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Take Advantage of the Small Business Administration

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Rikard & Neal CPAs - Small Business Accounting

What can the Small Business Administration do for your business? Probably more than you imagined! Click through for an introduction to the SBA and the many programs it offers to businesses like yours.

How can the Small Business Administration help you grow your business? Take a quick look at how the SBA works.

First, note that the SBA has a pretty wide definition of what is meant by “small.” You don’t have to be a mom-and-pop operation to take advantage of SBA loans. The cutoff limits vary by industry, but it’s possible to have hundreds of employees and still be eligible for SBA assistance.

However, there are four criteria all businesses must meet to obtain an SBA loan: They must be a for-profit business, they must do business in the U.S., the owners must have invested their own time or money in the business, and they must have exhausted all other financing options.

How does the SBA loan program work? The SBA doesn’t provide loans directly. If you need a loan, ask your lender whether it works with the SBA, or use the SBA to help connect with lenders. It means more paperwork and time to get an SBA loan guarantee, but getting the SBA involved can make the difference between getting the loan or not. You can connect with SBA lenders through the SBA Lender Match program. This speeds up the lending process.

There are multiple SBA loan programs. A basic loan program can help existing businesses and startups. These are flexible loans that can be used for lots of business purposes, including for working capital. There is also a special series of loans for property and equipment for businesses in specific areas targeted for development. The SBA also offers an array of special loans for veterans.

The SBA can provide disaster assistance to help small businesses that were hit by disasters — physical and economic assistance. For example, the SBA can provide loans to self-employed business owners who’ve lost their jobs due to disaster.

Help Beyond Loans

The SBA also offers, in partnership with other agencies, grants for research and development. The goal is to encourage businesses to do research that has the potential for commercialization. Some grants are for businesses run by socially and economically disadvantaged persons.

In addition, the SBA can help businesses get through the complex process of competing for government contracts; the SBA aims to level the playing field. After all, many government agencies require that some percentage of their purchases be set aside for small businesses, and you may be able to get in on these contracts.

Women and minority business owners can get specific assistance. The Office of Women’s Business Ownership provides help to women starting and running small businesses. Minority business owners, disabled and disadvantaged business owners, and immigrant and foreign national business owners can get special loans and help to start businesses.

The SBA also partners with SCORE, a network of volunteer expert business mentors with more than 10,000 volunteers in 300 chapters. You can find individual help for launching new companies or divisions and for business plan writing and marketing, for example.

Now that you see all that you can garner from the SBA, you may decide to visit your local SBA office to see what services and training are available in your area.

Our clients get personalized and responsive service from dedicated accounting professionals who will help you manage your business and keep your finances on track. We want you to feel confident that your accounting system accurately reflects your current situation so you can concentrate on running your business instead of trying to stay on top of your books. Send us an e-mail or call us today at 901-685-9411 . Or, request a free consultation to discuss your business needs with an experienced CPA.

2020 Q1 tax calendar: Key deadlines for businesses and other employers

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Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2020. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31
• File 2019 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
• Provide copies of 2019 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
• File 2019 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
• File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2019. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
• File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2019. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
• File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2019 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 28
• File 2019 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)

March 16
• If a calendar-year partnership or S corporation, file or extend your 2019 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2019 contributions to pension and profit-sharing plans.

Renting Residential Real Estate — A Tax Review for the Nonprofessional Landlord

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Woman inspecting house interiorInvesting in residential rental properties raises various tax issues that can be somewhat confusing, especially if you are not a real estate professional. Some of the more important issues rental property investors will want to be aware of are discussed below.

Rental Losses

Currently, the owner of a residential rental property may depreciate the building over a 27½-year period. For example, a property acquired for $200,000 could generate a depreciation deduction of as much as $7,273 per year. Additional depreciation deductions may be available for furnishings provided with the rental property. When large depreciation deductions are added to other rental expenses, it’s not uncommon for a rental activity to generate a tax loss. The question then becomes whether that loss is deductible.

$25,000 Loss Limitation

The tax law generally treats real estate rental losses as “passive” and therefore available only for offsetting any passive income an individual taxpayer may have. However, a limited exception is available where an individual holds at least a 10% ownership interest in the property and “actively participates” in the rental activity. In this situation, up to $25,000 of passive rental losses may be used to offset nonpassive income, such as wages from a job. (The $25,000 loss allowance phases out with modified adjusted gross income between $100,000 and $150,000.) Passive activity losses that are not currently deductible are carried forward to future tax years.

What constitutes active participation? The IRS describes it as “participating in making management decisions or arranging for others to provide services (such as repairs) in a significant and bona fide sense.” Examples of such management decisions provided by the IRS include approving tenants and deciding on rental terms.

Selling the Property

A gain realized on the sale of residential rental property held for investment is generally taxed as a capital gain. If the gain is long term, it is taxed at a favorable capital gains rate. However, the IRS requires that any allowable depreciation be “recaptured” and taxed at a 25% maximum rate rather than the 15% (or 20%) long-term capital gains rate that generally applies.

Exclusion of Gain

The tax law has a generous exclusion for gain from the sale of a principal residence. Generally, taxpayers may exclude up to $250,000 ($500,000 for certain joint filers) of their gain, provided they have owned and used the property as a principal residence for two out of the five years preceding the sale.

After the exclusion was enacted, some landlords moved into their properties and established the properties as their principal residences to make use of the home sale exclusion. However, Congress subsequently changed the rules for sales completed after 2008. Under the current rules, gain will be taxable to the extent the property was not used as the taxpayer’s principal residence after 2008.

This rule can be a trap for the unwary. For example, a couple might buy a vacation home and rent the property out to help finance the purchase. Later, upon retirement, the couple may turn the vacation home into their principal residence. If the home is subsequently sold, all or part of any gain on the sale could be taxable under the above-described rule.

We offer financial management solutions for developers, property managers, realtors, brokers and other real estate businesses. Call us at 901-685-9411 today for more information or request a free consultation online now.

National Tax Security Awareness Week

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The week of December 2nd through the 6th is National Tax Security Awareness Week and the #IRS and Security Summit partners want to make you aware of various security risks.

#TaxSecurity Awareness Week

https://www.irs.gov/individuals/taxes-security-together

https://www.irs.gov/newsroom/security-summit

Cybersecurity Basics
It’s not just shopping season for you, it’s also shopping season for cybercriminals & identity thieves who want to steal your data to file fraudulent tax returns. The IRS provides simple steps for online safety to protect tax returns and refunds. Remember, while you’re looking for the perfect gift, cybercriminals are looking for ways to steal your data.

Phishing Scams
National TaxSecurity Awareness Week is a good time to learn how to recognize and avoid phishing scams that pose as trusted sources, like financial institutions or the IRS. There’s no fool-proof technology to defend against phishing scams — YOU are your best defense. One way criminals steal your bank account, passwords, credit cards or SSN is by asking for it. Learn to recognize phishing scams and IRS impersonators.

Strong Passwords
For National TaxSecurity Awareness Week, IRS urges everyone, taxpayers and TaxPros alike, to protect online accounts with current password guidance: www.irs.gov/securitysummit.  Become familiar with stronger passwords standards to protect against cybercriminals. Always use strong passwords on any type of online account to protect against savvy cybercriminals.

Identity Theft and Small Businesses
The IRS and the Security Summit have taken steps to identify and prevent business identity theft. Awareness of business identity theft is a key component. Be aware of certain signs that may indicate identity theft has occurred to businesses.

How to Improve Your Cash Flow

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businessman moneySlow paying customers, seasonal revenue variations, an unexpected downturn in sales, higher expenses — any number of business conditions can contribute to a cash flow crunch. If you own a small business, you may find the suggestions that follow helpful in minimizing cash flow problems.

Billing and collections. Your employees need to work with clear guidelines. If you don’t have a standardized process for billing and collections, make it a priority to develop one. Consider sending invoices electronically instead of by mail. And encourage customers to pay via electronic funds transfer rather than by check. If you don’t offer a discount for timely payment, consider adding one to your payment terms.

Expense management. Know when bills are due. As often as possible, pay suppliers within the period that allows you to take advantage of any prompt-payment incentives. Remember that foregoing a discount in order to pay later is essentially financing your purchase.

Take another look at your costs for ongoing goods and services, including telecommunications, shipping and delivery, utilities, etc. If you or your employees travel frequently for in-person meetings, consider holding more web conferences to reduce costs.

Inventory. Focus on inventory management, if applicable, to avoid tying up cash unnecessarily. Determine the minimum quantities you need to keep on hand to promptly serve customers. Systematically track inventory levels to avoid overbuying.

Debt management. Consider how you use credit. Before you commit to financing, compare terms from more than one lender and keep the amount to a manageable level. For flexibility, consider establishing a line of credit if you do not already have one. You will be charged interest only on the amount drawn from the credit line.

Control taxes. Make sure you are taking advantage of available tax breaks, such as the Section 179 deduction for equipment purchases, to limit taxes.

Develop a cash flow budget. Projecting monthly or weekly cash inflows and outflows gives you a critical snapshot of your business’s cash position and shows whether you’ll have enough cash on hand to meet your company’s needs.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track.

Send us an e-mail or call us today at 901-685-9411 to discuss your business needs with an experienced CPA. Or, request a free consultation online.

Business Tax and Bad Debt

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Glasses and PencilDo you have a client or customer who won’t pay? Even when all attempts to collect a bad debt have failed, the IRS may give you a break at filing time. Click through to see how to take that bad debt off your taxes.

When can you use bad debt to reduce business income? Even when you take the customer to court and you still don’t get your money, there’s a way to make lemonade from this lemon of a customer.

If your business has already shown this amount as income for tax purposes, you may be able to reduce your business income by the amount of the bad debt. Look at bad debt as an uncollectible account—a receivable owed by a customer, client or patient that you are not able to collect.

Bad debt may be written off at the end of the year if it is determined that the debt is in fact uncollectible.

According to the IRS, bad debt includes:

  • Loans to clients and suppliers.
  • Credit sales to customers.
  • Business loan guarantees.

How do you write off bad debt?

Your business uses the accrual accounting method, showing income when you have billed it, not when you collect it.

If your business operates on a cash accounting basis, you can’t deduct bad debt because you don’t record income until you’ve received the payment. If you don’t get the money, there’s no tax benefit to recording bad debt. You only record the sale when you receive the money from the customer.

Under accrual accounting, manually take the bad debt out of your sales records before you prepare your business tax return.

You must wait until the end of the year, just in case someone pays.

  • Prepare an accounts receivable aging report, which shows all the money owed to you by all your customers, how much is owed and how long the amount has been outstanding.
  • Total all bad debt for the year, listing all customers who have not paid during the year. Only make this determination at the end of the year and only if you’ve made every effort to collect the money owed to your business.
  • Include the bad debt total on your business tax return. If you file business taxes on Schedule C, you can deduct the amount of all bad debt. Each type of business tax return has a place to enter bad debt expenses.

It makes sense in any kind of business—no income recorded, no bad debt.

A business bad debt often originates as a result of credit sales to customers for goods sold or services provided. The best documentation is likely to be a detailed record of collection efforts, indicating you made every effort a reasonable person would in order to collect a debt.

Take some solace by claiming a bad business debt deduction on your tax return. Not exactly a guarantee because you need to show that the debt is worthless, but it’s good to know there may be some relief.

Call our Memphis, TN CPA now at 901-685-9411 to find out how we can decrease your tax obligations. We offer a free initial consultation to new clients so contact us today.