Category: Business

Is the IRS Calling You?

Posted on by Mike Knapp

The Internal Revenue Service (IRS) will never call you looking for personal information or payment information.  They almost always initiate these conversations by sending notices through the mail.

In some specific instances an IRS agent might attempt to call or show up at your home or business, but this is AFTER several notices have been sent to the taxpayer by mail.  If an agent comes in-person, they will have multiple forms of identification and credentials to verify their legitimacy.  One of those documents is a what they call a HSPD-12 card.  This is an official federal government ID card.

A more detailed image can be viewed here.

If you DO get a written notice in the mail, you ALWAYS have the opportunity to question or even appeal their findings.  Knowing your rights as a taxpayer is important in these situations.  For a quick reference, this link can be used to view the IRS Taxpayer Bill of Rights.

Of course, if you are in need of professional tax representation, our team at Buffalo Tax Strategies is available to help you Get Educated and Get Ahead!

 

Retirement Plan Options for Business Owners

Posted on by Michael Knapp

I’ve had several business owners ask me about the various retirement plans that are available, and how they might impact their taxes.  In response, I’ve created this (very basic) listing of the Retirement Plan Options available to Business Owners.  For more information, please don’t hesitate to call our office 716.320.1829.

 

TRADITIONAL IRA:

$6,000 annual contribution limit (per person)

$7,000 (age 50+)

Pros:

  • Pretax contributions, tax-deferred until distributions in retirement
  • Funds grow tax-deferred

Cons:

  • The tax rate might be higher in subsequent (retirement) years
  • Difficult to access the money until age 59 ½ (exceptions apply)
  • Contribution limits are cumulative total for BOTH Traditional and ROTH accounts

Interaction w/ Business:

  • Contributions are NOT deductible to the business but lower your taxable income on your personal tax return (1040)

 

 

ROTH IRA:

$6,000 annual contribution limit (per person)

$7,000 (age 50+)

Pros:

  • After-tax contributions, tax-deferred until distributions in retirement
  • Taxes already paid, so the entire balance of funds available for distribution

Cons:

  • Contributions do NOT lower taxable income
  • Contribution limits are cumulative total for BOTH Traditional and ROTH accounts

Interaction w/ Business:

  • Contributions are NOT deductible to the business and do not lower your taxable income on your personal tax return (1040)

 

 

SIMPLIFIED EMPLOYEE PENSION (SEP) IRA:

For self-employed people and small business owners with few / no employees

2021 Contribution Limits cannot exceed the lesser of:

  • 25% Compensation (self-employment income)
  • $58,000

Pros:

  • Pretax contributions, tax-deferred until distributions in retirement
  • Funds grow tax-deferred

Cons:

  • No ROTH conversion option
  • Require proportional contributions for each eligible employee if you contribute for yourself
  • Difficult to access the money until age 59 ½ (exceptions apply)
  • Contribution amounts reduce the amounts you can contribute to other IRAs, including ROTH.

Interaction w/ Business:

  • Contributions are deductible to the business, including contributions made to employee accounts
  • Flexibility – you don’t have to commit to contributing every year

 

 

SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE) IRA:

Small company version of a 401(k) plan.

Allows for employee AND employer contributions

2021 Contribution Limit:

$13,500

$16,500 (age 50+)

Employer contributions are mandatory and can be made using one of two methods:

  • Provide matching contributions up to 3% of the employees pay, not limited by the annual compensation limit
  • Make non-elective contributions equal to 2% of the employee’s compensation based on max. salary of $290,000.

Low eligibility requirements.  Can participate if they’ve received at least $5,000 in compensation during any two preceding calendar years.

Pros:

  • Pretax contributions, tax-deferred until distributions in retirement
  • Funds grow tax-deferred
  • SIMPLE contributions are NOT cumulative with traditional and ROTH IRA limits and will not reduce the amount you can contribute to them. However,   they ARE cumulative with the contribution limits for other employer-sponsored plans, such as 401(k) plans and 403(b) plans.

Cons:

  • Employer contributions mandatory
  • No ROTH conversion option
  • Difficult to access the money until age 59 ½ (exceptions apply)

Interaction w/ Business:

  • Contributions are deductible to the business, including contributions made to employee accounts

 

If you are looking for a certified public accountant in the Buffalo area to assist you with taxes and more, do not hesitate to reach out to our team.

Payroll Protection Program (PPP) Loan Documentation

Posted on by Mike Knapp

With all the questions surrounding the PPP loan, I recently had an opportunity to email a client and go in-depth on the documentation required for the application. I think this information can be useful to any business owner trying to gain a better understanding:

I hope all is well and you are staying safe during this COVID-19 pandemic. Thank you for allowing us the opportunity to discuss some matters regarding loan documentation for small business owners applying for Paycheck Protection Program (PPP) loans.

I think the loan program was a great example of creative approaches to help small businesses have access to affordable funding as a form of economic stimulus by keeping their employees on the payroll. I have assisted and consulted several clients that are small business owners along with some not-for-profits in and around the Buffalo Niagara Region all of which have obtained PPP loans.

The application process is pretty straight forward provided all required loan documentation was available. I would start by collecting all 4 quarterly Federal Forms 941 for the calendar year 2019 along with the 1st quarter Form 941 for the calendar year 2020. These forms report wages paid by quarter. I would also consider including Federal Form W-3 for 2019, which details and should agree with the total wages reported on the previous quarterly Federal Forms 941. The purpose for this is to substantiate wages paid to employees and are a factor in the legible amount of the loan.

If a business or not-for-profit has independent contractors in place rather than employees and documents payments through a Federal Form 1099 MISC, they should collect all such federal 1099 forms paid in 2019 along with their Federal Form 1096 filing for 2019 to include as the basis to calculate the aggregate payroll costs for the past 12 months for employees whose principal place of business is within the United States. If a sole proprietor were to apply for a PPP loan, the best source of income data would be their Federal Schedule C filing pertaining to the Federal Form 1040 filing.

Once that financial ‘payroll’ data has been collected you must aggregate any compensation paid to an employee or independent contractor/sole proprietor in excess of $100,000 paid over the last 12 months as these are a subtraction from the payroll calculation for eligibility amounts. After compiling the total eligible payroll factor, you would need to divide this amount by 12 for a monthly average and multiple this average by 2.5 to determine the eligible PPP loan amount that could be requested.

Also, it is especially important to substantiate the business applying for the PPP loan. This would include a proper taxpayer identification number, address of the business, type of business industry, employee headcount, and ownership of the business. Ownership could be a single owner or multiple partners and a drivers’ license is needed to confirm and validate identity. As a side note, multiple partners (those with greater than 20% ownership) are of particular consideration.

Lastly, make sure a bank account is included on the application so money can be directly deposited into an account. We hope this helps in answering some PPP calculations and loan documentation topics. Please advise any questions that you may have and thanks again for the opportunity to share our views and thoughts on this subject matter.

In a subsequent email, I explained my interpretation of the $100,000 cap components:

My interpretation of the definition of the $100,000 cap or excluded from the payroll costs aggregator is strictly compensation, health care and retirement benefits. I would define compensation to be these components: salary, wages, overtime wages, commissions, tips, paid time off and bonus pay. Stock options could also be an ingredient in the definition of compensation but I would not think this would be applicable as the PPP was initiated for small businesses.

The payment and not the accrual of health care benefits including insurance premiums along with the payment/funding of retirement benefits would also be applicable within this calculation of the $100,000 cap excluded. I have applied my interpretation for compensation for the eligible total amount and the cap excluded to a combination of my clients, as well as some not-for-profits that reached out to me. Fourteen of these organizations have received PPP funding prior to the fund being exhausted.

I believe and have heard that some banks might be taking an alternate approach and defining payroll costs to include not only the above items listed but also FICA taxes, however, this is a tax and not what I would define as compensation paid to an employee. The best bet is to check with your bank to make sure what their interpretation of payroll costs is under their lending calculations.

Furthermore, I cannot stress enough the importance of small businesses having up-to-date bookkeeping and accounting records. It is critical for not only timely financial reporting, income tax matters, and banking processes but when opportunities for assistance arise a small business owner should not have to stress and scramble to complete such vital financial processes.

If you have any questions regarding the points mentioned above, or assistance preparing the PPP loan documentation, please don’t hesitate to reach out! Our small business accountants would be happy to help with any of your needs. We serve Buffalo, NY, and the surrounding areas. Contact us today.

Resources for Small Business Owners Amidst CARES Act

Posted on by Mike Knapp

Due to the feedback I received from clients, I decided to turn an email I sent into a blog post, to allow for easy access and updates, as the situation evolves and information is made available. I will keep this post updated with the most current guidance available. Most (state) resources mentioned are specific to New York, so be sure to look into your specific state guidelines.

UNEMPLOYMENT FOR BUSINESS OWNERS:

The CARES Act just passed, rolled out several initiatives. Among these, it extended unemployment to business owners.  I’m not sure of the specifics regarding what information you’ll need to file, but I believe it is based on previous income. I would expect them to ask for Profit & Loss Statements (P&Ls) or previous year tax returns. Here is the link to the NY DOL site that you can use:

https://labor.ny.gov/ui/how_to_file_claim.shtm

The NY DOL released some helpful hints for self-employed individuals when filling out the online application for Unemployment:

https://www.labor.ny.gov/ui/pdfs/self-employed-ui-guide.pdf

Additional Information has just been rolled out addressing the influx of business owners, independent contractors, and sole proprietors. Here’s a PDF document that distinguishes who is eligible for Pandemic Unemployment Assistance (PUI)

https://labor.ny.gov/ui/pdfs/pandemic-unemployment-assistance.pdf

Finally, here’s a flowchart showing how all the programs interact:

UI Flowchart.png

LOAN PROGRAMS:

There are also a few loan programs available through the US Small Business Administration (SBA).  The first, and more widely known of these programs is the SBA’s Economic Injury Disaster Loans (EIDLs).  This application can be found at the following link:

https://www.sba.gov/disaster/apply-for-disaster-loan/index.html

There is an SBA Economic Bridge Loan that could be available for qualifying small businesses while the above-mentioned EIDL is processing.  A guide to these bridge loans can be downloaded at this site:

https://www.sba.gov/document/support–express-bridge-loan-pilot-program-guide

Another loan (and the highlight of the CARES Act) is the Paycheck Protection Program (PPP) that can provide forgive-able loans to businesses that maintain (or hire back) their employees during this emergency.  Some details can be found on the flyer attached to the following link:

https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf

The SBA says, “You can apply for this loan through any SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. The regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.”

Here is the link to the PPP Sample Application Form:

https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form

FAQ ARTICLE:

I also found an informative article published by the NY Times that answers a long list of FAQs about the Stimulus Package, including relief checks for individuals and benefit eligibility.

https://www.nytimes.com/article/coronavirus-stimulus-package-questions-answers.html

The US Chamber of Commerce also published a great article highlighting more specifics on the programs mentioned above, as well as some of the tax changes/implications for businesses:

https://www.uschamber.com/co/start/strategy/cares-act-small-business-guide

OTHER RESOURCES:

During this time, I recommend negotiating with creditors/vendors to get reduced or deferred payments on critical bills. Here is a link to an email template that I have used successfully with my vendors:

https://www.buffalotaxstrategies.com/blog/pandemic-email-template-for-vendor-payment-forgiveness

I hope this helps navigate the crowded waters of relief programs and funding.  There will certainly be tough times ahead, making it critical to stay in touch and take advantage of the resources out there.

Don’t hesitate to reach out if you need anything! We provide a variety of services for your business in the Buffalo area. Count on us for financial advice, tax returns, bookkeeping, and more.

Pandemic Vendor Forgiveness Template

Posted on by Mike Knapp

This is an effective email template for small businesses in New York State (or any other declared disaster area) to use when requesting relief from certain vendor payments. I used it successfully when requesting rent deferment at one of my businesses, and thought others could use it as well. (Be sure to change the Governor name for use outside of NY).

In light of recent events surrounding the COVID-19 virus, as well as the executive order by Governor Cuomo, the [INSERT BUSINESS NAME] has decided to temporarily close its doors to the public.  During this time, we are working diligently to control operational overhead expenses and would like to request to defer payment and finance charges during this time period.  This will play a critical role in ensuring the continuity of this organization, and safeguarding the livelihood of the (nearly [INSERT # EMPLOYEES) employees that rely on this business.  We hope to continue to have a positive relationship, and will always be transparent with our intentions.

Respectfully,

[YOUR NAME, BUSINESS]

Sales Tax in New York State

Posted on by Mike Knapp

When I was running my first business, I always forgot about the sales tax deadlines.  First of all, I was really busy working non-stop in my business, I didn’t have any office staff, and the quarterly deadlines didn’t even start at the beginning of the calendar year (making it hard to forget).

Sales tax was the furthest thing from my mind and I paid countless late fees ($50 bucks a quarter, plus I lost my vendor credit)!

So to help other business owners avoid this same pitfall, I thought I’d list some general information to keep things straight.

1.  How do I know when to file? 

Generally, you are a Quarterly filer if:

  • You have not been notified that you are an annual filer

  • your taxable receipts, purchases subject to use tax, rents, and amusement charges are less than $300,000 during the previous quarter.

  • (Most vendors file quarterly when they first register to collect sales tax.)

You file Annually if:

  • You owe $3,000 or less in tax during an annual filing period

You file part-quarterly (Monthly) if:

  • you file an annual or quarterly sales tax return and:

    • your combined total of taxable receipts, purchases subject to tax, rents, and amusement charges is $300,000 or more in a quarter, or

    • you are a distributor as defined under Article 12-A of the Tax Law and you have sold a total of 100,000 gallons or more of petroleum products (taxable or nontaxable).

I’m sure that most of you reading this land in the Quarterly Filer category.  For more information on this, don’t hesitate to contact us!

2.  What are the filing deadlines?

For Quarterly filers:

  • Q1: March 1 through May 31 DUE June 20

  • Q2: June 1 through August 31 DUE September 20

  • Q3: September 1 through November 30 DUE December 20

  • Q4: December 1 through February 28/29 DUE March 20

For Annual filers:

  • March 1 through February 28/29 DUE March 20

3.  How do I file?

When I was in business, everyone was still paper filing.  Since then, times have changed.  Filers are now required to file electronically if they meet these conditions:

  1. Prepare tax documents themselves, without the assistance of a tax professional;

  2. Use a computer to prepare, document, or calculate the required filings, or are subject to the corporation tax e-file mandate; and

  3. Have broadband internet access.

This is just a quick reference guide, but for more information, or to have Buffalo Tax Strategies prepare your NYS sales tax filing for you, contact us!