What You Need to Know About Incorporating Your Business

Business people working on business contract papers at officeIncorporating your small business the right way can bring tax benefits and protect your personal assets. Read on to learn more about what incorporation is, why you might want to incorporate, and how an accountant can help you navigate the questions that come with selecting the right business structure.

What is Incorporation?

When discussing “incorporation” in terms of a business, the term denotes how the business is organized or structured.

Regardless of the structure you choose for your business, incorporation is a legal process that brings your business into existence. The following are business structures commonly used in a small business.

Sole proprietorship

If you conduct business as an individual and do not register as any other type of business, you are a sole proprietor. With this business structure, your personal and business assets and liabilities are not separate. Sole proprietorships are relatively simple structures and a good choice for low-risk businesses or entrepreneurs testing a business idea. However, this business structure does not offer liability protection, so the owner is personally responsible for business debts and obligations. Another drawback is that it can be more challenging to get bank financing and business credit with this structure.

Partnership

When two or more individuals own a business together, the simplest structure is the partnership. There are limited partnerships (LP) and limited liability partnerships (LLP). LPs consist of a general partner with unlimited liability; the remaining partners have limited liability and limited control in the business. The partner without limited liability pays self-employment taxes. In LLPs, every owner has limited liability, protecting them from business debts and the actions of the other partners.

Partnerships can be a good choice for multiple-owned businesses and professional groups like physicians, attorneys, and veterinarians.

C-corp

Sometimes called a C-corp, a corporation is a separate legal entity from the business owner(s). The benefit of a corporation is that they offer the most robust protection for owners from personal liability; however, it costs more to form a corporation than it does to establish other business structures, and business profits are taxed at the personal and corporate level. Further, the record-keeping, operations, and reporting are more involved for a corporation. This structure is usually best for higher-risk businesses or those that raise money or plan to become publicly traded in the stock market.

S-corp

An S-corporation, or S-corp, is designed to avoid the double-taxation of a C-corp. This avoidance is possible because, in an S-corp, profits and some losses go through the owner’s personal income to avoid corporate taxes. S-corps are taxed differently in different states, so it is essential to have your accountant help you understand the guidelines and laws in your state.

LLC

A limited liability company (LLC) has the benefits of a corporation and a partnership. The owner is protected from personal liability in situations like bankruptcy or lawsuits and can avoid corporate taxes because profits and losses can pass through their personal income. However, there are self-employment taxes and Medicare and Social Security contributions since LLC members are considered self-employed.

An LLC is an option for owners with significant assets that need protection and who want the benefit of a lower tax rate than a corporation pays.

How to Incorporate

When you’re ready to incorporate your business, consult your trusted CPA or accountant so that you have a full view of what incorporating will mean for you and your business initially and for years to come.

Let us know how our CPAs and business consultants can help your business navigate challenges and become more profitable. Contact us to request a consultation, or give us a call today at 775-332-4201 and ask for Mark Bailey for more information.

Customers Paying Late? How to Create Statements

There are many ways to encourage delinquent customers to pay. QuickBooks Online’s statements may be effective for you.

After the year-plus you’ve just experienced, the last thing your small business needs is customers who are behind on their payments to you. You may have been giving them a break because you know that they’re struggling, too, but things have been looking up for many companies in the past few months. It’s time for you to be more proactive about calling in your debts.

There are numerous ways you can accomplish this. One of the best is to send statements in QuickBooks Online, which are detailed reminder forms that contain multiple transactions. These can be especially helpful if you’ve sent multiple invoices with no response. There are three different types you can send, depending on your needs. Here’s how you create them.

Before You Start

QuickBooks Online offers a couple of options for formatting your statements. To see these, click the gear icon in the upper right corner and select Your Company | Account and Settings. Click the Sales tab and scroll down to the Statements section. Click the pencil icon over to the far right to make any changes needed. You can:

  • List each transaction as a single line or include all of the detail lines.
  • Display an aging table at the bottom of each statement.

Click the buttons to specify your preference and then click Save and Done.

tax tips

QuickBooks Online gives you control over some elements of your statements.

Three Statement Types

You can choose from among three different types of statements in QuickBooks Online: Balance Forward includes invoices with outstanding balances for a specified range of dates. Open Item statements contain information about all unpaid (open) invoices from the last 365 days. And Transaction Statements show every transaction in a date range that you specify. We’ll describe how to create them so you can decide which makes the most sense for a particular situation.

One Way to Create Statements

Like it does for many other actions, QuickBooks Online offers two ways to create statements. The first is easier. Click the New button in the upper left and select Statement (under Other). Click the down arrow in the field under Statement Type to see the three options there.

If you select Balance Forward, you’ll need to define three criteria (there will be similar options for the other two types):<.p>

  • Statement Date
  • Customer Balance Status (Open, Overdue, or All)
  • Start Date and End Date

tax tips

QuickBooks Online makes it easy to create any of three types of customer statements.

When you’re satisfied with your statement parameters, click Apply. QuickBooks Online will display a list of the transactions that meet your criteria, along with the number of them that will be generated. Each row in the list will display the recipient’s name, email address, and balance. In the upper right corner, you’ll see the number of statements again and the total balance these customers represent.

If you want to exclude any of these customers, click in the box in front of each to unselect them and delete the checkmark. When you’re satisfied with your list, click Save, Save and send, or Save and close. If you click Save and send, a window will open containing a preview of your statements. Thumbnails of each will appear in the left pane. Click on any to see their previews. When you’re ready, you can download, print, or send them.

If you click Save or Save and close, you’ll still be able to see the statements you’ve just generated. Click the Sales tab in the toolbar, then All Sales. Click the down arrow next to Filter and open the drop-down list under Type. Select Statements, and your list will appear. You can print or send one by selecting the correct option in the Action column. If you want to dispatch multiple statements, click in the box in front of each, and then click the down arrow next to Batch actions.

Another Method

There’s an alternate way to create statements. Click the Sales tab in the toolbar, then Customers. Select any or all of the customers in the list, then click the down arrow next to Batch actions and select Create statements. QuickBooks Online will open the Create Statements window again so you can select the type and process your statements like you did using the previous method.

We don’t expect that you’ll have much trouble working with statements, though you may want to consult with us on when they’re appropriate. We can also suggest other ways to bring your accounts receivable up to date. As always, we’re available to help you maximize and streamline your use of QuickBooks Online. Keeping your financial books current and organized is one way to ensure that you don’t fall too far behind with customer payments.

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Are too many of your customers behind in their payments to you? Consider sending statements in QBO. We can show you how.

QuickBooks Online supports statements, reminder forms you can send to customers whose payments are past due.

Don’t know how many customers are past due on their payments to you? Run QuickBooks Online’s A/R Aging reports.

There are two ways to create three different types of statements in QuickBooks Online. We can help you sort it out.

5 Topics Every Business Owner Should Discuss with An Accountant

Group of people having meeting and disscusingYour accountant or CPA is a business asset that you should put to good use year-round, not just at tax time. There are several topics beyond taxes that business owners should discuss with their trusted financial professionals. In this article, we cover five of them for you. While the new year is traditionally when business owners think of making financial, strategic, and other business-related plans, any time is the right time to speak to your accountant to discuss the following aspects of your business. You can’t begin the conversation too early, but it could be too late in some cases, so don’t put aside these five essential talking points.

1. Financial Planning

Budget is front of mind for business owners, but other financial issues impact your business, too. Consider a full portfolio review with your accountant to plan your financial future. Some critical topics to cover include strategies to improve cash flow, existing business loans, capital investment, charitable contributions, employee-related expenses like bonuses and health care, retirement planning, and asset management.

2. Company Growth

The goal of all businesses is growth. With growth comes change. As your business objectives shift, your valuation and tax liability often shift, too. Any changes you experience in your business should be conveyed to your accountant or CPA so that they can apprise you of liabilities or status changes. For example, suppose you plan to expand, add additional locations, make significant staffing changes, merge companies, acquire new businesses, or plan to sell your business. In that case, you should set up an appointment with your accountant to develop a logical strategy to address the change.

3. Inventory

If your business sells or resells tangible goods, inventory is vital. Sales tax laws and regulations can be challenging. Many states have rules about nexus (i.e., how much presence a business has in a city or state) related to where businesses warehouse inventory and fulfill orders. Your accountant can assess your order process to verify your restocking and ordering processes to maximize cash flow, ensure unsold inventory is accounted for, and ensure that sales tax is collected everywhere your company has nexus.

4. Risk Management

Do you have a plan in place to protect your business from disruption? Many do not. If that applies to your business, contact your accountant to discuss continuity planning to protect your business. They can provide professional insight regarding how to mitigate risks should a disruption occur. Some topics to address are whether your insurance policies are up to date, if all compliance, security, and privacy standards are met, whether your business has fraud protection in place, and if the existing internal controls protect your business. Given the time and capital small business owners invest in their passion, they must take time to manage any potential risk that could destroy what they worked so hard to create and build.

5. Tax Compliance

Lastly, as a business owner, you always want to be tax compliant. And this doesn’t apply only to federal taxes. It is just as essential to make sure state-imposed taxes are addressed on time. Regulations and tax laws change frequently, so it is vital to have a firm grasp on these. The best way to ensure you do this is to have your accountant guide you. They can inform you of any changes that affect your business and advise you on addressing them. Discuss collecting and filing W2s and 1099s for any contract employees; ensure exemption and resale certifications are collected and stored correctly; comply with online sales and nexus rules; and have an internal review to find any issues that might trigger a sale tax audit.


It helps to think of your business accountant as an extension of your team, an impartial adviser who will assess the risks and rewards associated with your business. They will answer your questions and illuminate unclear topics for you. They may bring up important points you’ve yet to consider, so make that call today and get a meeting on the calendar to discuss these critical points with your accountant. And remember, you can do your part by making sure you keep business and personal finances separate and maintaining complete, organized records.

The Top 3 Reasons to Outsource Your Accounting

Business people talking in officeWhile you may think it’s better to take care of your small business accounting tasks in-house, you may be surprised to know that your business can benefit from having a professional accountant or CPA handle the job for you. Here are the top three reasons to outsource your accounting.

1. Peace of Mind

The number one reason for outsourcing your accounting is the peace of mind you will get regarding managing your accounting records. A qualified accountant or CPA on your team allows you to gain access to their professional knowledge and experience. Further, you can even choose an accountant that specializes in your unique business needs. A professional can help you keep your business records accurate and up-to-date. For example, payroll and tax documents will be maintained appropriately and submitted promptly. Timely and accurate accounting reduces your risk of penalties resulting from inaccurate record-keeping or lack of knowledge regarding aspects of accounting like tax laws and deadlines.

2. Focus on Business Development

When you enlist the services of a qualified accountant or CPA to manage your small business accounting needs, you minimize the time that you or your senior staff must spend performing or micromanaging those tasks. Freeing up your time in those areas enhances your ability to maintain a keen focus on the day-to-day tasks your business faces and any additional business needs that arise. Being able to focus your time on managing and growing your business, you improve operational efficiency. As you develop strategic goals, you can convey those to your outsourced accountant to garner their professional guidance and support when executing and realizing those goals.

3. Save Money

Many small business owners feel that handling accounting tasks in-house is more cost-effective because they can utilize existing staff. However, consider the total cost involved in hiring or training a staff member to manage your business’s accounting needs. There is also the associated time expenditure related to supervising an employee who manages the accounting. For a dedicated in-house staff member to handle the task, you must consider the additional costs of payroll, payroll taxes, and employee benefits. There is also employee turnover to consider, which, if high, could lead to additional training and expenses. By not electing to have a full-time dedicated employee handle accounting in-house, you also save on space and technology required to accommodate that individual.

For these reasons – and more such as getting timely financial advice, understanding cash flow, and maximizing your tax savings opportunities – it’s time to outsource your business’s accounting needs. What you gain far outweighs the cost.


Contact our firm to find out how we can create a package of accounting services for your small business.

Let us know how our CPAs and business consultants can help your business navigate challenges and become more profitable. Contact us to request a consultation, or give us a call today at 775-332-4201 and ask for Mark Bailey for more information.

Storing Your Tax Records

Tax wording on wooden cubes with US dollar coins and bag.Once you’ve filed your tax return, you may be tempted to clean house and get rid of some of your old records that are taking up space. The guidelines that follow will help you decide which items can go and which should stay in your files.1

Income and Expenses

Keep for at least three years after the date you file your return (or its due date, if later) the records proving your income and expenses, such as:

  • Form(s) W-2
  • Form(s) 1099
  • Form(s) K-1
  • Bank and brokerage statements
  • Canceled checks or other proof of payment

Three years is generally considered a minimum. If you can, consider keeping these items six years, the IRS’s time limit for auditing a return when income is substantially understated and no fraud exists.

Investments

You’ll need your investment records to figure your gains and losses when you sell the investments. After you’ve sold an investment, continue to retain your records for as long as you keep the other items supporting the tax return on which you report the sale (three or six years). Investment records include statements showing when you purchased the investment, the purchase price, brokerage commissions, and any reinvested dividends.

Residence Purchases and Improvements

Hold on to closing statements and other paperwork related to the purchase of your principal residence for use when you eventually sell the home. Put records of any home improvements you’ve made in the file, too. While many homeowners won’t have a taxable gain when they sell their homes because of the $250,000 ($500,000 for married couples) exemption, special circumstances, such as renting out your home or having a home office, could result in a taxable profit.

Your Tax Returns

Maintain one or more permanent files with important personal documents, including your tax returns. If you don’t file a return, the IRS can assess tax at any time. You’ll need a copy of your return in case the IRS has no record of your filing.

1This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax situation is diferent. Contact your tax professional to discuss your personal situation.

Our team of tax planning and income tax preparation professionals can help you save on taxes. Contact us to request a consultation, or give us a call today at 775-332-4201 and ask for Mark Bailey for more information.

What is the Employee Retention Tax Credit (ERTC)?

Notebook with tax credit sign on a table. Business concept.Eligible employers are entitled to an Employee Retention Tax Credit (ERTC) of up to 70 percent of the first $10,000 in wages and certain health care plan expenses paid per employee for each of the first two quarters of 2021 according to the New Stimulus Act.

What is the Employee Retention Tax Credit (ERTC)?

Designed to incentivize businesses to keep employees on the payroll during the pandemic, the ERTC is a fully-refundable tax credit that is part of the federal government’s COVID-19 relief plan. As part of this plan, the New Stimulus Act includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which became effective January 1, 2021. This Act amends and extends the former ERTC and the availability of advance payments of the tax credits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Is My Company Eligible for the ERTC?

Previously, employers could only take advantage of the Paycheck Protection Program (PPP) OR the ERTC, so the ERTC was not widely used. However, Congress revised this provision to make both plans available to qualifying businesses.

As of December 2020, small businesses (with 500 or fewer employees) that suffered a revenue reduction in 2020 can claim the ERTC. A revenue reduction specifically means a business experienced a decline in gross receipts by more than 20 percent in any quarter of 2020 compared to the same quarter in 2019. (Note this is a change from the previous ERTC rule that required a gross receipts decline of at least 50 percent.)

Further, the tax credit applies to employers, including tax-exempt organizations, that conducted business during 2020 and were forced to fully or partially suspend operation during any quarter due to government orders related to COVID-19, according to the Internal Revenue Service (IRS).

How is the Maximum Amount of ERTC Determined?

As mentioned, under the New Stimulus Act, eligible employers are entitled to a tax credit equal to 70 percent of the first $10,000 in wages and qualifying health plan expenses paid per employee for each of the first two quarters of 2021 (up to $14,000).

Note that the combined maximum $14,000 credit for the first two quarters of 2021 is available even if the employer previously received the $5,000 maximum credit for wages paid in 2020.

In addition to the aforementioned changes to the ERTC, the wage period has been extended. Under the New Stimulus Act, qualified wages are those paid after March 12, 2020 up until July 1, 2021. The previous cutoff date was January 1, 2021.

What are Qualified Wages?

Qualified wages are wages, compensation, and qualified health plan expenses paid by an eligible employer after March 12, 2020 and before July 1, 2021 for time that the employee did not provide services due to a full or partial COVID-19-related government suspension of operations OR a 20 percent or greater decline in gross receipts.

For specific determinants, see sections 3121(a) and 3231(e) of the Internal Revenue Code.

The determination of qualified health plan expenses is the same as qualified health plan expenses for the Family and Medical Leave Tax Credit under the Families First Coronavirus Response Act.

Number of Employees Matters

Under the CARES Act, companies with 100 or fewer employees were eligible for the ERTC; however, under the New Stimulus Act, the threshold increased to 500 employees. In other words, for the first two quarters of 2021, a company with 500 or fewer employees is eligible for the ERTC. This is true whether those employees are working or not.

Other Notable Changes to the ERTC

  • Previously, governmental entities were not eligible for the ERTC under the CARES Act; however, under the New Stimulus Act this tax credit is available to state or local run colleges, universities, and organizations providing medical or hospital care.
  • While the New Stimulus Act allows businesses with a PPP loan to qualify for the ERTC, the tax credit may not be claimed on wages paid with the PPP loan that has been or will be forgiven.

As always, seek counsel from your trusted accountant, tax preparer, or CPA to be certain your business is in compliance with current laws related to the ERTC or any tax matter.

Our team of tax planning and income tax preparation professionals can help you save on taxes. Contact us to request a consultation, or give us a call today at 775-332-4201 and ask for Mark Bailey for more information.

How Do You Add Users in QuickBooks Online?

Two Businesswomen Meeting In OfficeIf you have one or more people besides yourself using QuickBooks Online, you’ll need to know how to set up their accounts.

Your QuickBooks Online file contains a great deal of very sensitive information, like customers’ credit card numbers and employees’ Social Security numbers – data you don’t want to have fall into the wrong hands. You obviously trust your employees or you wouldn’t have hired them, but when it comes to security, you should implement all the safeguards you can.

QuickBooks Online can help you stay safe by limiting the access that other users have to your company file. Here’s how it works.

To get started, click the gear icon in the upper right and select Manage users. You should be listed there, of course, as the Master Administrator. Click Add user. The screen that opens will ask you what type of user you’re adding. There are four of them:

  • Standard user. You can assign full or limited access to standard users, but they won’t have administrator privileges.
  • Company admin. At this level, the user can see and do everything.
  • Reports only. These individuals have access to all reports except those that contain payroll or contact information.
  • Time tracking only. You’d assign this type to employees who only need to enter their own timesheets.

The first two count toward your user limit, but the second two do not. Make your selection and click Next. We’ll select standard user for this example.

On the screen that opens, you’ll be assigning actual access rights, telling QuickBooks Online what the user’s restrictions are. You can choose All (with or without payroll access), None (allows some activities), or Limited. Select Limited, then click in the box in front of Customer to create a check mark. You’ll see the list of specific actions that that individual can take (like creating invoices, sales receipts, and statements) and the screens that they can see (customer registers and reports, tax rates and agency settings, etc.).

There’s also a list of what they can’t do, including printing checks, viewing bank registers, and preparing a sales tax return.

Click in the box in front of Customer again to uncheck it and select Vendor. You’ll see a similar list here of what your new user can and can’t do, only its activities relate to your accounts payable.

Click Next If the user will be entering his own her own timesheets in QuickBooks Online, click the button in front of Yes, then select the correct name from the drop-down list. Click Next. Answer the user settings questions on the next screen and click Next. Enter the user’s name and email address (user ID), then click Save. QuickBooks Online will return you to the Manage Users screen, where you’ll see that your new user has been added to the list. The individual you just invited will receive an email invitation to set up an account, with instructions on how to do so.

Other Security Tips

There are other ways you can keep all of your company’s data safe. Here are some suggestions to consider if your business has returned to its offices.

  • Always update your operating system and applications when prompted. These often contain security patches in addition to bug fixes and new features.
  • Keep backups out of reach of others. Cloud backups are best, but if you use a local device, don’t leave it out in the open.
  • Log out of QuickBooks Online when you’re not at your desk.
  • Shred anything you print from QuickBooks Online or store it in a locked drawer.
  • Protect your networks. Discourage excessive web browsing by employees. Don’t allow extraneous app downloading on company equipment and ask employees not to use company mobile devices on public networks. Consider network monitoring software if you can’t afford managed IT.

We follow security best practices in our own offices, and we hope you’ll do the same. Applying safeguards proactively will help prevent data theft that can be nearly impossible to recover from.

Intuit employs industry-standard security practices to keep your data safe, too, and it handles all backup and upgrades. Often, those updates include new features, like the recent addition of transaction “tags.” Let us know if you need our help with these or with any other element of QuickBooks Online.

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Are you taking on a new employee who will use QuickBooks Online? The site has a specialized setup process for this.

Did you know that you can create and use tags now in QuickBooks Online? We can show you how it’s done.

Are you concerned about the security of your QuickBooks data? Ask us how you can best protect it.

Are you considering using QuickBooks Online in 2021? We’d be happy to help you set it up for your business and learn to use it.

Employee Retention Tax Credit (ERTC)

Eligible employers are entitled to an Employee Retention Tax Credit (ERTC) of up to 70 percent of the first $10,000 in wages and certain health care plan expenses paid per employee for each of the first two quarters of 2021 according to the New Stimulus Act.

What is the Employee Retention Tax Credit (ERTC)?

Designed to incentivize businesses to keep employees on the payroll during the pandemic, the ERTC is a fully-refundable tax credit that is part of the federal government’s COVID-19 relief plan. As part of this plan, the New Stimulus Act includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which became effective January 1, 2021. This Act amends and extends the former ERTC and the availability of advance payments of the tax credits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Is My Company Eligible for the ERTC?

Previously, employers could only take advantage of the Paycheck Protection Program (PPP) OR the ERTC, so the ERTC was not widely used. However, Congress revised this provision to make both plans available to qualifying businesses.

As of December 2020, small businesses (with 500 or fewer employees) that suffered a revenue reduction in 2020 can claim the ERTC. A revenue reduction specifically means a business experienced a decline in gross receipts by more than 20 percent in any quarter of 2020 compared to the same quarter in 2019. (Note this is a change from the previous ERTC rule that required a gross receipts decline of at least 50 percent.)

Further, the tax credit applies to employers, including tax-exempt organizations, that conducted business during 2020 and were forced to fully or partially suspend operation during any quarter due to government orders related to COVID-19, according to the Internal Revenue Service (IRS).

How is the Maximum Amount of ERTC Determined?

As mentioned, under the New Stimulus Act, eligible employers are entitled to a tax credit equal to 70 percent of the first $10,000 in wages and qualifying health plan expenses paid per employee for each of the first two quarters of 2021 (up to $14,000).

Note that the combined maximum $14,000 credit for the first two quarters of 2021 is available even if the employer previously received the $5,000 maximum credit for wages paid in 2020.

In addition to the aforementioned changes to the ERTC, the wage period has been extended. Under the New Stimulus Act, qualified wages are those paid after March 12, 2020 up until July 1, 2021. The previous cutoff date was January 1, 2021.

What are Qualified Wages?

Qualified wages are wages, compensation, and qualified health plan expenses paid by an eligible employer after March 12, 2020 and before July 1, 2021 for time that the employee did not provide services due to a full or partial COVID-19-related government suspension of operations OR a 20 percent or greater decline in gross receipts.

For specific determinants, see sections 3121(a) and 3231(e) of the Internal Revenue Code.

The determination of qualified health plan expenses is the same as qualified health plan expenses for the Family and Medical Leave Tax Credit under the Families First Coronavirus Response Act.

Number of Employees Matters

Under the CARES Act, companies with 100 or fewer employees were eligible for the ERTC; however, under the New Stimulus Act, the threshold increased to 500 employees. In other words, for the first two quarters of 2021, a company with 500 or fewer employees is eligible for the ERTC. This is true whether those employees are working or not.

Other Notable Changes to the ERTC

  • Previously, governmental entities were not eligible for the ERTC under the CARES Act; however, under the New Stimulus Act this tax credit is available to state or local run colleges, universities, and organizations providing medical or hospital care.
  • While the New Stimulus Act allows businesses with a PPP loan to qualify for the ERTC, the tax credit may not be claimed on wages paid with the PPP loan that has been or will be forgiven.

As always, seek counsel from your trusted accountant, tax preparer, or CPA to be certain your business is in compliance with current laws related to the ERTC or any tax matter.

PPP Loan Forgiveness in 2021

 

REFRESHER: What is the Paycheck Protection Program?

Paycheck Protection Program PPP Loan forgiveness application form.The Paycheck Protection Program (PPP) is a Small Business Association (SBA)-backed loan to help businesses retain employees during the Coronavirus (COVID-19) pandemic enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Funds can be used for payroll expenses and benefits and some non-payroll related expenses such as mortgage interest, rent, and utilities.

There are first and second-draw PPP loans. First-draw loans are available for first-time applicants, and second-draw loans are for businesses who already took advantage of a first-draw PPP loan.

PPP Loan Forgiveness

PPP loans can be forgiven if the following criteria are met:

  • employee retention and compensation rates must be maintained
  • loan funds must be spent according to the loan terms
  • no less than 60 percent of loan funds are spent on payroll

When Congress passed the new spending bill at the end of 2020, the covered period for PPP loans was extended through March 31, 2021. With this extension, the SBA released new guidance for these loans and loan forgiveness.

Expanded PPP Loan Forgiveness

Eligible Forgivable Non-Payroll Expenses

Under these new guidelines, the number of eligible “forgivable” non-payroll expenses were expanded to cover payments for:

  • software and cloud computing services
  • property damage costs related to vandalism or looting not covered by insurance
  • supplier costs for contracted goods (including perishable goods) ordered before taking out the loan
  • expenses related to compliance with federal, state, or local health and safety guidelines related to the pandemic from March 1, 2020, until the national emergency declaration expiration

Covered Period for Forgiveness

The covered period for PPP loans is when a recipient can spend the funds and still qualify for loan forgiveness. The covered period was either eight or 24 weeks; however, recipients can choose when the covered period ends under the new guidelines. They can choose a date between 8 and 24 weeks after their loan origination date.

Simplified Loan Forgiveness Application

For loans under $150,000, a simplified forgiveness application is available. For borrowers who submit a signed certification under one page in length to the lender, loans are forgiven in full. The certification must include:

  • the total loan amount
  • an estimate of the total loan amount spent on payroll costs
  • the number of employees the employer retained as a result of receiving their PPP loan

Applying for PPP Loan Forgiveness

Borrowers must wait until all PPP loan funds are used before applying for forgiveness. Forgiveness can be applied up to the maturity date of the loan. Forgiveness must be applied for within ten months after the last day of the covered period of the loan, or payments will no longer be deferred, and borrowers must begin repayment of the loan.

The appropriate loan form with all documentation for payroll and non-payroll expenses along with the forgiveness documentation should be submitted to the borrower’s lender to start the forgiveness process.


Excelsis Accounting Group is here to help you successfully navigate the unprecedented economic challenges you face, and get your business back to business as quickly as possible. We provide assistance with finding the right program(s) for your unique set of circumstances, filing necessary forms and documentation, and providing sound financial advice at a time when you need it most. Contact us today at 775-332-4201 or fill out our simple form to get started right away.

Keeping Up With Your IRA: Tax Season Checklist

accountant working in officeIf you’re one of the millions of American households who owns either a traditional individual retirement account (IRA) or a Roth IRA, then the onset of tax season should serve as a reminder to review your retirement savings strategies and make any changes that will enhance your prospects for long-term financial security. It’s also a good time to start an IRA if you don’t already have one. The IRS allows you to contribute to an IRA up to April 15, 2021, for the 2020 tax year.

This checklist will provide you with information to help you make informed decisions and implement a long-term retirement income strategy.

Which Account: Roth IRA or Traditional IRA?

There are two types of IRAs available: the traditional IRA and the Roth IRA. The primary difference between them is the tax treatment of contributions and distributions (withdrawals). Traditional IRAs may allow a tax deduction based on the amount of a contribution, depending on your income level. Any account earnings compound on a tax-deferred basis, and distributions are taxable at the time of withdrawal at then-current income tax rates. Roth IRAs do not allow a deduction for contributions, but account earnings and qualified withdrawals are tax free.1

In choosing between a traditional and a Roth IRA, you should weigh the immediate tax benefits of a tax deduction this year against the benefits of tax-deferred or tax-free distributions in retirement.

If you need the immediate deduction this year — and if you qualify for it — then you may wish to opt for a traditional IRA. If you don’t qualify for the deduction, then it’s almost certainly a better idea to fund a Roth IRA.

Case in point: Your ability to deduct traditional IRA contributions may be limited not only by income, but by your participation in an employer-sponsored retirement plan. (See callout box below.) If that’s the case, a Roth IRA is likely to be the better solution.

On the other hand, if you expect your tax bracket to drop significantly after retirement, you may be better off with a traditional IRA if you qualify for the deduction. You could claim an immediate deduction now and pay taxes at the lower rate later. Nonetheless, if your anticipated holding period is long, a Roth IRA might still make more sense. That’s because a prolonged period of tax-free compounded earnings could more than make up for the lack of a deduction.

Traditional IRA Deductible Contribution Phase-Outs

Your ability to deduct contributions to a traditional IRA is affected by whether you are covered by a workplace retirement plan.

If you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross income (MAGI) is:

  • Between $104,000 and $124,000 for a married couple filing a joint return for the 2020 tax year.
  • Between $65,000 and $75,000 for a single individual or head of household for the 2020 tax year.

If you are not covered by a retirement plan at work but your spouse is covered, your 2020 deduction for contributions to a traditional IRA will be reduced if your MAGI is between $196,000 and $206,000.

If your MAGI is higher than the phase-out ceilings listed above for your filing status, you cannot claim the deduction.

Roth IRA Contribution Phase-Outs

Your ability to contribute to a Roth IRA is affected by your MAGI. Contributions to a Roth IRA will be phased out if your MAGI is:

  • Between $196,000 and $206,000 for a married couple filing a joint return for the 2020 tax year.
  • Between $124,000 and $139,000 for a single individual or head of household for the 2020 tax year.

If your MAGI is higher than the phase-out ceilings listed above for your filing status, you cannot make a contribution.

Should You Convert to Roth?

The IRS allows you to convert — or change the designation of — a traditional IRA to a Roth IRA, regardless of your income level. As part of the conversion, you must pay taxes on any investment growth in — and on the amount of any deductible contributions previously made to — the traditional IRA. The withdrawal from your traditional IRA will not affect your eligibility for a Roth IRA or trigger the 10% additional federal tax normally imposed on early withdrawals.

The decision to convert or not ultimately depends on your timing and tax status. If you are near retirement and find yourself in the top income tax bracket this year, now may not be the time to convert. On the other hand, if your income is unusually low and you still have many years to retirement, you may want to convert.

Maximize Contributions

If possible, try to contribute the maximum amount allowed by the IRS: $6,000 per individual, plus an additional $1,000 annually for those age 50 and older for the 2020 tax year. Those limits are per individual, not per IRA.

Of course, not everyone can afford to contribute the maximum to an IRA, especially if they’re also contributing to an employer-sponsored retirement plan. If your workplace retirement plan offers an employer’s matching contribution, that additional money may be more valuable than the amount of your deduction. As a result, it might make sense to maximize plan contributions first and then try to maximize IRA contributions.

Review Distribution Strategies

If you’re ready to start making withdrawals from an IRA, you’ll need to choose the distribution strategy to use: a lump-sum distribution or periodic distributions. If you are at least age 72 and own a traditional IRA, you may need to take required minimum distributions every year, according to IRS rules. This age was increased from 70½, effective January 1, 2020. Account holders who turned 70½ before that date are subject to the old rules.

Don’t forget that your distribution strategy may have significant tax-time implications if you own a traditional IRA, because taxes will be due at the time of withdrawal. As a result, taking a lump-sum distribution will result in a much heftier tax bill this year than taking a minimum distribution.

The April filing deadline is never that far away, so don’t hesitate to use the remaining time to shore up the IRA strategies you’ll rely on to live comfortably in retirement.

1Early withdrawals (before age 59½) from a traditional IRA may be subject to a 10% additional federal tax. Nonqualified withdrawals from a Roth IRA may be subject to ordinary income tax as well as the 10% additional tax.

Our team of tax planning and income tax preparation professionals can help you save on taxes. Contact us to request a consultation, or give us a call today at 775-332-4201 and ask for Mark Bailey for more information.