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Get ready to apply for PPP second draw loans

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Get ready to apply for PPP second draw loans(12-28-20)

The President has signed the Consolidated Appropriations Act of 2021 (H.R. 133), which, among other things, authorizes a new round of Paycheck Protection Program (PPP) loans called second draw loans. This allows some borrowers to request supplemental funding on their original PPP loans.

Second draw loans

Second draw loans are only available to businesses that employ 300 or fewer employees (part-time and seasonal count), and have at least a 25% reduction in gross receipts.

It is unclear whether applicants must have already received a loan under the first round of available PPP loans in order to qualify for the new second draw loans (we are awaiting guidance from the SBA on this). However, it is clear that if they have received a prior PPP loan they must have used, or will use, the first loan prior to the disbursement of a second draw loan.

Supplemental funding

Borrowers can also submit supplemental PPP loan requests in all cases where their original PPP loan amount would have changed due to new rules that have been released. This applies to partnerships where the original loan did not include the self-employment earnings of the partners. But it also applies to borrowers who returned their original loans, or took reduced loans to qualify for other benefits that are no longer limited for PPP recipients, such as the Employee Retention Credit.

Borrowers must request this additional funding before forgiveness is granted on their original PPP loan.

Deductions allowed

H.R. 133 also clarifies that borrowers who have loans forgiven may claim deductions for expenses even if expense were paid with loan amounts that were forgiven. This applies to all PPP loans.

California does not conform to this federal law, which is amended as part of the stimulus package. Taxpayers will still be required to reduce their deductions on the California return because California enacted AB 1577 (Ch. 20-39), which specifically prohibits taxpayers from claiming any deductions or credits for expenses that are paid with forgiven PPP loan amounts.

Email if you have questions about this article or your business.

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

Commercial Real Estate In Seizures. Dems shout back “He Needs Some Milk”

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Commercial real estate is going to be hurt bad in 2021 per expert predictions.

Downtown Los Angeles pictured below is the iconic US Bank building modeled after a Lighthouse tower; once thought to be a beacon for guiding the west, this slab of stone and metal sits like a tombstone looming over boarded up business windows and empty boulevard streets that reak of rot and recession.

Photo by Michael Arrache. Typically this street would be shoulder-to-shoulder with people and beautiful store fronts. Now its eerily empty.

Good news….

Famine for any broker still moving officespace, retail or hotels.

But like Warren Buffet says, when people are fearful get greedy.

For the winners out there who plan to ride it out (or Alamo that shit), the experts say to take advantage of short term swings in what we can only expect to be a very volatile short term market but plan for overall long term growth.

But good news if you’re a self employed CRE Broker. You can quality for free PPP loan money in certain cases. Talk to your bank’s SBA advisor for more information if you have not already but for sure see if you qualify for existing or upcoming government emergency money and freebies.

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

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Are you counting your AIC hours right? This applies to anyone who sits more than 1 hour a day.

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As CPA’s we are trained to count everything – we count time, money, frowns, widgets and woowoo’s and then bill it. But one thing we rarely count are AIC hours; time spent sitting at a desk is jokingly coined Ass In Chair “AIC” hours.

I may lose a few readers here, but the focus of this article is not counting AIC hours for billing purposes….

The focus of this article is…sitting.

Im not a medical Dr. (Sorry mom) but in some medical circles, there is data-driven-chatter that “sitting is the new smoking”. I didn’t pen the phrase, but thank you if you read it here first.

There are a slew of health issues related to sitting at a desk and most remedies focus on the chair or the desk and those are all very important. However, one simple solution rarely seen in the US work place has produced great result. I’m calling it “Stand Up”.

Let me explain Stand Up.

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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

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)

Filing A Superseded Tax Return to Claim a Refund

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File a superseding tax return to get a refund (05-04-20)

The IRS Taxpayer Advocate has suggested that a taxpayer who previously filed a 2019 return can file a superseded 2019 return on or before July 15, 2020 (October 15, 2020, if an extension was filed), and change the request to apply an overpayment to the 2020 year to request a refund instead.

As the Advocate explains in the April 29, 2020, blog post, taxpayers who have filed 2019 tax returns and have elected to apply the 2019 overpayments against their 2020 tax liabilities have made an irrevocable election, which cannot be changed — that is, unless the taxpayer files a superseded return prior to the original due date of the return. Once the original due date passes — in this case, July 15 (or October 15 if on extension) — the election can’t be revoked.

For business entities, the superseded return may be e-filed by checking the superseding return box on the electronic submission.

For individuals, the process takes longer. Superseding individual returns (Forms 1040) must be filed on paper and mailed to an IRS processing center where they are subject to processing delays and a greater risk of transcription errors. Because the IRS processing centers were closed to protect the health of employees, documents sent to the IRS through the mail were not being opened.

As the processing centers re-open, the IRS anticipates delays in processing the backlog of paper returns and correspondence. Even so, filing a superseding return to request the overpayment be refunded now will generate the refund payment in 2020 rather than 2021.

Providing bank or financial institution account information will further speed up the payment by four to six weeks. Paper returns will be processed in the order received, so file the superseded return as soon as possible.

To see the Advocate’s post, go to:

https://taxpayeradvocate.irs.gov/news/NTA_Blog_The_Value_of_a_Superseding_Tax_Return?category=Tax News

If you have any questions, please contact us to Schedule your Consultation Today. 949-877-3143 (local) or 800-425-0570 (toll-free)