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New Year Nomenclature: 2021 “Soaring Eagle”

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Like many people, I enjoy a good tradition.

Whether it is a grandiose tradition like the annual family vacation or a simple routine like weeknight family dinners, the “remember and repeat” activities carry much importance on celebrating the past and where we are going.

One tradition that is very similar to naming a new pet, car or ship; I name the new years.

The New Year Name is chosen before the new year starts and will reflect important plans, challenges, obstacles, etc. ahead in the new year.

Typically I’ve use a simple nomenclature = action + animal name

For instance,

  • 2019 – “Riding Tiger”
  • 2020 – “Running Bear”
  • 2021 – “Soaring Eagle”

In my experience the tradition of naming the new year has been at times inspirational, accurate and foreboding. 2020 “Running Bear” was right on the money.

Why is this important?

As entrepreneurs and business owners it is important to work in your business and on your business. The New Year Name helps me associate an idea larger than any 1 person and at the same time focus 100% on the action in front of me.

2021 will be a year of hard work and no short cuts but prime for new and continued growth.

A lot of people probably stopped reading and are hiding in there bedroom when I said “weeknight family dinners”, but for those of you who appreciate a tradition, I wish you a happy and safe New Year and best wishes in 2021.

If you have traditions please share in the comments below or email to

Info@mrarrachecpa.com

Merry Christmas For Sales Tax in California

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Merry Christmas for Sales Tax in California, Covid Style.

CDTFA Announced that Returns due between December 15, 2020, and April 30, 2021, for all but the largest taxpayers, will be extended.

Santa Claus’s CPA is coming to town 🎅

Taxpayers reporting less than $1 million in tax on a return originally due during this time frame are not required to seek an extension from CDTFA; relief will be provided automatically. 

Additionally, for these taxpayers, interest and penalties will not accrue on return amounts due, provided payments are made and returns are filed within three months of the original due date.

In recent press conferences and public announcements, for the first time EVER, the CDTFA is telling taxpayers to use sales tax money for necessary business operating expenses during this state of emergency.

This is dangerous for taxpayers who are not good with managing cash flow.

I strongly advise you to monitor and project your cash flow and PLEASE remember that the TAX is STILL DUE so make sure you communicate with the CDTFA immediately if you are in financial hardship.

You can read the full announcement at the following link.

https://www.cdtfa.ca.gov/services/covid19.htm

Reach out if you have any questions or want to talk more about this article or your business.

info@mrarrachecpa.com

My Notes On 2021 Economic Forecast presented by Chapman University

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I recently attended an Economic Forecast presented by Chapman University via live webinar and here are my notes.

You can view a recording of the presentation here https://economicforecast.chapman.edu/2020-presentation/

  • General Notes
    • Presenters included James Dotti and Fadel Lawandy
    • The Chapman economic forecast has historically been one of the most accurate predictors of economic performance for over 30 years
    • James Dotti and his team have successfully predicted 17 of the last 18 presidential elections.
  • What happened in 2020?
    • Predicted a mild decrease in GDP growth(+2%), but COVID happened and annual GDP decreased by a large amount (-3%.)
    • Government Officials at State Level made exaggeration of an ermergency and unnecessarily shut down the economy
    • Covid Shutdown Cost: California shut down mandate causes loss of 500,000 jobs and countless businesses
    • Covid Shutdown Benefit: California shut down mandate saves 6,600 lives…
    • States with less stringent shut down mandates saw less job loss and stronger economic revovery
  • 2021 is going to be volatile with opportunities for buy in the short-term dips but expect long-term growth.
    • Growing Pent up demand – personal wealth dramatically increased in 2020 by 10%.
    • Housing affordability is at a recent all time high with historic low interest rates. Recent GDP recovery was driven primarily by consumer spending, not housing which is not necessarily good news. Watch housing market closely in 2021
    • Stock Market performance is based on how the economy is predicted to perform. Currently predicted at modest +/- 3% growth. Historically, Dem Pres, Rep Senate and Dem House produce the best results for the market +/- 16%. IF Dems control all 3, then historically market +/- 6%.
    • Government spending good for economy and will drive inflation which is good in short term but overall will cause problem down the road. Due to the coronavirus pandemic, Congress and President Trump enacted the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) on March 18, 2020. The Committee for a Responsible Federal Budget estimated that the budget deficit for fiscal year 2020 would increase to a record $3.8 trillion, or 18.7% GDP.[5] The CBO preliminary estimate for the fiscal year 2020 deficit is $3.1 trillion or 15.2% GDP, the largest since 1945 relative to the size of the economy.[6]
    • Remote life will change the structure of work life, more comparable to women in the workplace during World War II.
    • Expect a lot of commercial real estate properties to change purpose or be elimated all together such as Hotels, Retail, Office Buildings, etc. Estimated 20% of NYC Hotels and Retail will close forever.
  • Innovation regions are a major focus for real estate investors because high paying jobs create local wealth and investment opportunities.
    • Phoenix, Carlsbad, Reno and Salt Lake City are areas of interest for innovation hubs with real estate and tax advantage opportunities.
    • Orange County needs to create more high-paying tech jobs to replace the Hospitality/Leisure employment loss to remove two-tier society.
    • Artificial Inteligence will create a lot high-paying tech jobs.

Thank you to Chapman University, speakers and sponsors for an amazing 2021 economic forecast. Some great takeaways including my favorite Real Estate tip – buy where the son goes in the winter.

Until next year, thank you and take care.

Contact our CPA today if you any questions about this article or want to talk more about your business or taxes.

Info@mrarrachecpa.com

Taxes Next Week, Next Month and Next Year

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2021 is coming, dun dun dun….

For some people that is good news, for some people that is like 4 more years of covid.

Here’s some tax buzz to look out for in the coming weeks, months, years.

Read more

Ready to Start Your Business ?

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Are you ready to start your business? Make sure you meet with your CPA and Legal Advisors to CYA.

Starting a new business requires a lot of administrative planning and action on top of the already daunting task of working in your business. I like to call this Working On Your Business.

Here is a condensed list of some important things to consider when you are starting your business:

  • Finalize and Approve Business Organization Documents (i.e. By-Laws, partnership agreements, shareholder agreements, business plans and projections, etc.)
  • Register the business with the State (Corp/LLC/Partnership) and/or County (Sole Prop “FBN”)
  • Register with any applicable Licensing Authorities (i.e. Medical board, State Bar, DOT, etc.)
  • Obtain Federal EIN from the IRS
  • Apply for Business License ( city, etc)
  • Setup a system for Tax & Accounting Information, Controls and Procedures
  • Open a bank checking account
  • Bind insurance coverage needs (i.e. General Liability, E&O, Workers Comp, Health, etc.)
  • Setup Human Resources & Payroll

Starting a business is tough. We’re here to help you along the way.

Want to talk more or have questions about your business? Talk with a CPA now 949-877-3143 or email info@mrarrachecpa.com

California Health Department Reopening Guidelines For Restaurants, Retail and Manufacturing

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While a lot of business owners are taking a wait-and-see approach, The California Department of Public Health and Department of Industrial Relations recently released industry specific guidance to help employers reopeing their businesses during the Covid-19 pandemic.

These new instructional documents provide businesses with some important information from employee training to customer safety and other tips for a safe workplace. You can view these documents and other employer resources at the California state government’s website https://covid19.ca.gov/

Here are some notable parts from the government guidance if you are planning on curbside service, take-out or dining-in at your local Restaurant or Bar:

  • Prioritize outdoor seating and curbside pickup to minimize cross flow of customers in enclosed environments. Restaurants can expand their outdoor seating, and alcohol offerings. Guests are encouraged to order ahead of their arrival, even if dinining-in.
  • Limit the number of patrons at a single table to a household unit or patrons who have asked to be seated together. People in the same party seated at the same table do not have to be six feet apart. All members of the party must be present before seating and hosts must bring the entire party to the table at one time.
  • Licensed restaurants may sell “to-go” alcoholic beverages, prepared drinks, and pre-mixed cocktails provided they are sold and delivered to customers in conjunction with the sale and delivery of a meal/meals.
  • Discontinued tableside food preparation and presentation such as food item selection carts and conveyor belts, guacamole preparation, etc.

If you have questions about this article or want to talk more your business, please contact us at (949) 877-3143 (local) or (800) 425-0570 (toll free) or info@mrarrachecpa.com

Quicklinks to the Documents

guidance-dine-in-restaurantsDownload
guidance-retailDownload
guidance-manufacturingDownload

News on Good Faith Loans, PPP Audits & Other Questions

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Good news for PPP loan recipients(05-14-20)

The Treasury Department has announced the following news regarding the Paycheck Protection Program (PPP):

  • A new “current economic uncertainty” safe harbor applies for PPP loans of less than $2 million. These loan recipients will automatically be deemed to have made the required certification concerning the necessity of the loan request in good faith (FAQ #46);
  • For loans of $2 million or more, the deadline to return PPP loans to avoid an audit concerning the good faith certification has been extended from May 14, 2020, to May 18, 2020. If a borrower returns the funds by May 18, the Treasury will not pursue administrative enforcement or make referrals to other agencies (FAQ #47);
  • The Treasury also won’t pursue administrative enforcement or make referrals to other agencies against a borrower with a loan of $2 million or more who didn’t repay the loan by May 18, if the borrower returns the loan after notification by the SBA that it found on audit that the borrower lacked an adequate basis for required certification concerning the necessity of the loan request (FAQ #47);
  • All borrowers who return PPP funds by May 18, 2020, are eligible to claim an Employee Retention Credit (FAQ #45);
  • Partnerships and seasonal employers may be eligible for increased loan amounts resulting from changes in the rules as to how their loans were originally calculated. Lenders may automatically request the SBA increase the loan amount for:
    • Partnerships that received a loan based on payroll costs that did not include compensation paid to partners in their payroll costs. An interim final rule issued on April 14, 2020, now allows self-employment income of general active partners as allowed under the interim final rule posted on April 14, 2020; and
    • Seasonal employers who received a loan based on payroll costs for one of the lookback periods specified in the CARES Act (the 12-week period beginning February 15, 2019, or March 1, 2019, to June 30, 2019) rather than the alternative lookback period adopted by the Treasury Department. Under the alternative rule, seasonal employers may use any consecutive 12-week period between May 1, 2019, and September 15, 2019.

No increased loan amount is available if the lender has already listed the loan on Form SBA 1502 filed with the SBA.

Partnerships and seasonal employers who might be eligible for these increased loan amounts should contact their lenders immediately to ensure they are applying for these increased loan amounts.

The Treasury Department FAQs are available at:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

The interim final rule allowing for increased loans for partnerships and seasonal employers is available at:

https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Loan-Increases.pdf

Feel free to reach out to discuss this article further or if you have other questions for you or your business. (949) 877-3143 (local) or (800)425-0570 (toll-free) email info@mrarrachecpa.com

Covid-19: A Hard Reset For Business

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Much like when your computer stalls and “fingers-crossed” you unplug it from the wall and plug it back-in, Covid-19 is forcing the global economy into a hard reset. In this article we will discuss two phases that some if not most business will go through during this pandemic hard reset. Make sure to discuss these ideas with your CPA and financial advisors.

Phase 1 – Survival

One of the most important things to focus on during uncertain times is cash flow both current and projected.

Identify the important cash flow priorities of your business such as employees, customers, landlord, lenders, vendors, shareholders, etc. Keep in mind that the ultimate goal is to return to normal business at some point in the future and it would be useful to maintain these priority relationships.

As you live and breath your cash flow everyday, you may come into a cash flow deficit situation. Before throwing in the towel, make sure you explore alternative solutions for cash flow issues such as:

  • SBA Loans (i.e. PPP, EIDL, etc.)
  • Payroll Tax Credits
  • Deferring Payments for Certain Payroll and Sales Taxes
  • Negotiating installment agreements to cover past due payables or taxes
  • Equity infusion

If these solutions aren’t working for you and your cash flow is continuing into a deficit, there are other options such as cancellation of debt or closing the business. However, please keep in mind that these options can trigger taxable income, cause serious damage to the credit of the business and its owners and take years to resolve. So, let’s stay in business and Rebuild!

Phase 2 – Rebuild

As the government slowly rolls out phases to re-open the economy it will be like a re-birth for some businesses. It is best to take this time to establish successful cash flow plans. Here is a sample of how to envision your cash flow and create a detailed plan and projection.

  • Make Money – Create cash inflow from Net Income, contributed capital, etc (non debt obligations – see next note)
  • Pay off Debt – Once the business is making money with positive cash inflow you can build a strong balance sheet by paying off debts. There are scenarios where debts are adequately-leveraged or debt is necessary, etc etc but a simple goal for your balance sheet could be Assets = Equity
  • Save Money – Some people advise to save money as you pay off debt, and others suggest to pay of the debt first because debt typically costs more than the earnings from savings….either way, Save Money.
  • Invest Money – Once you have paid off your debt and you have adequate savings, then you can invest in your business, such as PP&E, retirement plans, Reasearch & Development, etc.

As you create your various cash flow plans and projections, experiment with different ideas and what-if scenarios to create a range or metric for additional ways to measure future performance.

If you have any questions, please reach out and we can talk more about this and any other questions for you or your business. Info@mrarrachecpa.com or (949) 877-3143 (local) or (800) 425-0570 (toll-free).

Written by: Michael Arrache, CPA, EA (Newport Beach, CA)

SBA Provides Self-Employed and Partners Guidance on PPP Loans

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PPP loan calculations for self-employeds and partnerships (04-27-20)

The SBA has finally issued guidelines on calculating monthly payroll costs for Paycheck Protection Program loans for all entities, including self-employed taxpayers and partnerships.

Self-employed individuals

Self-employed individuals with no employees determine their monthly payroll costs by dividing their Schedule C, line 31 net profit amount, up to a $100,000 maximum, by 12. If the line 31 net profit amount is zero, the individual is ineligible for a loan.

If the self-employed individual has employees, add the monthly employee payroll costs to the amount above. These payroll costs are based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee.

To this amount, add the following 2019 costs:

  • Employer contributions for employee health insurance (portion of Schedule C, line 14 attributable to health insurance);
  • Employer contributions to employee retirement plans (Schedule C, line 19); and
  • Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

Partnerships

The application for partnerships should be completed at the partnership level. Individual partners may not apply for separate PPP loans.

The maximum loan amount is based on 2.5 times the 2019 monthly self-employment earnings reported to U.S.-based general partners on the 2019 Schedule K-1, Box 14a, net earnings from self-employment tax, with a maximum of $100,000 per partner. If the 2019 K-1s have not yet been completed, they must be completed for purposes of the loan application.

This amount must be reduced by any claimed IRC §179 expense, unreimbursed partnership expenses, and depletion on oil and gas properties. The result is then multiplied by 0.9235 (to remove the “employer” share of self-employment tax).

To this amount, add any 2019:

  • Monthly employee payroll costs based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee; 
  • Employer contributions for employee health insurance (portion of Form 1065, line 19, attributable to health insurance);
  • Employer contributions to retirement plans (Form 1065, line 18); and
  • Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

LLCs

LLCs compute their payroll costs based on whether they are taxed as a sole proprietorship (SMLLC), partnership, or corporation.

Additional guidance

The guidance also specifies how nonprofit organizations and C and S corporations should calculate their maximum loan amounts, as well as the documentation each entity type must provide with its application.

The guidance is available at:

https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf

More Recovery Disaster Funds Could be here soon for Businesses

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Additional round of funding could be available this week for Businesses impacted by Covid-19.

Among the items being voted on, there appears to be emergency funding for businesses and front line healthcare responding to the pandemic:

  • $300B – Payment Protection Program
  • $50B – EIDL Economic Injury Disaster Loan
  • $25B – Testing
  • $75B – Hospitals

Congress and the President are expected to finalize the deal this week and funds should be available shortly thereafter.

Speak with your SBA banking advisor soon to start the application process and make sure to take advantage of planning opportunities for the Payment Protection Program (loan forgiveness) and Economic Injury Disaster Loan ($10k grant). Visit the following links for additional information.

-Michael Arrache, CPA, EA