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Employers can now defer payroll tax withholding on employee compensation for the last four months of 2020 and then withhold the deferred amounts in the first four months of 2021, confirms a recent update from the IRS. President Trump’memorandum on Aug. 8 gave employers the ability to defer payroll taxes for employees affected by the COVID-19 pandemic in an effort to provide financial relief  

The guidance directs that employers can defer the withholding, deposit, and payment of the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3102(a) and Railroad Retirement Act Tier 1 under Sec. 3201 from employee wages from Sept. 1 to Dec. 31, 2020.  

Employers must then withhold and pay the deferred taxes from wages and compensation during the period from Jan. 1, 2021, and April 30, 2021, with interest, penalties, and additions to tax to begin accruing starting May 1, 2021. Included in the notice is a line that indicates, if necessary, employers can “make arrangements to otherwise collect the total Applicable Taxes from the employee,” such as if an employee leaves the company before the end of April 2021, but does not provide details on what that entails.  

Employees with pretax wages or compensation during any biweekly pay period totally less than $4,000 qualify for the deferral. Amounts normally excluded from wages or compensation under Secs. 3121(a) or 3231(e) are not included in calculating the applicable wages. The determination of applicable wages should be made on a period-by-period basis.  

Companies may choose whether or not to enact the payroll tax deferral. We are closely monitoring updates related this and other presidential executive orders and will communicate if more information becomes available. For questions or assistance with this payroll tax deferral, contact us.  

On Aug. 24, the Small Business Administration (SBA) and Treasury issued the latest interim final rule update to the Paycheck Protection Program (PPP) that seeks to clarify guidance related to owner-employee compensation and non-payroll costs. This guidance has been long-awaited and clears up several questions borrowers have had about forgiveness. Here are the main points: 

1. Owner-employees of C or S corporations are exempt from the PPP owner-employee compensation rule for loan forgiveness if they have a less than 5% stake in the business. The intent is to provide forgiveness for compensation of owner-employees who do not have a considerable or meaningful ability to influence decisions over loan allocations. This clarifies earlier guidance that capped the owner-employee compensation regardless of what stake they have in the business.  

2. Loan forgiveness for non-payroll costs may not include amounts attributable to the business operation of a tenant or subtenant of the PPP borrower. The SBA provides a few examples of what this means: 

3. To achieve loan forgiveness on rent or lease payments to a related thirdparty, borrowers must ensure that (1) the amount of loan forgiveness requested does not exceed the amount of mortgage interest owed on the property attributable to the business’s rented space during the covered period, and (2) the lease and mortgage meet the Feb. 15, 2020, requirement for establishment. Earlier guidance had not addressed related third-party leases. 

It’s important to note that mortgage interest payments to a related party are not eligible for forgiveness as PPP loans are not intended to cover payments to a business’s owner because of how the business is structured – they are intended to help businesses cover non-payroll costs owed to third parties. 

For questions on any of these rules or assistance with your PPP loan forgiveness application, contact us today. 

CFOs are playing more pivotal roles in modern corporations than ever before, and the impact of the COVID-19 pandemic is shedding light on how CFOs can impact short and long-term financial stability. While growth is frequently considered the ultimate goal for a business, economic downturns like the one created by the pandemic show us that CFOs with eyes on long-term financial stability, and not just on growth, will be able to better help their organizations weather the storms of an economic crisis.   

A CFO’s strategy for long-term success should incorporate thorough cost management protocols, a comprehensive and holistic approach to increasing value, and stewardship and championship of the bigger picture. Here’s what that means. 

How CFOs impact direct costs 

As the financial head of the organization, the CFO naturally serves as the rightful guardian of business’s expenses. It’s through these direct costs that CFOs can implement stronger internal controls and recover lost revenue for long-term benefit. A CFO can improve long-term viability by analyzing:  

Cost of Goods Sold (COGS) – COGS are a key area for reduction as they represent the largest operating expense for the business. Depending on the industry, these costs can be complex, and the biggest expense can come in the form of purchased components and materials. CFOs can optimize this area with help from sourcing programs that consolidate costs by choosing more goal-aligned suppliers. 

Indirect Taxes – Indirect taxes are aoften-overlooked area of opportunity for many businesses. These taxes can be found in areas like R&D, procurement, labor, utilities, and manufacturing and can represent 25% of personnel expenses. Making indirect taxes a regular component of your tax strategy allows you to reduce costs in this area by 10-20% with quick realization rates. Bonus: “Look-back” provisions can help you save even more. 

Real Estate – With real estate, take a holistic inventory of your business and consolidate where possible. The COVID-19 pandemic showed us how much can be done at home or in fewer locations. Consider whether you need all your locations, your facility management costs, and negotiating your contractsAlso, plan for a future workforce that may expect a more flexible work-from-home situation. Just because you‘re growing doesn’t mean you will actually need all that extra space. 

Product Optimization – If you haven’t invested and implemented benchmarking and KPIs for your products, you need to now. Data and analytics are key to understanding how you can improve margins and grow profit. With product rationalization, you can drill down into what is really profitable and make decisions on what to cut and what to expand. Look at customer buying habits and your company overhead and determine what’s really worth keeping on the shelves.  

Labor – The key to optimizing labor costs lies within efficiency. Do you have the right people in the right seats? Can current employees be retrained to fill open needs? Consider where you can use automation and outsourcing to save on salaries/benefits and overhead.  

Working Capital – Assessing your working capital for cost efficiency involves taking a look at:  

 How CFOs impact value 

CFOs not only help to optimize costs, but they are also integral in increasing company value because of their instinct and insight into the finances, the business, and how everything relates. Value is the ultimate determinate for long-term success in a business as it is the final measurement taken into consideration at the time of succession or buy-out. And, as any good business valuation professional will tell you, the business is not worth what you think it’s worth. The consensus among international accounting organizations is that value is defined by your customers/stakeholders and created and sustained through the responsible management of your organization’s tangible and intangible assets, resources, and relationships.: 

One can clearly see how the areas of impact for CFOs listed in the costs section above directly relates to value creation in a business and the management of financial resources. The CFO is the gatekeeper for value creation and thus long-term viability.  

How CFOs champion the big picture 

Because the CFO is intimately connected to the financial health of the organization, they are also the eyes of the market. They see the trends and shifts directly in the numbers and can advocate for the right kinds of measurements to make long-term decisionsCFOs should take an active role in their organization’s strategic planning process and use their knowledge to translate the ebbs and flows of the business into scalable growth.  

Now more than ever, CFOs are at the forefront of business viability and growth. Their knowledge is invaluable in times of crisis and prosperity, and their voice and action are essential for long-term financial stability.  

Our outsourced CFO services can help you establish and maintain a long-term financial strategy for your business. Contact us for more information. 

The Small Business Administration (SBA) and Treasury released an updated Paycheck Protection Program (PPP) FAQ on Aug. 4 in an effort to address PPP loan forgiveness issues that have arisen as borrowers begin to complete their applications. The 23 FAQs address various aspects of PPP forgiveness including general loan forgiveness, payroll costs, non-payroll costs, and loan forgiveness reductions. Here is a brief overview of some of the most notable clarified guidance. 

General loan forgiveness 

Payroll costs forgiveness 

Non-payroll costs forgiveness 

Forgiveness reductions 

The FAQ document also includes several examples for making calculations related to the above questions. Contact us for questions and assistance with your PPP loan forgiveness application.  

Economic downturns are an almost inevitable reality for nearly every business owner. Decisions made far away from your community, catastrophic and unpredictable weather events, and even global pandemics as we’ve seen this year can disrupt the health and viability of a business. During these challenging times, business owners have to make difficult decisions about the future of their business that not only affect them but also their employees, vendors, clients, and communities. It’s an enormous responsibility to bear, but you don’t have to go it alone.

Your CPA advisor is your best resource for tackling the challenges of an economic downturn. As an outside party, they can help you make smart business decisions that protect your vision and mission while remaining financially responsible. Your CPA can help you:

Optimize your books

Never underestimate the power of good bookkeeping. By keeping your books in order, your CPA can help you plan and project for the future at each stage of an economic downturn. This includes planning for temporary closures and tiered re-openings (and potentially a back-and-forth of both depending on the state of the country and market). When your books are clean and up to date, you can better project how events and decisions will impact your finances on a weekly, monthly, and quarterly basis. Your CPA can help you flex the numbers on fixed and variable expenses to account for increases in costs, decreases in income, and potential changes to payroll. Knowing your numbers intimately can help you make better-informed decisions.

Minimize your tax burden

During times of economic crisis, staying abreast of new and changing tax legislation will be essential to projecting tax burden and uncovering tax savings opportunities. Your CPA is the best person to handle this because they know your business and your industry inside and out and can help you uncover tax savings opportunities that are unique to your circumstances. They do all the research, and you reap the rewards. With a CPA’s assistance, you achieve deductions and credits you may not have realized were available and develop a plan to defer costs where allowed depending on your business, industry, and location. Taxes are not an area you should or need to face alone during an economic downturn. Your CPA has done the homework, so you don’t have to.

Rationalize your decision making

When markets are in flux and your business is facing unprecedented challenges, the decisions you make can make or break your business. But you don’t have to go it alone. Your accountant can help you make data-informed decisions whether that be how to pay vendors, when and how to apply lines of credit, and the best ways to use your capital. Negotiating contracts with vendors that meet your needs and theirs during a downturn will not only achieve cost savings but also preserve relationships – your CPA can help develop a plan that makes sense. Knowing when to engage lines of credit can help you make better moves that you can either afford to pay back later, or maybe prevent you from taking on credit you can’t handle – your CPA can guide you in this process. Knowing where to allocate capital will be key to maintaining operations, and you may need guidance on what expenses to cut and what to keep such as marketing and payroll – your CPA can help you project the ramifications. With your CPA by your side, you don’t have to operate in a silo of decision-making.  

Maximize your sense of relief

Most of all, your CPA can provide perspective, alleviate business back-end burden, and help advise you on financially feasible and sound decisions when much of the world feels like it’s in chaos. You have a lot to focus on during a downturn including how to handle your customers and employees in a changing marketplace. Having someone who can help you stay fiscally viable as you work through tough times, and develop a plan for future success, provides a welcome peace of mind.

You don’t have to go through any economic downturn alone. Your CPA can help you shoulder the challenges and weather the storms so you can continue doing what you do best – running your business.

Your cash flow is the financial story of your business. It tells the story of your high points and low points, where the money comes in and goes out, and is the lifeline of your business in times of crisis. Proper cash flow management can mean the difference between survival and going under for small businesses especially in periods of market and economic downturn, such as the period of challenge faced currently by the ramifications of COVID-19.

Here are seven steps to managing your cash flow during a crisis.

1. Update your financial statements – The key to managing your cash flow is operating from current financial statements. As a first step, ask your CPA to provide you with an up-to-date look at your business’s financial picture and discuss the statement together. Your CPA can help you identify areas of opportunity and challenge to ensure you’re proactively optimizing your business’s financial situation no matter the circumstances of the marketplace.

2. Understand your fixed and variable expenses – Hand-in-hand with updated financial statements comes an understanding of your fixed and variable expenses. Sorting your expenses into these two buckets will help you to see where you have expenses you can cut temporarily or permanently to save cash, or where you can negotiate to improve your cash flow in times of need.

3. Know your credit options – Next, contact your banking professional to understand your credit options. In times of crisis, the likelihood of needing to dip into lines of credit increases, and you need to know what’s available to you, the terms, and have a plan for repaying it when the dust settles. This will help you project your cash flow as you begin to model scenarios through a period of challenge

4. Project your cash flow – Your first cash flow projection should be conducted using your current levels of income, expenses, and lines of credit so you can get a clear look at where you stand without change. Additionally, you will want to look back at least five years to see how your financial picture has fluctuated in the context of times of growth and downturn. Then, as you project outward into the future, break down your cash flow at micro increments, weekly or biweekly, to see where and when your cash reserves and credit lines may begin to run out. This can help you predict where you will need to make changes internally and when.

5. Increase income – Once you’ve projected your cash flow out, look at ways you can increase your income.

6. Decrease expenses – Decreasing expenses is a natural place to start to try improving cash flow during a crisis, but it must be done carefully to maintain relationships with customers, vendors, and employees. Consider your fixed and variable expenses and what can be reduced or cut. Adjusting your utilities at the office if you’re working from home, implementing hiring freezes if you’re unsure about the future, and redistributing contract work to employees are just a few ways to decrease expenses. Additionally, consider:

7. Rerun your cash flow model with different scenarios – Considering your options for increases in income and expenses, model your cash flow using various rates of change in those areas. Use realistic numbers to see how much of an improvement you can expect by making these adjustments over time.

Times of crisis can force small businesses to take a long hard look at their financial picture and address cash flow issues that may have been lingering long before the major event. By monitoring up-to-date financial statements and performing cash flow projections, you can become a better steward of your business’s finances in times of crisis and times of opportunity. 

The Internal Revenue Service (IRS), Department of the Treasury (DOT), Employee Benefits Security Administration (ESA), and Department of Health and Human Services (DHS) recently issued a final ruling on the use of employer-funded health accounts. Effective January 1, 2020, employers of all sizes that do not offer a group coverage plan may use HRAs as a vehicle to help employees pay for health insurance premiums. This ruling extends beyond the current scope of health reimbursement arrangements (HRAs), which allows businesses to offer employer-funded accounts for employees to apply to out-of-pocket medical expenses and now allows employees to pay for insurance premiums.

The new ruling is expected to affect more than 800,000 employers and 11 million employees, making it a far-reaching update to the current system. Under the guidance, employers may offer two new types of HRAs:

The Benefits

Considerations:

To assist employers, the DOL issued this Individual Coverage HRA Model Notice: https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB87/individual-coverage-model-notice.pdf .

This notice is not exhaustive. If you would like more information on how your business might benefit from an ICHRA, give the professionals in our office a call. We can go over your options and determine if you satisfy the ACA’s affordability and minimum value requirements.

The Taxpayer First Act (the Act) of 2019 was signed into law on July 1, 2019. The bill, having gone through a few changes on its way to the president’s desk, passed with bipartisan support – a rare thing in Washington these days. The law aims to reform the Internal Revenue Service (IRS) by making it more taxpayer-friendly and has been praised by the American Institute of Certified Public Accountants (AICPA). The summary of the bill, its titles and subtitles signal a much-needed pivot to the way the IRS fits into the 21st-century economic narrative. Among the areas of impact, the main themes include customer service, enforcement procedures, cybersecurity and identity protection, management of information technology, and use of electronic systems. While the following table is not exhaustive, it does highlight the key points of reform.

Issue Action
Customer Service   The IRS will adopt best practices of private sector customer service providers, starting with a comprehensive training plan. They will officially benchmark and track their endeavors and be responsible for measuring their success.
IdentiTy Theft Protection   The IRS is required to work behind the scenes and take their position front and center to assure greater identity protection. By 2024, any taxpayer will be able to request a personal identification number (PIN) to use when filing their tax return. The IRS is also legally bound to notify taxpayers of suspected fraud and point them in the right direction for next steps.  Finally, if a taxpayer’s return is adversely affected by identity theft, the IRS must provide a single point of contact to track the case and resolve the issue.  
Card Payments Now, taxpayers can skip the third-party service when paying their bill. The new law allows the IRS to accept direct payment as long as the taxpayer agrees to pay the processing fees. The IRS is also tasked with securing contracts with minimal fees.  
Information Protection The Act locks down taxpayer information as it relates to contractors, such as outside attorneys, when it is obtained by summons. Furthermore, by 2023, disclosures of tax information for third party income verification must be fully automated and accomplished in real-time.  
Independent Review Tax disputes will get a second look under the Act. Taxpayers with a legitimate claim now have legal access to an independent appeals process. The IRS is also required to provide written notice of denial to the taxpayer and Congress and turn over its case files to qualified individual and business taxpayers.
Audit Notice The IRS loves the word “reasonable.” When it comes to audit inquiries, the ambiguity of the term has now come to an end. The Act demands a 45-day notice requirement before contact with a third party can be made.  
Internet Filing The IRS has been tasked with creating a secure online user interface that allows taxpayers to prepare and file Forms 1099 electronically. The platform, which must be established by 2023, will also keep a historical record of submitted forms.   
Seizure limitations Small business owners that structure their bank deposits can rest a little easier. Legal deposits that fall below the $10,000 threshold are no longer subject to the threat of IRS seizure.
Consent The Act prohibits consent-based disclosures from being used for purposes other than their original intent. 

The Taxpayer First Act is a welcome change. The Act helps protect business owners from IRS seizures and allows them to avoid the expenses and time-consuming process of having to go through the courts to reclaim their assets. Perhaps the most critical component of the new law is the attention to cybersecurity and customer service. Small business owners will still need to interact with the IRS, but if the law accomplishes its goal, the process will be easier and safer.

How will this law impact my payroll compliance?

It is important to note that several of the Taxpayer First Act provisions will directly influence your company’s payroll operations.

  1. The IRS has been tasked with creating a secure online server for e-filing because the new law reduces the threshold for mandatory e-filing. Currently, businesses only need to file online if they employ 250 or more. The new law lowers the threshold to 100 in calendar-year 2021, and only 10 in calendar-year 2022 and on.
  2. The new law requires the IRS to verify individuals as they open accounts to use the new e-Service features. Because of the new information and identity protection measures outlined above, e-Services are expected to take a little bit longer than they have in the past. Accounting services personnel should factor this potential delay into their timelines.
  3. Although the IRS internet filing platform may not be up and running until January 1, 2023, the interface will be familiar, similar to the SSA’s Business Services Online.
  4. One of the law’s most significant changes directly impacts nonprofits. Under the Act, all tax-exempt organizations must e-file Form 990 and Form 8872. This provision, unlike many of the others, goes into for tax years beginning after July 1, 2019. Organizations whose tax year began July 1 will receive transition relief.
  5. Finally, it is worth mentioning that the law institutes a new position within the IRS, Chief of Appeals. This person will oversee the Independent Office of Appeals and report to the IRS Commissioner. The Chief and their office will embody independent review by seeking to resolve tax disputes outside the courtroom.

If you have questions about the law in its entirety or want to know how this legislation will impact your company’s payroll operation compliance, give the professionals in our office a call today.

Outsourced accounting services are a cocktail experience – a carefully chosen mix of professionals, curated to leverage their expertise to grow your business. Each firm does things a little differently, but there are a few fundamentals across the board.

The most successful engagements begin with the right expectations and proper set up. Many businesses do not take the time to set their office up with right considerations. Here are a few ways to make sure your virtual accounting office is efficient and successful.

Regardless of your industry, size or stage of growth, outsourcing accounting services can be a tremendous advantage to your business. When the arrangement is a good fit, it allows business owners to operate more effectively. Starting off on the right foot, with the right expectations is critical to overall success. Our experienced CPAs and consultants can help you get started working with a virtual accounting office. Call us today.

The Internal Revenue Service recently unveiled a draft version of Form W-4, Employee’s Withholding Allowance Certificate. The revised form is in response to changes made by the Tax Cuts and Jobs Act and aims to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors. It is open for review and feedback until July 1, 2019. 

We want to remind our clients that this is only a draft and the new form will not be used until 2020. However, we are closely following this and will continue to provide updates. Below is a high-level summary of what we know so far.

What’s being proposed? The new form will account for:

The final draft is expected to be released mid-to-late July. We will continue to monitor changes to Form W-4 and keep you abreast. In the meantime, we encourage taxpayers to make sure they have the right amount of tax taken out of their paychecks and thus avoid a larger tax bill next year. Taxpayers with major life changes, including marriage or a new child, should especially check their withholding amounts. 

Determining how much to withhold depends on your unique financial situation. The professionals at Hamilton Tharp can help, call us today for a paycheck checkup.