CARES Act Small Business AssistancePosted on January 16th, 2021
Summary of the CARES Act Updates
The following are the key provisions related to the CARES Act updates included in the Consolidated Appropriations Act (many of the provisions of the CARES Act remain the same, so this will just cover the updates that we believe are most important):
- The Paycheck Protection Program (PPP) was brought back, and funds were appropriated for both initial PPP loans if you had not gotten a loan previously and for second PPP loans for those that received an initial loan under the original program.
- Eligible uses of PPP funds have been extended to include software and cloud computing services that facilitate business operations, property damage costs, supplier costs, and worker protection expenditures. These are defined in detail in the Act, so only certain items actually qualify. These changes do not apply to any loans already forgiven.
- For PPP loans up to $150k, a simplified forgiveness application will be created that will be no more than 1 page in length and just requires some basic information that should be very easy to complete. You must still certify that you met the requirements, and you must retain all necessary records for 4 years as you can still be audited by SBA.
- It was made clear that employee insurance benefits include not only health costs but also dental, life, disability, and vision.
- They made it very clear that if you were not in operation on February 15, 2020, you are not eligible for a PPP loan.
- They authorized second PPP loans to businesses with not more than 300 employees if gross receipts during the first, second, third, or fourth quarter of 2020 are at least 25% less than from the same quarter in 2019. The eligible loan amount for second loans is 2.5 times the average monthly payroll costs for the 1-year period before the date on which the loan is made or calendar year 2019 up to a max of $2M. For businesses with a NAICS code beginning with 72 (restaurants and accommodation businesses), you can get up to 3.5 times the average monthly payroll costs.
- You will have to provide documentation that you met the revenue loss standard of the second PPP loan in order to obtain forgiveness.
- PPP loan funds forgiven, EIDL grants and SBA loans with forgiven payments are now tax-free for federal tax purposes but may still be taxable for state tax purposes depending on if your state confirms to the changes made at the federal level.
- The FFCRA provisions have been extended to March 31, 2021, instead of ending on December 31, 2020. These are benefits that allow small businesses to get reimbursed for compensating employees who meet certain eligibility criteria for sick and family leave. You are no longer required to provide this benefit, but other rules of who qualifies and other items remained the same from the original CARES Act.
- If you applied for EIDL loan and received an advance less than $10k you may be eligible for the difference if your business is located in a low-income community and you have a gross receipts reduction of more than 30% and you have fewer than 300 employees. The gross receipts test is an 8-week period between March 2, 2020, and December 31, 2020, relative to a comparable 8-week period immediately preceding March 2, 2020, or during 2019. Low-income communities are those that are eligible for the new markets tax credits.
- The EIDL advances are back for new EIDL applications but still not much funding appropriated to them so if you have not applied previously should apply soon. It appears it will still be based on the number of employees unless you meet the low-income community and gross receipts test.
- The EIDL advance no longer reduces your forgiveness amount on the PPP loans which makes the PPP loans fully forgivable even if you received an EIDL advance also.
- Employee retention credit was extended to June 30, 2021, and the credit was increased to 70% of payroll costs for 2021. You can now do employee retention credit even if you got a PPP loan as well, but you can’t double-dip and use the same wages for both. Additionally, the $10k limit per employee is now a per quarter limit instead of a total limit for the first quarter and second quarter of 2021. Employers are now eligible if they had gross receipts less than 80% during the first quarter and second quarter of 2021 when compared to the same quarter of 2019. Meaning if your revenues went down by 20% you are eligible. The threshold for no longer being eligible is still 80% of your prior revenues. Other items related to the employee retention credit remained unchanged including your ability to take it if you have been shut down either fully or partially due to the Coronavirus pandemic. There is a chance the updated provisions could be retroactive for 2020 and not just impacting 2021.
- If you did the employee payroll tax deferral you have until December 31, 2021 to pay the taxes now instead of April 30, 2021.
- Business meals deduction for 2021 and 2022 is 100% as long as the meal is at a restaurant, it appears it can be take-out or dine in.
CARES Act Consultation Services
Given all of the changes and the ability to do the employee retention credit even if you got a PPP loan, it might make sense to modify the plan for forgiveness applications for PPP in order to maximize the employee retention credit as well, assuming you qualify for both. We can even take the employee retention credit on a retroactive basis by filing amended Form 941 payroll tax returns.
We can help you to assess your options and figure out which of these items you as a small business owner are eligible for and then help you either apply or provide services to get you the payroll tax credits to the extent you did not already receive them. If you have employees there is a good chance that we can save you some money and/or get you some additional funding or tax credits.
To sign up for a consultation on the CARES Act updates click here and a team member will help you figure out what will help your small business. If you need assistance with your forgiveness application for an initial PPP loan, please schedule some time by clicking here and a team member will assist you.
While we cannot guarantee a specific outcome from the consultation, we generally will identify money saving strategies and/or ways for you to obtain funding for your small business that will more than justify the fees.
Example Paycheck Protection Program (PPP) Loan
1. Assume a sole proprietor with no employees 2019 tax return line 31 of Schedule C shows $50,000 as business profit, you may be eligible for an initial PPP Loan of $10,416.
2. Assume a S-corporation with 2019 payroll costs of $100,000, you may be eligible for an initial PPP Loan of $20,833.
3. Assume restaurant taxed as S-corporation received an initial PPP loan, has used all of the funds, can show a 25% reduction in revenues between Q3 2020 and Q3 2019, and has 2019 payroll costs of $50,000, you may be eligible for a second PPP Loan of $14,583.
These are just some examples your actual loan amount will depend on your specific facts and circumstances.
Example Sole Proprietor or Partnership With No Employees
If you are a sole-proprietor or partnership that files Schedule C or Form 1065 with no employees your eligibility for PPP loan is limited to your net profit in 2019. If you have a net loss in 2019 you are not eligible for PPP loan unless you have employees. To calculate your eligible loan take line 31 of Schedule C or line 22 of Form 1065 and divide by 12 and multiply by 2.5. We recommend you do this calculation prior to signing up for a consultation.
Example Employee Retention Credit
Small business with employees (including S-Corporation shareholder-employees), had a 50% reduction in gross receipts during Q4 2020 when compared to Q4 2019 and had $10,000 in payroll costs during that quarter, you would be eligible for a $5,000 employee retention credit. The employee retention credit offsets your payroll taxes that you owe and is refundable. You may also be eligible even if you did not have a significant reduction in gross receipts if you were shutdown partially or full due to a governmental order.
If you would like to learn more about CARES Act options, please visit our YouTube page for videos at this link.
Ignatius L. Jackson CPA, LLC is here to assist you, schedule a consultation now to speak with a team member about your options.
About Ignatius L. Jackson CPA, LLC
We are a full-service accounting firm that provides small business owners and real estate investors with accounting assistance and tax advice. Our firm has been around for 7 years and has implemented strategies for business owners that save them thousands on their income taxes. If you have any questions regarding this article or other issues you may be facing please contact us for a consultation. See other information about our firm at www.iljcpa.com.
Am I Real Estate Dealer or a Real Estate Investor?Posted on September 24th, 2019
You have no idea just how important this question is when you are buying and selling real estate. Whether you are considered a dealer or investor for tax purposes, depends on a few things, but the overall key factor is what is your intent of the activity. If your intent is to hold the real estate as an investment rather than operate a business you would generally not be a dealer. But like many things with the tax code, it is not quite that black and white and there are a few factors to consider when making the assessment, discussed below:
- If you hold the land or real estate for a longer period of time (i.e. longer than a year), this generally will help you be more of an investor. Holding land longer than a year would also give you long term capital gains treatment instead of it being taxed at ordinary income tax rates.
- If you are making significant improvements to the land or real estate while you are holding it for a longer period of time, with the intention to sale it for significantly more money, this may make you more of a dealer.
- If you buy and sale land or real estate (occasional flip) only a couple of times a year this would also typically suggest you are an investor and not a dealer.
- The amount of time you spend to buy and sale real estate or land each year also would impact the assessment. For example, if you have a full time job that produces the majority of your income and this is just a way to make a little extra on the side (maybe you put less than 100 hours a year into making land deals), you likely are more of an investor than a dealer. On the flip side, if this is the only way you make money, then it would be hard not to be considered a dealer.
Generally speaking, think of being a dealer as being synonymous with being a small business owner or entrepreneur creating significant and consistent profit so that you can make a living. Throughout this article the word real estate applies to all real property, including land, houses, apartments, condos, townhomes, mobile homes, etc.
So what does it mean to be a dealer vs an investor?
The money you earn as a real estate dealer is considered active or earned income and is subject to self-employment taxes (15.3% of your profit). Whereas, if you are just a real estate investor, the income would be considered passive income and is not subject to self-employment taxes. Additionally, as an investor you likely would qualify for favorable long-term capital gains rates when you sale the real estate as you likely have held it for more than a year.
Dealers usually would report their profit or loss on a S corporation tax return, partnership tax return or Schedule C on your personal tax return. Investors usually would report their activity on Schedule E on their personal tax return.
Whether you are a dealer or an investor, you very well could be subject to sales taxes, depending on what state you are operating in. You should definitely check the laws of the state, county and city you operate in to confirm if you need to pay sales taxes on your activity. In some states even if you only have one rental property, you would need to pay sales tax on the rental payments. But sales tax is not the focus of this article.
When doing the home sharing economy (i.e. airbnb or vrbo), you could be considered either a dealer or an investor depending on if you are treating the activity like a hotel or not. Basically, if you are providing a significant service in addition to the short-term living space, you would have to report the income as dealer income and pay self-employment taxes. A significant service could be daily housekeeping, providing meals, laundry or dry cleaning, etc. Items you would typically offer if you were a hotel.
So what type of tax entity should you be when considered a dealer vs an investor?
Dealers should just about in every case operate in an S corporation to get the best tax benefits of being self-employed. If you are a dealer and profiting more than $40 thousand per year before you pay yourself as the owner, you should generally be an S corporation. In very limited cases, such as when you want to pull in a bunch of investors or be a publicly traded company or have multi-national operations it may make the most sense to be a C corporation, but those cases are rare. To be clear here, classification as a C corporation or an S corporation is an IRS election and would not change the actual entity you have formed with the state you operate in. In some cases, you also may need to file paperwork with the state you operate in, but most states accept your election with the IRS. When you are formed as a limited liability company (“LLC”), by default you are either a sole proprietorship or partnership for tax purposes, but you can make a special election to be an S corporation or a C corporation. If you are formed as a corporation, by default you are a C corporation for tax purposes, and you can make an election to be treated as a S corporation.
Investors should generally operate within LLCs (taxed as sole proprietorship or partnership depending on how many members), due to the flexibility of LLCs while still providing asset protection. From a tax perspective, it is a very bad idea to have appreciating real estate inside of a C corporation or S corporation (this includes real estate used by your business). If you want to own the real estate you will use in your business, you should put the real estate into a LLC and then rent the real estate to your business (which we said above likely should be an S corporation). Doing this you will also get more depreciation expense.
Investors should operate in LLCs instead of corporations for three main reasons. First, if you ever want to transfer the real estate asset from the corporation to your personal name (let’s say for purposes of getting a loan against it or to use it as your primary residence), it will create a taxable transaction, requiring you to pay taxes on the sale. You may be thinking, why would I ever do that, but trust me it happens more often than you think, especially since some banks won’t give some business entities a loan on real estate. Second, if you do have a loan on the real estate asset in a S corporation and you have losses from leveraged real estate, you may not be able to deduct the losses, if you don’t have basis. Keep in mind, personally guaranteeing the mortgage does not create basis in a S corporation. Basis is a technical term for tax purposes, but basically it is the net amount that you have invested into the S corporation. Third, if you ever want to sale or liquidate your business, even if you don’t want to sale the real estate you have in the corporation, by moving it to another entity or to your personal name, you will create a taxable transaction.
So, why are S corporations preferred compared to C corporations?
Even with the new 21% tax rate for C corporations, you need to keep in mind that you will also need to pay taxes on any dividends you take from the business, which would be taxed at long term capital gains rates (between 0% and 20% depending on your taxable income). For example, let’s say you have one million in taxable income left in the C corporation after all expenses, after paying 21% (or $210 thousand) in corporate taxes that leaves, $790 thousand that you take as a dividend. On that $790 thousand you will pay 20% (or $158 thousand) in taxes. This results in total taxes paid of $368 thousand or 36.8% of your taxable income.
On the flip side, if you were an S corporation and married that same one million dollars of taxable income would result in taxes of $306 thousand (a tax savings of $62k), and that assumes you don’t qualify for any qualified business income deduction. If we assume you do qualify for the full 20% qualified business income deduction, your tax bill goes down to $232 thousand (a tax savings of $136 thousand).
The above scenarios are simplified and do not include the W-2 income you pay yourself, or other deductions and credits you might qualify on your personal tax return, but those items should be the same whether you are a C corporation or an S corporation. Additionally, this is an extreme scenario with the one million of taxable income, but I have run these scenarios on all varying levels of taxable income and in each case the C corporation has resulted in you paying more in taxes. All in all a bad idea to run your small business inside of a C corporation.
Now some will say, well I just won’t take any dividends. That would be a great idea, but they thought of that. If you have more than $250 thousand of accumulated profits (dividends you have not taken), the IRS can force you to pay the accumulated earnings tax, which is 20% of the excess above the threshold. The threshold is only $150 thousand for certain service organizations like accountants, consultants, engineers, lawyers, etc. There is an exception if you can prove that you have a reasonable basis for accumulating the profits beyond the threshold, such as research and development, acquisitions, significant improvements, etc. However, if you don’t implement those plans you will get yourself into some trouble. Also, most smaller businesses honestly don’t reinvest, because they need the cash to live on, so to avoid the headaches, just do the S corporation.
Other things people will do to avoid the double taxation of C corporations is to pay themselves more as compensation or as rent for a property they own and are renting to the business and some other things. These are well known by the IRS and they are vigilant at ensuring compensation is reasonable and rents are at fair market values. Also keep in mind that if your compensation would be reasonable for an S corporation your compensation should be the same for a C corporation, should not change just to avoid tax implications.
In summary, there are pros and cons to being a dealer or an investor, but in either case the important thing is you are making money and building your wealth, but you can build more by implementing the right tax strategies. The items discussed in this article obviously have nuances to them, so please consult with a tax advisor before implementing any strategies, as your specific facts and circumstances may vary. We are certainly happy to have the discussion with you and lead you in the right direction, but at the very least speak to your tax advisor if you already have one.
About Ignatius L. Jackson, CPA LLC
We are a full service accounting firm that provides small business owners and real estate investors with accounting assistance and tax advice. We also do audits, reviews and compilations for small business owners that need that service to comply with a debt covenant or other regulatory reasons. Our firm has been around for 5 years and has implemented strategies for business owners that save them thousands on their income taxes. If you have any questions regarding this article or other issues you may be facing please contact us for a consultation.
Ignatius L. Jackson, CPA LLC
2828 North Central Avenue, Suite 1000
Phoenix, AZ 85004
Tax Strategies for Business OwnersPosted on September 20th, 2019
Being a small business owner is expensive, and every penny counts when entrepreneurs are already living on tight finances as well as fighting for their share of the market. Owning and operating a small business can be even more expensive when you end up paying more taxes than you owe.
While no one expects you to be a tax professional, it is important to understand where you can save money, how you can save money, and when to invest those finances back into your business.
Below are a few common tax saving strategies to keep in mind for your small business.
Take Advantage of Easy-to-Use Tax Filing Software – These systems offer protection that many small business owners may not be able to afford otherwise. This software can help you or your trusted tax professional prepare and file your tax return online while backing up those records with accuracy and maximum refund guarantees. Having a reliable shield that ensures the accuracy of your return while guaranteeing reimbursement of any fees or penalties charged, makes every other tax hurdle easier by far.
Organize and Keep All Receipts – Receipts create a strong path showing how you spent your money throughout the year. Many of the receipts showing expenses for goods and services can be utilized for deductions on your taxes, reducing taxable income. Depending on your business structure, there are specific deductions you can take for certain. Be sure to make every effort to track every receipt and organizing them in a way they will not get lost or accidentally thrown away.
Invest in Your Retirement Now – Self-employed worker’s taxable income can be reduced by putting additional money towards a retirement account. The money will not be taxed until the funds are withdrawn at the time of retirement. Your trusted financial professional can help you pinpoint the amount that makes the most sense for your cash flow, with this tax method paying off both now and in the future.
Deduct Home Office and Business Expenses – Many small business owners operate from a home office without realizing they can deduct expenses related to that office. This can involve insurance, mortgage interest payments, repairs and utilities such as internet service, and other less well-known items. Car use can also be deductible. However, just like with your home office, you must calculate what percentage of time your car is used for work. From there, you can apply that percentage to your overall work-related expenses.
By carefully accounting for deductions throughout the year and investigating your options in complicated situations, you can find alternative tax reducing methods you didn’t know existed. Experienced CPA, Ignatius L. Jackson can help guide you through your best options, tailored to the unique needs of your business in Tempe. Contact us Today!
Business Owners Don’t Take Vacations, They Take Business TripsPosted on September 10th, 2019
One of our favorite ways to save small business owners money on their taxes is to get them thinking about how to turn their vacations into business trips. Hence the title “Business Owners Don’t Take Vacations, They Take Business Trips”. Well at least as much as possible. There will inevitably be some cases where you won’t have any legitimate business to take care of on a trip, but if you think outside the box you can usually find some legitimate ways to turn your vacation into a business trip. If you have been wondering what the rules are for business travel, this article will tell you some pointers on what the rules are to count as much of your trip as possible as business travel. It is important to follow the rules on this to ensure you don’t take too much of a deduction or get yourself caught up with the IRS.
First rule of thumb is to ensure you have some business appointments setup before you leave for your trip. The rule is you have to have a least one business appointment setup before you leave for your trip, but we recommend setting up at least four hours of activity for each business day. This could be a seminar, workshop, training, lunch and/or dinner with potential or current clients, presentation, checking on rental properties you own, advertising events, picnics, etc. There are many things that would qualify as business activities, so think outside the box. However, keep in mind that just looking at real estate would not qualify. You would need to actually have a current property you own there or purchase a property there for that activity to qualify. Also keep in mind that a cruise is near impossible to write off as a business expense, there are a lot of special rules related to writing off a cruise, so if you plan on doing this be sure to consult a professional.
Second rule of thumb is to ensure the whole trip is business related if you want to deduct all of your expenses. The trip does not need to be a far distance from your home, but it would need to be away from your regular place of business. It would also need to be a necessary expense because the business activity is so long that driving back home each night is not practical in order for you to get enough rest for the next day (for example a conference that goes from 8am to 8pm each day). If you do have some days that are personal in nature you would need to allocate some days to personal and some to business. But in any event the majority of the trip would need to be for business purposes in order to deduct your transportation costs to the location. For example, if you go away for four days and only one day is for business purposes, then you can’t deduct any transportation expenses (such as airfare, train ride or mileage for your car).
Third rule of thumb is to ensure you keep track of your expenses. Allowable expenses include but are not limited to 100 % of lodging, tips, car rentals, taxis, ride-share, laundry, and other business related travel costs. Additionally, you can deduct 50% of meals, unless the meals are associated with an advertising activity for the general public in which case you can potentially deduct 100%. Keep in mind the IRS requires that you have receipts for any item that is greater than or equal to $75 for audit support if you are selected for an audit. Although you don’t have to keep receipts for expenses under $75, you should make sure you keep track of the expenses by using a business debit card or credit card for expenses or creating a log in Excel or a system such as QuickBooks. Lodging costs require a receipt regardless of the amount. If you don’t keep your receipts you could also use per diem rates instead of keeping all of your receipts, but the food rates would still only be 50%.
One more thing. To maximize your deduction, a pro tip is to sandwich weekends between business days. To do this you would need to have meetings or other business related activities scheduled on Friday and on the following Monday. If you have business activities scheduled (at least 4 hours of business activities on Friday and Monday), then you can get 6 full days of travel expenses as deductions. One caveat to doing only 4 hours of work each business day is if you could reasonably have done your business activities in the same day the deduction may be disallowed. So just ensure that you needed to do the activities on the Friday and the Monday and there was no alternative (for example, there was a training on Friday and another training on Monday which you have no control over the schedule of the trainings). If you do this, Thursday would be considered a travel day to get to your destination, so if you take the first flight out that day and spend the rest of the day doing whatever you want, it is still considered a full business day. Friday would be the day you have your scheduled business activities and is a full business day (after at least 4 hours of work). Saturday and Sunday you do not have to partake in any business activities and you can do whatever you would like. Monday you would have some more business activities (at least 4 hours of work). Tuesday would be considered a travel day back home, you could take the last flight out and do whatever else you wanted to before your flight. All in all this results in you getting 6 full days of tax deductions. Just phenomenal!
Where you deduct the travel expenses would depend on what type of business activity you are doing. For example, if you are checking on your rental properties, purchasing new properties and/or checking on a development you are working on, it would most likely go on Schedule E on your 1040 tax return. If it is for an operational business, such as legal work, sales meetings for your manufacturing plant, checking out a factory that is producing your products, etc. that would most likely go on a Schedule C on your 1040 return or 1120, 1120S or 1065 tax return.
About Ignatius L. Jackson, CPA LLC
We are a full service accounting firm that provides small business owners with accounting assistance and tax advice. We also do audits, reviews and compilations for small business owners that need that service to comply with a debt covenant or other regulatory reasons. Our firm has been around for 5 years and has implemented strategies for business owners that save them thousands on their income taxes. If you have any questions regarding this article or other issues you may be facing please contact us for a consultation.
Ignatius L. Jackson, CPA LLC
2828 North Central Avenue, Suite 1000
Phoenix, AZ 85004
Components of an Effective Business PlanPosted on June 6th, 2019
Starting a business can be a lengthy process, but the first step is creating a solid plan. Ignatius L. Jackson CPA has effective strategies and can help you create a business plan that will provide investors, lenders and potential partners with a clear understanding of your company’s structure and goals.
Your executive summary should appear first in your business plan, and it needs to review what you expect your business to accomplish. Since it is meant to highlight what you intend to discuss in the rest of the plan, it is highly recommended to write this section last.
A good executive summary needs to be strong and compelling, revealing your company’s mission statement along with a short description of its services. It is always a good idea to briefly explain why you’re starting a business and include details about your experience in the industry.
Your Business’ Description and Structure
In this section of your plan, it is essential you explain why you are in the business and what you plan on selling. If you intend to sell products, describe the manufacturing process, the availability of materials, how you will handle inventory, and other operative details.
If you plan on providing a service, describe them and the value for your target audience. Include other details such as calculated relationships, administrative concerns, owned property, expenses, and the legal structure of your company.
Your market analysis should show that you know the current state of the industry as well as the specific market you’re entering. You will need to use data and statistics to talk about where the market has been, where it is expected to go and how your company will fit in. A trusted financial professional, such as an experienced CPA, can help you organize and obtain these crucial details.
In your business plan, it is vital to describe how you intend to get your products and services in front of potential clients. As you pinpoint these steps, you are going to take proactive measures to promote your products and implement your strategies.
In the final section of your strategic business plan, you will need to reveal the financial goals and expectations you’ve set based on market research. You will need to report your anticipated revenue for the first year and your annual projected earnings for the second, third, fourth and fifth years of business.
If you are trying to apply for a personal loan or a small business loan, you can always add a section that provides additional financial background information.
Every business is unique but there are key components that every business plan needs to have. With the skilled guidance of Ignatius L. Jackson, CPA you can have a clear, accurate plan of your business goals. Contact us today for professional virtual business planning in Tempe, Arizona or any of the surrounding communities.
Benefits of Compilations for Your BusinessPosted on April 10th, 2019
Business owners often do not consider whether they are getting the appropriate level of financial statement services. With reliable and easy-to-understand business assurance tactics such as compilations, your trusted financial professional can determine the best strategy for the future growth of your business. Compilation services can also assure that your company is doing well and help you make accurate decisions for improvement.
What is a Compilation?
Assurance solutions are common accounting services that help validate your company’s efficiency in day-to-day operations. When looking into these services, you may be familiar with higher levels of assurance such as audits and reviews. These often require loans for conducting other operations.
Compilations are a form of lower-level assurance that is meant for the internal use of your company only. They do not provide any verification to outside parties such as lenders or investors. This process involves gathering your business’ financial records and issuing a financial statement based on those records. Although it does not involve an in-depth examination of those records, it does make sure that all existing accounts are condensed into a single, highly-organized document.
How Your Small Business Can Benefit from a Compilation
Because compilations are a clear picture of your overall venture to show its profits, losses, and balances, having this information available is very beneficial during tax season. If you are filing a business tax return, the compilation is utilized by your trusted tax professional to calculate your business’ income accurately and efficiently easily.
Additionally, compilations are used to help confirm proper balance between the numerous records, budget, and accounts of your business. If the funds reported on the compilation do not match up with your money owed, then you may be at high risk of operating over budget and will need to resolve the issue between your accounts and records. The compilation will also point out any inconsistencies within your inventory or product to prevent any unnecessary losses or theft of your assets. A compilation can also help you outline an appropriate budget for hiring new employees, making sure you do not create positions that you do not have the resources to support.
With over a decade of experience, trusted CPA, Ignatius L. Jackson enjoys helping small business owners throughout Tempe determine the best accounting methods for their growing businesses. For more information on how compilation solutions can benefit your business, contact him today!
Crowdfunding CPA ServicesPosted on March 19th, 2019
The JOBS Act of 2012 spawned Title III, Crowdfunding, and Title IV, Regulation A+, which are securities laws that allow small business owners to solicit investments from main street instead of just relying on big institutional investors and Wall Street Initial Public Offerings. These new securities laws have given small business owners an opportunity to get easier access to capital. The SEC adopted Regulation Crowdfunding (“Regulation CF”) to implement the requirements of Title III. Under these rules, eligible companies are allowed to raise capital using Regulation CF starting May 16, 2016.
Regulation CF allows you to raise up to $1,070,000 in a 12-month period from investors at all levels of income, subject to certain limitations. The capital raise can be structured as either equity or debt. For investors with a net income or net worth less than $107,000, they are limited to investing $2,200 or 5 percent of the lesser of the investor’s annual income or net worth. For investors with a net income and net worth greater than $107,000, they are limited to investing 10 percent of the lesser of the investor’s annual income or net worth. During the 12-month period, the aggregate amount of securities sold to an investor through all Regulation CF offerings may not exceed $107,000, regardless of the investor’s annual income or net worth. Spouses are allowed to calculate the net worth and annual income jointly in determining their maximum investment.
Regulation CF offerings must be conducted through one single online platform, which must be a broker-dealer or funding portal registered with the SEC and FINRA. A list of authorized Regulation CF providers can be found at this link. Each of them will have their pros and cons and some of them specialize in certain industries and types of offerings. Each of them will charge you a fee, which can vary depending on the portal, including some upfront and some based on the amount of capital you raise. So do your research before selecting a portal to perform your Regulation CF Raise.
There are restrictions on the type of entities that can use Regulation CF to raise capital. Entities that are prohibited from using Regulation CF include, non-US companies, companies selling illegal products (i.e. marijuana), companies with no specific business plan.
The disclosure requirements are simpler but will still require some thought and effort to complete the required tasks. You must file what is called a Form C with the SEC EDGAR system. There is not a specific presentation format required for the attachments to Form C. However, certain platforms may have templates and/or requirements as to the format of the Form C to help you facilitate your capital raise. While there is no specific form of the Form C required by the SEC, it must include the following information:
- information about officers, directors, and owners of 20 percent or more of the issuer;
- a description of the issuer’s business and the use of proceeds from the offering;
- the price to the public of the securities or the method for determining the price;
- the target offering amount and the deadline to reach the target offering amount;
- whether the issuer will accept investments in excess of the target offering amount;
- certain related-party transactions; and
- a discussion of the issuer’s financial condition and financial statements for up to two years.
The financial statements included in Form C do not require you to have a review or audit by a CPA for offerings of $107,000 or less. For offerings below $107,000, the CEO simply certifies the financial statements are accurate and complete and provides some income tax information. This makes getting some initial startup costs and early stage equity or loans reasonable with little upfront costs for small business owners. We recommend that you utilize a CPA to help you prepare the financial statements included with Form C, if you have no previous experience preparing financial statements. A QuickBooks print out is not sufficient for your financial statements to comply with this requirement. The cost to prepare your financial statements with Ignatius L. Jackson, CPA LLC will typically be between $750 and $1,500 for each year presented, depending on the type of activity you have within the business and the amount of disclosures required.
If your offering is greater than $107,000 but not more than $535,000, you are required to have your financial statements reviewed by an independent CPA. This applies even if you have no activity in the business as a startup. Ignatius L. Jackson, CPA LLC can complete the review for your financial statements. For a review of the financial statements, that have not previously been reviewed, you can typically expect costs of about $2,000 to $4,000 for each year presented, depending on the type of activity you have within the business and the condition of your financial records.
If your offering is greater than $535,000, you are required to have your financial statements reviewed by an independent CPA for first time Regulation CF issuers. This applies even if you have no activity in the business as a startup. If you have previously issued securities using Regulation CF, then you are required to have audited financial statements by an independent CPA. Ignatius L. Jackson, CPA LLC can complete the review or audit of your financial statements. For a review of the financial statements, that have not previously been reviewed, you can typically expect costs of about $4,000 to $6,000 for each year presented, depending on the type of activity you have within the business and the condition of your financial records. For an audit of the financial statements, that have not previously been audited, you can typically expect costs of about $6,000 to $10,000 for each year presented, depending on the type of activity you have within the business and the condition of your financial records.
Under Regulation CF, you are required to file annual reports on Form C-AR no later than 120 days after the end of your fiscal year. The annual report includes information similar to what is required in the original Form C. However, you are not required to have an annual audit or review unless you decide to do another capital raise under Regulation CF.
The SEC has issued a compliance guide for issuers under Regulation CF that you can review at this link.
Regulation A+ now has two tiers for securities offerings. Tier 1 is for offerings up to $20 million in a 12-month period and Tier 2 is for offerings up to $50 million in a 12-month period. Investors in Tier 1 offering can be from any individual. Investors in a Tier 2 offering must typically be accredited investors, otherwise the investor will be limited in how much they can contribute similar to regulation CF.
Both Tier 1 and Tier 2 issuers are required to file financial statements for the two previous fiscal year ends (or since existence, if less than 2 years). Tier 1 offerings are not required to do audited or reviewed financial statements and do not have ongoing financial statement reporting requirements. However, most states may require you to have audited financial statements even though the SEC does not. Tier 2 issuers are required to provided audited financial statements in their offering documents and to file annual, semiannual, and current reports with the SEC on an ongoing basis.
For Tier 1 offerings, it is recommended that you utilize a CPA to help you prepare the financial statements, if you do not have experience in preparing financial statements. Ignatius L. Jackson, CPA LLC can help you prepare the required financial statements typically for $1,000 to $3,000, depending on the activity in your financial statements and the amount of disclosures required.
For Tier 2 offerings, Ignatius L. Jackson, CPA LLC can perform the audit of your financial statements. For an audit of the financial statements, that have not previously been audited, you can typically expect costs of about $10,000 to $20,000 for each year presented, depending on the type of activity you have within the business and the condition of your financial records. For companies raising this level of capital it would typically be expected that you have some complex accounting requirements that require specialized knowledge and extra effort, which is ultimately what drives up the costs on these types of audits.
Regardless of which method you ultimately decide to use under the crowdfunding securities laws, we highly recommend you consult with a CPA and a securities attorney knowledgeable in the area prior to deciding which option to undertake. While these regulations have made access to capital easier for small businesses, the provisions are still complicated, and you need to make sure you comply with all SEC rules in regards to soliciting investments. Ignatius L. Jackson, CPA LLC is available for a complimentary consultation if you are considering a securities offering under Regulation CF or Regulation A+. Contact Ignatius L. Jackson, CPA LLC today for preparation, review or audit assistance with your crowdfunding securities needs.For more information regarding the requirements of a review or audit please visit this page on our website.
Preparing for an AuditPosted on December 12th, 2018
Tax audits, although often surrounded by a negative stigma, are not a time to panic, they are a time to prepare. When faced with an audit, many small businesses are asked to supply backup documentation to support their deductions and expenses accurately. If you’re a small business owner who keeps up-to-date and organized company records, a tax audit can be nothing more than a slight inconvenience.
Below are a few vital tips for small business to consider when preparing for a tax audit of your entity.
Tips for Preparing for a Tax Audit of Your Business
Fist Contact Your Tax Preparer or Tax Advisor – Regardless of your organizational skills, the key is to contact your trusted financial professional, such as an experienced CPA, to ensure your documents and records support the tax filing under investigation. Be sure to meet with them before you respond. It is always best to review the request with someone who can help you craft an appropriate and complete response.
Get Your Records in Order – IRS auditors can execute penalties on your business for poor or inaccurate records. It is best to organize records by year and by types such as income, expenses, and pension plans.
Make every effort to reconstruct lost or destroyed records and document your efforts. In the event of a devastating situation, such as a fire in your office, document your attempts to rebuild your business records, and show that did backups of those records.
Understand the Different Between Intentional Vs. Unintentional Failures – Intentionally reducing your business taxes by illegal means is tax evasion, and it is against the law. If you can show that your issue was, in fact, unintentional, the IRS will often be more lenient. However, they are much quicker to institute fines and penalties for intentional actions.
Make Sure You Do Not Have any Personal Expenses in Your Business Records – You must keep your personal and business expenses separate, with different bank accounts, credit cards, separation of business and personal travel expenses.
Contact Experienced CPA, Ignatius L. Jackson for Business Tax Audit Support
If you are a small business owner residing in the Tempe area and have recently received a notice from the IRS regarding an audit, contact Ignatius today. He has the skill and experience to deal with the auditor directly, prepare documents and settle any claims on your behalf.
Why Choose A CPA?Posted on August 31st, 2016
These days there are plenty of options for anyone looking for help managing their finances. Financial planners provide overall guidance for money management, investing and retirement planning, but for day-to-day financial management and procedures people often look to accountants or CPAs. While Accountants and CPAs are often thought of as the same, there are definite differences and here are three reasons why a CPA can be the best option.
- All CPAs are accountants, but not all accountants are CPAs.
While accountants are highly trained financial professionals, they’re not licensed. CPAs on the other hand, are licensed and certified through the completion of rigorous education and training which includes:
- An accounting degree from an accredited college or university
- Passing the four-part CPA Examination
- Successful completion of the American Institute of CPAs Professional Ethics Exam
- 1,800 working hours completed under the supervision of an actively licensed CPA
- Ongoing compliance with continuing education requirements to maintain their license
- CPAs offer comprehensive services
If you’re a small business owner, hiring a CPA rather than an accountant can be especially advantageous. While each function plays an important part in managing business finances, again, there are differences. Accountants oversee and manage bookkeeping functions, then analyze the financials and prepare financial reports.
While a CPA has the experience to provide all those services, they will also provide big-picture assessments of all facets of your business finances as well as management of:
- Business analysis, growth planning and risk assessment.
- Creation and set up of the right accounting system for your business
- Regular analysis of income, expenses and cash flow that provide ongoing insight on your business’s overall financial health
- Budget creation and audits
- Review and preparation of necessary financial statements
- Investment management
- CPAs are Tax Experts.
No one wants to pay more in taxes than they need to. CPAs stay current with all local, state and federal tax regulations, and can prepare accurate tax returns for any situation. A CPA will can provide tax planning strategies to help clients keep tax liabilities as low as possible from year to year, and also have the knowledge to resolve tax problems such as unfiled or late returns, settlement of IRS debt through a payment plan or an Offer in Compromise and Innocent Spouse Relief for victims of spousal fraud A CPA is also licensed to fully represent clients and make claims on their behalf during any IRS audit proceeding.