments, business rent or lease payments, business utility payments
  • All non-payroll costs should have documentation verifying obligations/services prior to February 15, 2020

Again documentation is key for audit purposes.  As the rules have been in constant change since it was introduced earlier this year, there could be additional tweaks by the SBA which could affect your final submission.  However it’s important that you confirm that you have confirmed that your payroll obligations have been met within the 24 weeks from the date of your PPP loan deposit.

Dwayne J. Briscoe

The Economic Injury Disaster Loan Program Spending Guidelines

In addition to the numerous applicant businesses who have received funds through the Payroll Protection Program, they were also eligible for the Economic Injury Disaster Loan (EIDL) Program for which is also administered through the Small Business Administration.  Due to this additional program, the loans are NOT forgivable and have an interest rate of 3.75% for companies and 2.75% for private nonprofits, with payments of up to 30 years.

Now with regards as to how that money can be spent, there are a list of Do’s and Don’ts below.  As with every SBA program, these rules are subject to change.

Eligible expenses include:

  • Fixed debts (rent, etc.)
  • Payroll
  • Accounts payable
  • Some bills that could have been paid had the disaster not occurred.
  • Dividends and bonuses
  • Disbursements to owners, unless for performance of services
  • Repayment of stockholder/principal loans (with exceptions)
  • Expansion of facilities or acquisition of fixed assets
  • Repair or replacement of physical damages

Ineligible Uses of Loan Proceeds: EIDL proceeds may not be used for: 

  • Payment of any dividends or bonsuses
  • Disbursements to owners, partners, officers, directors, or stockholders, except when directly-related to performance of services for the benefit of the applicant
  • Repayment of stockholder/principal loans, except when the funds were injected on an interim basis as a result of the disaster and non-repayment would cause undue hardship to the stockholder/principal
  • Expansion of facilities or acquisition of fixed assets
  • Repair or replacement of physical damages
  • Refinancing long term debt with a repayment period of more than one year
  • Paying down (including regular installment payments) or paying off loans provided or owned by another Federal agency (including SBA) or a Small Business Investment Company licensed under the Small Business Investment Act. Federal Deposit Insurance Corporation (FDIC) is not considered a Federal agency for this purpose
  • Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations
  • Pay any penalty resulting from noncompliance with a law, regulation or order of a Federal, state, regional, or local agency
  • Contractor malfeasance
  • Relocation or moving outside of the disaster area (however, you can request written consent to relocate)

Extraordinary items can include:

*Temporary rent or storage fees, additional advertising costs, etc.;
*Accelerated debt due to the disaster;
*Inventory replacement may be an extraordinary item. For example, in the spring, a clothing store located in a disaster area is left with an inventory of winter clothing and has no funds to order summer stock. The cost of ordering summer inventory represents an additional need.

For a downloadable pdf copy EIDL Do’s and Don’ts to use as a guide.

Dwayne J. Briscoe

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The Payroll Tax Deferral for Employees

August 8, 2020, President Donald Trump prepared a presidential memorandum (Notice 2020-65) to defer withholding affected compensation for employees during September-December 2020, and then those deferred amounts paid starting January 1 and ending April 30, 2021.  This includes the employee portion of the following: the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3101(a) and Railroad Retirement Act Tier 1 tax under Sec. 3201, and the deferral applies to any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000.

IRS Guidance was released on August 28, 2020, 3 days before the September 1, 2020 start date of the memorandum, with an explanation of what this means for employer.  From that, it is unclear whether employers will choose to pursue this deferment or not, due to a large number of unanswered questions.

Interest, penalties, and additions to tax will begin to accrue on unpaid taxes starting May 1, 2021. The notice says, that, if it is necessary, employers can “make arrangements to otherwise collect the total Applicable Taxes from the employee” but does not provide details on that requirement.

To be clear, no deferral is available for any payment to an employee of taxable wages of $2,000 weekly pay period or $4,000 per semi-monthly pay period. It is not a deferral “up to” that amount with no relief for the overages. Rather, the deferral only applies to workers under the income threshold.  For those qualifying workers, the deferral applies to the employee’s portion of Social Security taxes.

If the deposit obligation for employee social security tax does not arise until the tax is withheld, as long as the employer isn’t withholding the tax on behalf of the employees, the employer doesn’t have to make a deposit to the IRS during the deferral period.  The employer is the one responsible for planning to collect the applicable taxes from the employee.

If the employee leaves the company before the taxes have been fully collected or does not make enough to pay back the taxes in 2021 to be lower than minimum wage, there’s no clarity on behalf of the IRS explanation currently or whether the employer or the employee would be responsible for the unpaid amounts.

The employer is who determines if they choose to pursue this option or not of the social security tax deferral, because if the employee leaves before the taxes are repaid, the employer may be responsible for the unpaid taxes because the IRS guidance DOES NOT allow them to withhold the tax as a retainer and defer paying it for a later amount.  Nor does it give the employer the ability to gross-up the amount as additional wages after-the-fact when an employee leaves before the tax debt has been satisfied.

Dwayne J. Briscoe

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The Cost of Your Tax Return Filing

With the current tax deadline of July 15th fast approaching, as of June 12th the IRS is down 12% processed compared to the 2018 tax return filing season or over 17 million.  However, the rules for penalties and interest still apply for filing and payments made making this deadline next month, and below are some of the more prominent items to consider if you are not able to make your deadline.

There are what is called system generated penalties that do not require IRS manager approval listed below:

  • Failure to file is one of the most common
    • 5% of the net tax due for each month the return is late up to 25% or 5 months; minimum failure to file penalty is $425 or 100% of the net tax due if not filed within 60 days
  • Failure to pay again one of the most common
    • 5% per month with the maximum penalty 25% of the net tax due for up to 50 months
  • Failure to deposit penalty rates are
    • 2% for 1-5 days late; 5% for 6-15 days late; 10% for deposits made more than 15 days late
  • Bad check for checks less than $25
    • a penalty the amount of the check; if your $20 check bounced, you’ll now owe the IRS $40; checks between $25 and $1,250, a flat penalty of $25, checks of $1,250 or more, a penalty of 2% of the amount of the check
  • Estimated tax the standard penalty is 3.398% of your underpayment, but it gets reduced slightly if you pay up before July 15
    • if you owe a total of $14,000 in federal income taxes for 2019 and you do not pay at least $12,600 of that during 2019, you’ll be assessed the penalty

Manually generated penalties requiring an IRS manager approval

  • Accuracy again one of the most common
    • 20% penalty on the underpayment of tax
  • Fraud and false statements
    • upon conviction, the taxpayer is guilty of a felony and is subject to (1) imprisonment for no more than 3 years, (2) a fine of not more than $250,000 for individuals or $500,000 for corporations, or (3) both penalties, plus the cost of prosecution (26 USC 7206(1))
  • Fraudulent failure to file
    • 15% of the net tax due, increases up to 75% of the net tax due

There are opportunities to request abatement on interest and penalties through proper channels and persistence, which include:

  • Reasonable cause
  • Undue hardship defense
  • First time abatement
  • Correction of an IRS error
  • Penalty abatement

Above all else, if you owe taxes and cannot pay, file your return on time and pay what you can online.  It will save you a substantial amount of penalties as evidenced above.  Due to the Covid-19 pandemic, phone operator service is still very intermittent as the IRS has been shut down for several weeks and millions of pieces of unprocessed mail stored in containers are slowly being sifted through, as employees are returning to offices in shifts while practicing social distancing and promoting a safe work environment to return.

Dwayne J. Briscoe

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The Business of Bankruptcy

The Covid-19 pandemic has brought the economy to an unprecedented standstill in a variety of ways, and many large companies have already begun the process of bankruptcy already this year.  More well known companies such as Pier 1 Imports, Neiman Marcus, Stage Stores, as well as JC Penney just to name a few have been on the verge a few times already, but due to the current economic climate they’ve had to move forward with their filings in order to either shut down permanent or seek reorganization for potential survival.  What does that mean for small businesses who may just be one person?  The following are some general descriptions of key items to think about.

When filing for bankruptcy, a company must first determine if it is insolvent or bankrupt.  Insolvency refers to having sufficient income or liquid assets but still needs protection from creditors.  Bankruptcy is defined as having insufficient income or not enough liquid assets to cover all its outstanding liabilities.  For businesses, they can file for Chapter 7 or Chapter 11 bankruptcy, which the following are a few highlights.

Chapter 7

  • Debtor will turn over non-exempt assets to an assigned US Trustee who liquidates or abandons those assets
  • The Trustee then pays creditors from the funds available
  • Debt can still survive bankruptcy such as tax debt, governmental fines and penalties, and personal injury or death caused by the debtor
    • In addition to the petition for bankruptcy, the debtor must also file with the court:
      • Schedules of assets and liabilities
      • Schedule of current income and expenditures
      • A statement of financial affairs
      • A schedule of executory contracts and unexpired leases
    • All tax returns must be current and appropriate copies filed with the petition

Chapter 11

  • Debtor chooses either federal or state exemptions, depending upon where the entity is set-up and whichever exemptions are deemed more favorable to the business
  • Debt can still survive bankruptcy such as tax debt, governmental fines and penalties, and personal injury or death caused by the debtor
    • In addition to the petition for bankruptcy, the debtor must also file with the court:
      • Schedules of assets and liabilities
      • Schedule of current income and expenditures
      • A statement of financial affairs
      • A schedule of executory contracts and unexpired leases
    • All tax returns must be current and appropriate copies filed with the petition
    • You do have the ability to continue operating the business
    • You can repay your creditors through a court-approved plan of reorganization
    • A debtor repays a portion and/or discharges other creditor claims
      • Under Chapter 11, Subchapter 5 option, only the debtor files a reorganization plan and there are no competing plans from creditors
    • The debtor can not only terminate burdensome contracts and leases, recover assets, and rescale to profitability

Key Points

  • You will still need to file tax returns during the bankruptcy process for your business, for which the bankruptcy trustee files a Form 1041 for the bankruptcy estate
  • Chapter 11 is the most expensive option to file

Due to the complexities that any potential bankruptcy can involve, it is valuable that you not only research your options but also ideally consider choosing a licensed attorney in the state that your business is located in.  Although board certifications such as bankruptcy are voluntary, it means an extra layer of education and commitment to your situation.  It’s nothing to be taken randomly, and with a good attorney, you need a good accounting of your business resources to make sure that all of your financials and tax returns are complete and up-to-date.

Dwayne J. Briscoe

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COVID-19 Post #6 – PPP Updates Signed into Law 6/5/20

The Payroll Protection Program (PPP) of the Small Business Administration’s debt relief efforts during the Covid-19 Pandemic, have had numerous challenges since it was first introduced, and there has been numerous updates, sometimes weekly.  However there have been sweeping changes implemented today by Congress, with more expected to still be introduced.

Today, there have been a number of updates which were signed into law today, and are outlined below, which take effect on the date of the bill’s enactment and apply to all PPP loans made on or after, with the government guaranteeing the remainder of the loan.  The following items have been outlined by the National Association of Tax Professionals regarding the changes loan holders need to be aware of.

  • the PPP lifespan from June 30, 2020, to December 31, 2020, for using loan proceeds
  • extending the period during which businesses may spend PPP loan funds from eight weeks after issuance to the earlier of 24 weeks after issuance or December 31, 2020 (though eligible employers may elect to retain the eight-week period instead)
  • specifying that PPP loans can be forgiven even if the number of full-time employees decreases, as long as the employer can prove: it attempted to rehire the same number of employees, but its former employees were unavailable; similarly qualified were unavailable; or its business is unable to return to the same level of activity it had before February 15, 2020
  • lowers the amount that must be spent on payroll to be eligible for forgiveness from 75% to 60%
  • allowing all employers to take advantage of the CARES Act deferral of the 6.2% employer portion of Social Security payroll taxes, regardless of whether they have had a PPP loan forgiven

With 4.5 million businesses receiving approval for loans totaling $510.6 billion, there is still currently $130 billion remaining available for loans.

Dwayne J. Briscoe

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Adapting to New Partnerships in 2020’s Darwinism of Business

  • Develop a plan and update it regularly
  • Reach out to your network and potential competitors about work-share options
  • Never fail to know what your business’ limits are

The aftermath that this pandemic has affected businesses is being felt around the globe, and although major corporations will survive undoubtedly, Main Street will be left tattered and in shambles if people are not open to adapting into how things need to be affected by change.  A young 25-year old man kept explaining to me on numerous occasions that he had everything planned out for his schooling, when he was going to be graduating, where he was going to be moving to next, down to the year in his life he was going to be retiring.  Then all of this happened, and all he wanted was for everything to go back to normal like it was before.

Everything is about adapting for every situation, and this has been no difference.  From quarantine lockdowns, to social distancing, curbside pickups, as well as occupancy limits.  The question becomes how we learn to not only survive but also adapt to once again flourish in these challenging times.  Between PPP loans, lines of credit, personal credit cards, as well as personal loans from family and friends, you have to understand there is no rule book as to how this is supposed to work.

People who will survive through this enormity of a challenge, will stick to a written Plan of Action (POA), and keep modifying it at least weekly to make sure they are hitting their targets and goals.  Thinking about a new audience to market to, or a new product/service to develop, doesn’t always work unless you physically write it down and keep measuring your work on how far along you are making progress on it.

Not everyone believes that someone in their network, whether it’s a competitor or colleague, can be of benefit to the other, but until you actually start talking to each other there’s no option for collaboration.  I was speaking with a printer client and asked them about an industry that was booming right now which they had worked in some years back but never considered until I brought it up.  Turns out they know someone within their networking group that they have never approached about because they did not think that it would lead to very steady work.

Another option is doing work-share, in which you discuss with members within your particular chamber of commerce, association, or networking group more indepth what types of work you can offer that others may not know, and if you can possibly do cheaper for another member to sub-out to you.  This way you both can keep your doors open.

Finally, so many small business’ worry about their employees and with good reason, because they are what has been the backbone of making them successful.  Unfortunately, although this is not a popular outlook you should run your business into the ground by taking care of everyone else before your own family.  You will still have much larger loans, rent, utilities, as well as your own family to support.  It’s a difficult challenge in determining who gets paid when, and a valiant effort to consider the needs of your employees before your own, but if you’re destitute and can’t take care of yourself, how can you take care of anyone else.

Dwayne J. Briscoe

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Update on IRS Operations

As reported by the Internal Revenue Service on May 18, 2020, the IRS continues to protect the public and its employees, and in compliance with orders of local health authorities around the country, certain IRS services such as live assistance on telephones, processing paper tax returns and responding to correspondence are extremely limited. All Taxpayer Assistance Centers remain temporarily closed as are many volunteer tax preparation sites until further notice.

Although the tax filing deadline has been extended to July 15, 2020, from April 15, the IRS continues to process electronic tax returns, issue direct deposit refunds and accept electronic payments.  All taxpayers should file electronically through their tax preparer, tax software provider or IRS Free File if possible. The IRS is not currently able to process individual paper tax returns. If you already have filed via paper but it has not yet been processed, do not file a second tax return or write to the IRS to inquire about the status of your return or your economic impact payment. Paper returns will be processed once processing centers are able to reopen.

The IRS’s National Distribution Center is closed until further notice and is not able to take any orders for forms or publications to be mailed during this time. IRS.gov remains the best source for tax law questions, checks on refund status and tax payments. Tax transcripts are only available online currently.  Taxpayers also can make tax payments through Direct Pay. Taxes due must be paid by July 15. The Interactive Tax Assistant can help answer tax law questions. There currently are no email options that will generate answers to questions posed by taxpayers. Publication 5136, IRS Services Guide, is a good source of information.

Taxpayers who previously have been issued an Identity Protection PIN but lost it, must use the Get an IP PIN tool to retrieve their numbers.

Automated phone lines: which handle most taxpayer calls – also will remain available during this period. Some tax compliance lines also remain available. IRS phone lines supported by customer service representatives for both taxpayers and tax professionals are not staffed at this time. To check on regular tax refund status via automated phone, call 800-829-1954. (This line has no information on Economic Impact Payments.)

While the IRS is receiving and storing mail, our mail processing functions have been scaled back to comply with social distancing recommendations. Currently, we have reduced responses to paper correspondence. Our primary concern is serving taxpayers as indicated in the People First Initiative, which includes numerous actions to alleviate taxpayer burden during this time.

Taxpayers who mail correspondence to the IRS during this period should expect to wait longer than usual for a response. Once normal operations resume it will take the IRS time to work through any correspondence backlog. Correspondence sent to IRS offices may be returned to the taxpayer if that office is closed and no one is available to accept them.

Statute of limitations issues. The IRS will continue working cases where a statute of limitation is pending. In some of these situations, the IRS will work with the taxpayer or their representative to obtain an extension of the statute.

At this time, Appeals employees will continue to work their cases. Although Appeals is not currently holding in-person conferences with taxpayers, conferences may be held over the telephone or by video conference. To the extent they can, taxpayers are encouraged to promptly respond to any outstanding requests for information for all cases in the Independent Office of Appeals.

Currently, Taxpayer Advocate Services remains open to receive phone calls at the local phone numbers but has suspended walk-in services in their offices and their toll-free centralized number is unavailable until further notice. Please visit taxpayeradvocate.irs.gov to locate your local office phone number.

There are other numerous other services that are still being modified accordingly during this challenging environment, and the Internal Revenue Service is doing their best.

Dwayne J. Briscoe

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Business Versus Personal Travel Expenses – How Can You Defend It?

Numerous discussions with clients have been made with regards to how they have made business trips into family vacations, for as long as the IRS has been around.  However, the challenge has always been when the legitimate business attendees are attending a business conference, continuing education seminar, etc. and choose to bring nonemployees along for the “ride” as a bonus for everyone involved.

In Publication 463, the IRS does state “You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.”  This is within the United States.

If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that is causally related to your business.

A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip.

Example.

You work in Atlanta and take a business trip to New Orleans in May. Your business travel totals 900 miles round trip. On your way home, you stop in Mobile to visit your parents. You spend $2,165 for the 9 days you are away from home for travel, non-entertainment-related meals, lodging, and other travel expenses. If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,633.50. You can deduct $1,633.50 for your trip, including the cost of round-trip transportation to and from New Orleans. The deduction for your non-entertainment-related meals is subject to the 50% limit on meals mentioned earlier.

Example.

Jen is employed in New Orleans as a convention planner. In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. She left her home in New Orleans at 10 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending 2 nights there, she flew back to New Orleans on Friday and arrived back home at 8 p.m. Jen’s employer gave her a flat amount to cover her expenses and included it with her wages.

Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday.

Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days.

Documentation is key for every business trip deduction, and it is vital to present specific information on what happened and when, including any personal side-trips or expenses that you reimburse the business.  Failure to do so can widen the burden of proof during an audit if you are discovered miscoding expenses in your favor, which could lead you to have to other legitimize other expenses.  Appearances are everything.

Dwayne J. Briscoe

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