Why high-net-worth families may benefit from Covid-19?

This year, COVID-19 has caused tremendous disruptions to our lives and businesses. Companies have to pivot their operations and put more efforts in planning, not only for short-term but also long-term perspectives. Family businesses start to think hard about their intended transition from the founder generation to their children.

At Aspen Valuations, during the last few months, we have seen a significant increase in business valuation demand for the purposes of succession and tax planning. We have also seen a drop in value for many businesses. Depending on the specific sectors, some companies suffer significant operating losses in the recent months, resulting in a material drop in their current value. During this time, many family businesses execute an estate freeze. In general terms, an estate freeze is used to transfer the control of a privately-owned business between generations. If your business value is greatly reduced, this will allow the locking in of the low value today, resulting in lower capital gain taxes on death. This will also be a good planning opportunity for business owners that plan to retire outside of Canada.

A combination of a lower business value and unprecedentedly low prescribed interest rates set by governments (i.e. IRS or CRA) creates an opportunity to gift or sell shares to family members. For example, in Canada, an inactive family member would need to acquire a minimum of 10% of voting shares in a company in order to receive dividends from the company as income splitting without being taxed under the Tax On Split Income (TOSI) rules.

In addition, if a U.S. corporation or subsidiary is involved, gifting now when business value is low can help business owners take advantage of the federal exemption from estate and gift tax which is currently capped at $11.58 million for individuals under the Tax Cuts and Jobs Act in 2017. This exemption cap is set to be reverted back to $5 million by December 31, 2025 or could be sooner depending on the coming administration.

By Aspen Valuations, Published July 06, 2020. Click here to book a consultation.

PPP Flexibility Act

The much anticipated bill, Paycheck Protection Program Flexibility Act of 2020 was signed into law on Friday, June 5th, 2020. The new law provides for greatly expanded flexibility for PPP debt forgiveness by 1) extending the period during which eligible costs will be forgiven, 2) relaxing restrictions with respect to non-payroll costs, 3) extending the deadline to rehire employees, 4) increasing the loan repayment period for any residual loan value that is not forgiven, 5) enhancing payroll tax deferral options, and 6) providing additional benefits as well.

The changes include:

* 24 weeks to use the funds, up from eight weeks

* 60% of funds must be used for payroll to have the loan forgiven completely, down from 75%.

* Dec. 31 deadline to rehire workers and use funds to qualify for loan forgiveness, extended from June 30.

* Five years to repay, up from two years.

For more information, please contact Robert Johnson.

Click here to see the full bill.

Status of Your Stimulus Payment

Millions of Americans have already received their stimulus payments authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The IRS continues to calculate and automatically send the payments to most eligible individuals, however some may have to provide additional information to the IRS to get their payments.

You may be eligible to receive a stimulus payment if you:
– Are a U.S. citizen, permanent resident or qualifying resident alien;
– Cannot be claimed as a dependent on someone else’s return;
– Have a Social Security number (SSN) that is valid for employment (valid SSN); and
– Have adjusted gross income below an amount based on your filing status and the number of your qualifying children.
Exception: If either spouse is a member of the U.S. Armed Forces at any time during the taxable year, then only one spouse needs to have a valid SSN.

To check on the status of your stimulus payment, click here.
For more information, click here

Should you amend your 2018’s tax return?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 as part of a $2.2 trillion aid package.

Some parts of the bill do not require you to take any action such as the ‘stimulus check’ for eligible individuals ($2,400 for joint filers, $500 per qualifying child). However, there are several provisions that apply retroactively, that would require actions such as amending previous tax returns, which could result in significant tax refunds for some taxpayers.

Here are two of the retroactively applicable provisions under the CARES Act that we want to bring to your attention:

  • The bill temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021. For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed.
  • The bill also makes technical corrections regarding qualified improvement property (QIP) applying retroactively to 2018. QIP is now eligible for 100% bonus depreciation. If your business incurred costs on improving a business property and did not deduct all of the costs in 2018, consult with your tax advisor about this provision.  Click here to see the full bill.

For more information, please contact Dao CPA, P.C.

IRS Tax Payment and Filing Deadline Extended to July 15, 2020 Due to COVID-19

The IRS today issued guidance allowing all individual and other non-corporate tax filers to defer up to $1 million of federal income tax (including self-employment tax) payments due on April 15, 2020, until July 15, 2020, without penalties or interest. The guidance also allows corporate taxpayers a similar deferment of up to $10 million of federal income tax payments that would be due on April 15, 2020, until July 15, 2020, without penalties or interest.

Update: The IRS announced on March 21, 2020 that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on Businesses who need additional time must file Form 7004.   Click here to IRS’s website

For more information, please contact Dao CPA, P.C.

How To Select Accounting Software for Construction Contractors

There is no one best software for all contractors.

Although QuickBooks is known as the most popular software among the smaller-sized businesses, many contractors are still searching for alternatives. QuickBooks users find the software easy to use and affordable. However mid-size self-perform contractors opt for more expensive software because the software gives them detailed job cost reports that they need.

In searching for accounting software, you have three options:

  1. Purchase popular commercial software that your competitors use.
  2. Purchase not-so-popular commercial software.
  3. Hire a programmer to write software customized to your business.

In most cases the first choice is recommended not only because the popular software has been tested by many users but also because it is easier to find staff that knows how to use the software.

Using popular software helps you lower support cost, maintenance cost, and training cost, which, in many cases, weigh over the cost of the software itself. In selecting accounting software, contractors ought to do a cost/benefit analysis. Below is a list of suggested cost elements that you should consider before deciding to implement new construction accounting software.

Costs associated with implementing new accounting software:

  1. Software cost
  2. Hardware cost
  3. Labor cost for system set-up and installation
  4. Labor cost for data transferring
  5. Training cost
  6. Cost of learning curve
  7. Cost of interruption of business activities
  8. Maintenance cost
  9. Technical support cost (Items 4-9 are “soft costs”)

While software, hardware, installation costs can be easily estimated, the “soft costs”, which sometimes are much greater than software costs, are very often overlooked. The more sophisticated the software is, the more the soft costs are and the more sophisticated software is, the more time required to set up and maintain.

Contractors should decide how much detailed of job cost reports that would be beneficial for their businesses before seeking advices from accountants regarding selecting construction accounting software.

For more information, please contact Dao CPA, P.C.

Bookkeeping and Accounting – what are the differences?

Years ago when accounting software for small businesses was not as popular, the roles of a bookkeeper and an accountant were distinctively different.

A bookkeeper typically handles and records daily transactions such as paying bills, creating invoices, collecting payments, making deposits, managing timesheets for payroll, reconciling bank accounts etc. Records kept by a bookkeeper reflect all cash-in, cash-out of a business in chronological order. The process of compiling these records to prepare financial statements and other meaningful reports is, however, referred to as accounting.

Bookkeeping is a critical part of accounting. Without accurate bookkeeping, financial reports will not be accurate. However, good bookkeeping alone may not give you meaningful financial reports. It takes specialized knowledge, skills, and experience to produce variety of financial statements and quality accounting reports.

Now that accounting software for small businesses can produce Balance Sheet and Profit & Loss reports at the press of a button, the line between bookkeeping and accounting is not as distinctive to some small businesses. Regardless, accounting software still needs input from experienced accountants to produce meaningful reports.

To see how a bookkeeper and an accountant would record a transaction differently, let’s take a look at the following scenario:

A business paid $5,000 down payment and agreed to pay $750/month for 36 months to purchase a vehicle. Sales price of the vehicle was $30,000.

A bookkeeper would typically record the $5,000 as a simple entry cash-out for auto expense.

An accountant would record the $30,000 as fixed asset, and also record the total loan balance, principal payment, interest expense and depreciation expense.

Accurate bookkeeping with organized records provides a strong foundation for quality accounting. Quality accounting enables meaningful reports. Meaningful financial reports reveal true profitability, financial position and cash flows of a business. Meaningful financial reports allow business owners and their consultants making insightful analysis and strategic planning accordingly

For more information, please contact Dao CPA, P.C.

How long should you keep your tax returns and supporting documents?

In general, the IRS has three years from the due date of the return or the date on which the return was filed, whichever is later, to audit and adjust the return. However, the IRS has six years to audit a return if a person fails to report over 25% of gross income. If a return is not filed, or a fraudulent return has been filed, the IRS can audit records for that tax year at any time.

For tax returns and forms W-2, we recommend keeping them at least 7 years or permanently if you could. Your tax returns provide support in case the IRS contends you did not file a return or filed a fraudulent return. Keep forms W-2 in case you need to prove earnings or Social Security and Medicare contribution to Social Security Administration many years later.

For documents that has future tax relevance such as cost of stocks purchased, IRA contributions, closing documents of your houses, improvement costs of the houses etc., you will need these documents to calculate gains or losses when you sell these assets. We recommend keeping these documents at least 4 years after you sell and report the sold assets on your tax return.

In conclusion, how long you should keep your tax records depends on the future tax relevance of the documents

For more information, please contact Dao CPA, P.C.