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We’re a San Diego, Calif.-based boutique tax consulting firm focused on personalized tax and financial guidance to individuals and businesses. Here on our blog, you’ll find you’ll find news, insights, and observations from trusted sources in the world of tax planning and and financial guidance.
Get Ready for the Paycheck Protection Program NOW!
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Following the signing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on Friday, March 27, 2020, the Small Business Administration (SBA) and the U.S. Department of Treasury announced a mobilization effort of lending institutions — including banks and credit unions — to provide small businesses with the capital they need in these times of living under the Federal government’s Slow the Spread guidelines, which are now in effect until April 30, 2020.
The CARES Act establishes the new Paycheck Protection Program (PPP) to help businesses with 500 or fewer employees stay afloat and keep their workers employed and paid for up to eight (8) weeks. The program, which was announced earlier this week and includes access to $349 billion in funds, is expected to be up and running by April 3 (this Friday), at which time small-business owners can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved the same day. Perhaps best of all, the SBA will forgive the portion of the loan proceeds that are used to cover the first eight (8) weeks of payroll costs, rent, utilities, and mortgage interest.
The Paycheck Protection Program will be available retroactive from Saturday, Feb. 15, 2020, so employers can rehire their recently laid-off employees through Tuesday, June 30, 2020.
This program’s intent is to help small businesses like those we work with here at Stees, Walker & Company, LLP, stay afloat and retain employees until the social distancing rules are relaxed and business owners can quickly ramp up businesses to pre-COVID-19 levels. To do that, we all need to retain our most valuable assets — our employees.
Below, starting with loan terms and conditions, is a rundown of how the Paycheck Protection Program works, and other thoughts on how to prepare yourself now to tap into this important business resource.
Loan Terms and Conditions
Following are the loan terms and conditions: Continue reading… Continue reading… Continue reading…
COVID-19 Relief for Small Businesses and Their Employees
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The same steps the federal government and many state governments are taking to protect citizens from the coronavirus known as COVID-19 are — not by design but by unintentional consequence — slowing down the economy and hurting many businesses. Especially small businesses like the ones we often work with here at Stees, Walker & Company, LLP. Looking at the prospect of going for several weeks or months without revenue or with significantly diminished sales, small-business owners we work with are naturally worried about paying rent and covering payroll. Some have already had to lay off employees.
Fortunately, some relief is on the way. Here in California, on March 17 of this year, Governor Gavin Newsom signed an executive order suspending the requirement that employers provide 60-day notice for any mass layoffs. One day later, the U.S. Congress passed the Families First Coronavirus Response Act to expand the Family Medical Leave Act (FMLA) and related tax credits for employers.
In this post, we offer an overview of what the U.S. government and the State of California’s latest efforts mean for small businesses. First up, the suspending of the 60-day notice for mass layoffs.
Suspending the 60-Day Notice Requirement for Mass Layoffs
California employers required to adhere to the Worker Adjustment and Retraining Notification (WARN) Act and Cal-WARN Act are required to provide 60-day advance notice of any plans for mass layoffs or terminations. Governor Newsom’s executive order (No. N-31-20) suspends the 60-day notice requirement for forced closings, relocations, or layoffs directly related to the coronavirus known as COVID-19. The Governor’s executive order remains in effect for the duration of California’s current State of Emergency.
Note: Newsom’s executive order does not suspend WARN (Worker Adjustment and Retraining Notification act) or Cal-WARN in their entirety — employers are still required to honor their other obligations under these acts.
As a California employer, you’re still required to provide written notice to Continue reading… Continue reading… Continue reading…
Coronavirus and Taxes Frequently Asked Questions
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Updated: March 25, 2020 at 4:00 p.m. PT
In an effort to provide relief to individuals and businesses affected by coronavirus (COVID-19), the White House recently announced changes to the traditional 2020 tax filing season. Additionally, California’s state government recently announced similar relief.
With that in mind, below are answers to frequently asked questions about coronavirus and taxes, focusing both federal and California tax filings, as well as our role here at Stees, Walker & Company, LLP.
Q. What’s is Stees, Walker & Company, LLP’s role during this time?
A. Accounting firms such as ours employ personnel who have been designated by the State of California (according to Executive Order N-33-20) as part of the “essential” workforce that is needed right now. Not only are we assisting with current tax season issues for individuals and business entities, but we consider ourselves to be part of the financial front line — ready and able to assist businesses take steps now to successfully get back to work as usual when the State’s stay at home order is lifted.
Q. What is the IRS’ role in the National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak?
A. Under the Stafford Act, the IRS Disaster Assistance and Emergency Relief Program provides administrative tax relief to taxpayers and tax practitioners affected by a federally declared disaster in areas FEMA identifies for its Individual Assistance to Households and Families Program.
Authorized tax relief and other assistance the IRS is authorized to provide includes:
- Extending tax return filing deadlines
- Extending tax payment deadlines
- Waiving penalty and interest charges normally applied to late filing and payment
- Providing free copies of tax return transcripts
- Tax return records are often needed to claim benefits, file insurance claims, replace lost financial records, etc.
- Expediting amended tax returns claiming a casualty loss and refund resulting from the disaster.
Q. What accommodations has the Internal Revenue Service (IRS) made to help individual and business taxpayers during the National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak?
A. In addition to the IRS establishing a special section focused on steps to help taxpayers, businesses, and others affected by COVID-19 — on Friday, March 20, 2020, the U.S. Secretary of the Treasury announced that the current federal tax filing deadline has been extended from April 15, 2020 to Continue reading… Continue reading… Continue reading…
Understanding How Shifting Income May Reduce Taxes
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In our previous post — Four Proven Ways to Cut Your Taxes — we highlighted four areas we focus on when seeking to reduce the amount of taxes our clients owe state or federal taxing authorities: shifting, timing, code, and product. In this post, we take a deeper dive into the technique known as shifting, which involves transferring income or assets from a high-tax-bracket person or entity to a person or entity subject to low or zero taxes.
For example, suppose a portion of your business income is taxed at 37 percent, which is currently the highest income tax rate in the U.S. You hire a teenage son and daughter to work for you over the summer and pay each of them $12,400. As a result, you save $24,800 x 0.35 = $8,680 in federal income tax plus any state taxes as well as potentially any amount you would have been required to pay in self-employment tax on that $24,800. Assuming neither child earns more than $12,400, because of the current tax code, they pay nothing in federal taxes. This is a great way to shift business income you don’t need for yourself to your children.
This example illustrates just one of several shifting techniques that can be used to reduce one’s tax burden. Several techniques are available that can be broken down into the following two areas:
- Business income: In business, the primary objective of shifting is to reduce personal income tax and, in many cases, pay less in self-employment taxes (Social Security and Medicare).
- Estate planning: In the context of estate planning the objective is to reduce individual income taxes levied on investment income and capital gains while ultimately reducing or eliminating estate taxes. In this post, we touch lightly on shifting the context of estate planning, while in a future post provide more in-depth coverage of this topic.
Income Shifting in Business
If you own a business, you have three ways to use income shifting to reduce your tax bill: Continue reading… Continue reading… Continue reading…
How to Calculate Your Tax Bill — Simplified
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To most taxpayers, taxes and how they’re calculated are a mystery. Consisting of 70,000+ pages, the Internal Revenue Code (aka, the Commerce Clearing House [CCH] Standard Federal Tax Reporter) is complicated, and when you’re filling out the forms (on paper, online, or in a tax program), determining what you’re being asked and how to supply the correct information can be both challenging and frustrating. Every so often, a politician expresses a vision of a time when our tax returns will fit on a postcard, but that never happens. (As an aside, the shortened version was attempted with the 2018 tax year and was an unmitigated disaster — the result… the tax return went from two pages to eight pages. In 2019, it was shortened to five pages. Simple, right!?)
Fortunately, people like me who’ve spent five years in college studying accounting and taxes, and countless hours since leaning about the practical application of Title 26 of the United States Code (i.e., the Internal Revenue Code), are available to help you navigate this minefield. We’ve been trained to quickly analyze taxable situations, however simple or complex, and complete our clients’ returns in a way so as to minimize their tax burden.
Still, you can benefit by understanding the fundamentals of how tax bills are calculated. In this post, I explain the process in plain and simple terms.
Seven Steps to Calculate Your Tax Bill
Calculating your tax bill is a seven-step process. Here I present the overall process and then take a deeper dive into each step. Before going there, however, below is a 30,000-foot overview of the seven-step process to calculating your tax bill:
While that may sound like a lot of gibberish to you, to someone like me, it’s music to my ears. Starting with Step No. 1, here’s the deeper dive I promised:
Step 1: Calculate total income
The IRS wants to know how much money you have received over the course of the year — your total income. Total income includes money received from the following sources:
- Earned income from wages, salaries, commissions, and tips
- Profits from business and self-employment
- Interest and dividends
- Capital gains from the sale of property held for investment
- Income from pensions, IRAs, and annuities
- Rents, royalties, and income from flow-through entities
- Alimony (from agreements finalized before January 1, 2019)
- Gambling winnings
- Barter proceeds
- Illegal income (yes, you’re required to disclose income from illegal activities)
Income from certain sources is generally tax exempt, although you may still be required to report it, including the following: Continue reading… Continue reading… Continue reading…
Four Areas for Cutting Taxes, Growing Net Worth, and Achieving Peace of Mind
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People are funny. We tend to plan more for a vacation than we do for our own and our family’s financial future. Planning for vacation involves choosing a destination; deciding how to get there (means of travel, route, stops along the way); deciding how long to stay, where, and what to do while on vacation, and more.
Financial planning and even a subset of that — tax planning — is more involved and complex, yet we invest less time and effort engaging in it. As a result, many of us pay more than our fair share in taxes, leaving us with less of our annual earnings to enjoy and to invest in our own and our family’s future security, comfort, enjoyment, and self-fulfillment.
One way to simplify the process of tax and financial planning is to break down the task into distinct areas of your life where you can cut taxes, grow your net worth, and achieve peace of mind. This post steps you through that process.
Area 1: Family, Home, and Job
Age-old wisdom advises that “charity begins at home,” meaning that before we can help others, we need to build a firm foundation for our own financial health. It also means taking care of those closest to us first — our family members and friends.
Tax-savings and financial planning strategies should also begin at home with family, home, and job. Areas of focus should include the following: Continue reading… Continue reading… Continue reading…
4 Proven Ways to Cut Your Taxes
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As an individual, business owner, or investor, you leverage the power of compounding returns to grow wealth exponentially. Using a different approach, you can slash your taxes by layering four distinct tax-cutting strategies. Applying one strategy alone delivers good results, applying two strategies in tandem improves results, and applying all four maximizes your tax savings and increases your net worth. With every added layer, you not only keep more of your money, but also have more to invest to reap the rewards of compounding returns.
This post reveals four key tax-cutting strategies and explains how to leverage them, alone and together, to maximize your savings.
Shifting
Shifting involves moving taxable income from a higher tax rate person or entity to a lower one; for example, from a parent to a child, from an adult child to a parent, from a sole proprietorship to a corporation. In many cases, shifting delivers the added benefit of moving taxable income to a less audited entity, as well. Changing your business entity from sole proprietorship to S-Corporation opens the door to more tax strategies, lower tax rates, and lower audit rates.
Keep in mind that if you don’t specify an entity for your business, sole proprietorship, the least tax efficient, is the default chosen for you. Instead of letting the government default to that choice, make it yourself and take control of your tax rates.
Timing
In the tax world, timing isn’t everything, but it is certainly valuable in helping to reduce one’s tax burden. Timing strategies generally defer taxes to future dates to take advantage of lower future rates or utilize the time value of money. The most obvious tax strategy related to timing involves deferred tax instruments, such as individual retirement plans and 401Ks. Continue reading… Continue reading… Continue reading…
Can you deduct business travel when it’s combined with a vacation?
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This time of year, a summer vacation is on many people’s minds. If you travel for business, combining a business trip with a vacation to offset some of the cost with a tax deduction can sound appealing. But tread carefully, or you might not be eligible for the deduction you’re expecting. General rules Business travel expenses are potentially deductible if the travel is within the United States and the expenses are “ordinary and necessary” and directly related to the business. (Foreign travel expenses may also be deductible, but stricter rules apply than are discussed here.) Currently, business owners and the self-employed are potentially eligible to deduct business travel expenses. Under the Tax Cuts and Jobs Act, employees can no longer deduct such expenses.
The potential deductions discussed below assume that you’re a business owner or self-employed. Business vs. pleasure Transportation costs to and from the location of your business activity may be 100% deductible if the primary reason for the trip is business rather than pleasure. But if vacation is the primary reason for your travel, generally none of those costs are deductible. The number of days spent on business vs. pleasure is the key factor in determining whether the primary reason for domestic travel is business: Your travel days count as business days, as do weekends and holidays — if they fall between days devoted to business and it would be impractical to return home. Standby days (days when your physical presence is required) also count as business days, even if you aren’t called upon to work those days. Any other day principally devoted to Continue reading… Continue reading… Continue reading…
How to Determine if the Net Investment Income Tax (NIIT) Applies to You
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If you have income from investments, you may be subject to the Net Investment Income Tax. You may owe this tax if you receive investment income and your income for the year is more than certain limits. Here are some key tips you should know about this tax:
- Net Investment Income Tax. The law requires a tax of 3.8 percent on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status.
- Income threshold amounts. You may owe this tax if your modified adjusted gross income is more than the following amount for your filing status:
| Filing Status | Threshold Amount |
| Single or Head of household | $200,000 |
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Qualifying widow(er) with a child | $250,000 |
- Net investment income. This amount generally includes income such as:
Laura Stees to Speak at Southern California Institute Feb 19
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Laura Stees to present: The Four Best Ways to Fail Grow Your Business in 2015 and Beyond
Where: The Southern California Institute, 3636 Nobel Drive, Ste. 450, San Diego, CA 92122
When: February 19 from 2:30 to 4:00 pm
Tires of being stuck in the slow lane? Join Laura as she discusses how to jumpstart your business plans for the coming year and beyond. You will learn the the 4 most effective ways to grow a business and the formula necessary to accurately calculate your potential growth.
Participants will leave the session with a Continue reading… Continue reading… Continue reading…