Tag Archive for: CPA

California CPAs should ask their clients who hire 1099s if they have a contractual agreement, invoices, licenses, insurance, and an EIN.

Certified Public Accountants (CPAs) have the most insight into their business owner clients’ daily transactional history. You may find that your clients who have 1099 contractors are now in the grey area of worker classification since it was redefined by AB-5 in January 2020.  

Under the new bill, all workers are automatically classified as W-2 employees unless they meet all three of the following criteria

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact
  2. The worker performs work that is outside the usual course of the hiring entity’s business
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

We frequently see cases of inadvertent contractor misclassification that are flagged by The Employment Development Department (EDD). EDD audits are most commonly triggered by: 

  • Independent contractors filing for unemployment benefits 
  • Employee complaints 
  • Late tax filings 
  • Random verification audits 

If the agency finds any misclassified workers during the audit, it results in fines, fees, and penalties that can be damagingly high if left unaddressed. 

Keeping this in mind, here are questions you can ask your clients to ensure that their 1099s are correctly classified, and help your clients reduce the risk of an EDD Misclassification Audit: 

  • Do your 1099s do similar jobs to your W-2s?
  • Do you have a contractor agreement with all of your 1099s?
  • Do your contractors Invoice you?
  • Does your contractor have a license?
  • Do they have insurance? 
  • Do they have an EIN?

Here’s an overview of how each question can provide more insight for your clients. 

Do Your 1099s do Similar Jobs to Your W-2s?

1099 independent contractors who perform similar jobs as W-2 employees may be considered an employee during an audit unless there is a clear distinction between the two. Make sure there are clear distinctions between the two. The W-2 employee works regulated hours, has specific job functions, is provided work equipment, and is told when and how to perform their job duties. They also receive employee benefits and do not have a clear end date for the work performed. 

On the other hand, 1099 independent contractors have flexible working hours, flexible job requirements as dictated through the contract, must provide their own working equipment, can work for multiple employers at the same time, and are not directly managed on job functions. They do not receive employee benefits and have a clearer job end-date. 

For example, one of your business owner clients may have a marketing coordinator who is classified as an employee. Your client may want to hire a marketing agency for a website redesign as a 1099 independent contractor. While both the marketing coordinator and the marketing agency perform job functions under the marketing umbrella, their job functions and classifications are different. 

The coordinator develops and executes the client’s marketing strategy specifically for your client’s company for as long as they work in that specific role. The hired marketing agency will perform the website redesign for your client until the project is complete. Once finished, the partnership is completed. While the marketing agency is working on your client’s website redesign, they can simultaneously work for other companies. 

Do You Have a Contractor Agreement With all of Your 1099s?

The independent contractor agreement outlines specific details for the job the independent contractor will perform. It is the working arrangement between the client and the contractor that typically includes:

  • A description of the job or service provided by the contractor
  • Payment details (this can include information about retainers, deposits and billing) 
  • The length and term of the project or service 

Do Your Contractors Invoice You?

Invoices help keep records of payments, type of work performed, and hours worked. Having organized records of invoices between the contractor and the client helps EDD verify that the independent contractor is indeed an independent contractor. 

Clients who put 1099s on scheduled payroll put themselves at risk for a misclassification audit. W-2 workers should be placed on payroll, not 1099s. 

Does Your Contractor Have a License?

Some workers (such as healthcare professionals and construction workers) are required to provide proper licenses to work. Failing to hire workers with proper licensure can open your client’s business to hefty fines and penalties from EDD. 

If your client hires contractors who don’t have licenses do they have: 

  • A website?
  • A social media presence? 
  • A marketing budget?

These are all important factors to consider. 

Do They Have Insurance? 

Independent contractors provide their own insurance to cover liability, worker’s compensation, or other risks to help them protect their business. If your client is insuring their independent contractors, this is a sign they may actually be W-2 employees. 

Do They Have an EIN?

An EIN is an Employer Identification Number. This is a unique tax identification number for businesses in the United States to pay state and federal taxes. Asking independent contractors without an EIN to provide one is a simple way to further ensure they are 1099s.

All of these factors add up to a robust defense against a misclassification audit by EDD. By fixing any misclassification errors ahead of time, CPAs can save their business owner clients the hefty fines and penalties associated with EDD audit findings. Want to learn more about the EDD audit process? 

Read our article on what to expect in an EDD audit here. 

 

California CPA's should ask their clients the right questions to help them avoid triggering an EDD audit

what is the process of an edd audit

If your business is experiencing an EDD audit, it’s important to know what to expect. Founder and managing attorney at Milikowsky Tax Law, John Milikowsky, breaks down the EDD audit process and the frequently asked questions that come with an EDD audit. 

What you can expect from us, whether you have a balance owed to the IRS or the State of California, an EDD audit, or a criminal matter, is a dedicated and passionate team of people who have a lot of expertise to help resolve your issues. Our process is very simple, but it’s very different from many other law firms.”

What is the EDD audit case process at Milikowsky Tax Law?

“We don’t simply submit records to the government. We analyze everything. We use a lot of data analytics to really understand your business. A lot of us, including myself, have run companies before, so we understand what you’re going through. 

We have a lot of business experience. We know exactly what to look for, and we can anticipate the questions the government’s going to ask and we’ll build strategies and defenses in advance.

Once we’ve looked at all your records and identified potential issues, we identify strategies to navigate around them. At that point, we execute on our findings and work toward a resolution for your case.

EDD Audit Step by Step Guide

If you are being audited by EDD, you will receive a letter of inquiry.  Upon receiving this letter, the clock starts counting down.  You have a limited about of time in which to respond.

Our process begins with an interview, in person or over Zoom in which we get a good understanding of your business.

We gather documents to begin to analyze everything.

  • Your accounting records
  • Your transactional documents
  • Interviewing your workers, 
  • Interviewing other business associates

After our internal analysis, we give you a debrief and provide a roadmap of how the case will likely proceed. 

Once we collect and analyze your information, build the narrative around why your contractors are correctly classified and how your business is structured, we begin to communicate with the government. 

Are All Audits the Same?

Whenever an audit is initiated, the audited party will receive a letter from the government requesting records for a “routine investigation”. In the case of EDD audits, the process is usually initiated by a red flag that you have misclassified your workers. Some of the ways the agency can be alerted to this are:

  • A 1099 contractor filed for unemployment
  • A competitor raised a complaint
  • You were subject to a random site sweep by EDD or Contractors State Licensing Board (CSLB)
  • Your payroll records did not match your IRS filings and the agencies communicated.

How is an EDD audit case resolved?

Edd audits require a lot of negotiation and communication because each business is structured differently, workers perform different jobs and the rules from classification have changed even within the 12 quarter audit period as it stands in Q4 of 2021. 

The final resolution comes in the form of a letter from the government that say either there is nothing owed, you owe fees penalties and back taxes or, there was an error in your favor. 

What Every Business Owner Needs to Know:

Starting a business rarely begins with a strategic checklist of all of the resources necessary to run and scale successfully. Rather, many, if not most businesses start because the founder has a passion or skill that is exceptional and in-demand and they grow from there.  Because of this, many business owners find themselves at strategic points in their growth with gaps in resources that are easily avoidable with a comprehensive simple checklist of what every business owner needs to know. 

Take stock of the resources you currently have and compare them to this checklist to see if you have gaps, overlaps that can drain resources, or if you’ve overlooked an important area of expertise. After all, an ounce of prevention is worth a pound of cure.

Your Checklist

Bookkeeper

You’ll need someone to keep track of your expenses and invoices.  Whether that person is in-house and manages your accounts receivable/ accounts payable, or outsourced and sends monthly reports on your cash flow status, a bookkeeper is essential to any business’ operations. 

A great San Diego based resource for bookkeeping is BooXkeeping. This company, started by Max Emma provides bookkeeping services for small to medium-sized businesses. They are a virtual service that serves a variety of industries. 

Certified Public Accountant

Gone are the days of the once-a-year call to a CPA to file taxes.  With great power comes great tax complexity. A once a year conversation is not going to cut it.  You need a CPA who is invested in your holistic business financial health.  

Mid-sized CPA firms such as Encore Partners, and Eakes and Company provide financial insights and strategies beyond simple tax planning and preparation.  Finding a CPA who understands your industry and special situation is a great addition to your team and your financial wellness as a company. 

Payroll Provider

At a certain point, Quickbooks is too simple for your company’s payroll needs. Getting a great payroll provider sounds easy, but with the behemoths dominating the industry many business owners feel they’re just a number.  Payroll is crucial because, as much as you may work because of the love you have for the company, your employees work at least in large part because you pay them.  

Some San Diego resources for payroll include Coastal Payroll and PayrollHUB. Both provide payroll services and human capital management services to let you stay focused on running your business. 

Insurance Provider

Business insurance is complex, expensive, and consequential.  From cyber liability to the industry-specific coverage you may need if you transport goods or provide services across state lines or internationally, proper insurance coverage is essential. 

Finding an insurance company that specializes in commercial coverage and will reach out to you more often during renewal time is not that easy.  From health insurance to EPLI coverage, insurance is a large part of the benefits you’ll offer to employees, and the protection you need for your business. 

Consider a small to mid-sized firm, some we know of here in San Diego are:

  • Benchmark Commercial Insurance offers commercial and personal line insurance for business owners and individuals with complex structures. 
  • Morrison Insurance creates various insurance programs for small to midsize businesses to help you find the greatest value for your dollar. 
  • Competitive Edge specializes in high-risk and construction insurance. The founder, Brenda Jo, is passionate about believing that you are more than the history of your insurance claims 
  • SBMA Benefits provides affordable ACA compliant Minimum Essential Coverage for Applicable Large Employers.

Human Resources

Human resources… Aren’t all resources human resources?  When it comes to compliance, having Human Resources services in-house or fractionally can make the difference between a bad hire becoming a lasting issue and being a blip on your company radar.  

The right HR provider can partner with your company to create manuals, handbooks, and pieces of training to keep you compliant. They also assist in creating operational structures to support healthy company culture and more. 

San Diego HR resources we know are: 

  • Culture Works operationalizes your workforce’s culture by implementing systems, processes, leadership training, and a foster of culture alignment to aid in a smooth operations process. 
  • Possibilities Consulting has outsourced HR services through Ari Saul and additionally, they help develop inspirational leadership, intentional culture, and high-performance teams in the workplace. 

Attorney

You don’t need an attorney until you need an attorney.  From employment law attorneys to civil litigation, finding the right lawyer when you need one will speed the time to resolution and protect you from unnecessary losses.  

Civil litigation attorneys Gupta Evans and Ayres and Employment law attorneys Tencer Sherman are reliable resources in the San Diego area. 

Protecting your intellectual property not only protects your ideas but can ensure that disgruntled ex-employees don’t take your business plan and implement it in a state with no non-compete clauses. Gary Eastman of Eastman IP is a resource here in San Diego.

At Milikowsky Tax Law, we’ve been entrepreneurs ourselves. We know first-hand about the challenges and the excitement of growing a business.  Regardless of your industry, there are structural elements that will help your company grow and manage the fluctuations of staffing, client success, and scaling more easily. 

Think we forgot something? Connect with us and share! 

Want to know when you might need a CPA vs a Tax Attorney? Read our article here

 

What Every Business Owner Needs to Know:

Vince B. EDD audit Case Story

We are grateful to our client, Vince B., for sharing his story of how we were able to help him weather an EDD audit. This audit could have closed his business and had far-reaching repercussions for his personal finances as well as business finances.

In 2020, Vince was hit with an EDD audit that threatened to not only shut down his business but impact his personal finances as well. Hear his story of how our expert team navigated his misclassification audit and brought down hundreds of thousands in fees down to about $6,000. His misclassification audit closed in 2021. 

Meet Vince in his testimonial below.

“My name is Vince Bindy and I’m a co-founder, co-owner of a behavioral health mental health facility in Orange County, California, and we’ve been operating efficiently for some years. And then we got hit with an EDD audit and to make a long story short, the EDD was trying to claim that all our therapists were actually employees. 

At the time it was quite shocking and we contacted some various attorneys and one attorney really just terrified myself and my business partner, Nick.

We came up with potential damages of theoretically several hundred thousand dollars. What could have been $300,000, $250,000, $400,000. We really didn’t know. And also, what we found out, much to our chagrin, is I guess a couple or three years ago, I don’t know for sure. 

The State of California passed a new law where if the corporation, for some reason, couldn’t pay all the back fees and penalties due to the EDD from an audit like this, they could come after us personally.

We called around, called around, interviewed three or four different attorneys. John Milikowsky’s law firm was one of the attorneys we interviewed. 

Fortunately, we picked John. 

All the attorneys sound good on the phone, right? When we first interviewed him, something about John felt right. He came across as very soothing and calm because we talked with a couple of other attorneys. And like I said, that one attorney really put the fear of God in us, times three. I mean, laying out all these potential scenarios. I guess that’s sometimes a sales technique to terrify somebody when you’re an attorney or other professions, and then getting them to sign up with you. 

John didn’t use that approach, more of a straightforward one.

We told him what this other attorney said. And he said, “Yeah, that could happen. But it’s very rare. I’ve never had that happen to me. It’s very remote.” So, I liked that soothing approach. He’s very experienced. He laid out all the cases he worked with in the past and dealt with firms similar to us in the medical field about our size. 

The third thing was just the way he was going to lay out the process. He just laid out the process. Here’s what we’re going to do first. Here’s what we’re going to do next. You’ll pay them a certain amount of money at this point and then kinda lay it out when the money will be due and kinda mapped out. 

A lot of the times you ask an attorney, roughly get me in the ballpark, what it’s going to cost and you never get an answer.

And John had no guarantees. You can never get a guarantee from an attorney obviously, but kinda he laid out a min-max of what it might cost, his legal fees. And I appreciated that as well. 

To make a long story short, that potential fear of having a debt of two, three, $400,000 got whittled down, negotiated by John’s legal firm down to, I believe, $6,000 in change. I could be off by a thousand bucks. It could have been five, could have been seven, I don’t remember. But when that happened, we were jumping for joy to tell you the truth. And so that’s why I’m doing this video. I’m extremely happy with the services.

And at the end of the day, results are all that matters in the way I view things and old John’s a great guy, but more importantly, he produced the results. And I got to tell you, that wasn’t even a goal. My goal with my partner, Nick, I said, “Nick, if John could get it below a hundred thousand dollars, I’d be happy at this point in time.” 

He got it down to 6,000 and change. So what more can I say?”

-Vince B. 

Vince’s audit was an EDD worker reclassification audit, something we are seeing more and more of in our practice in 2021. EDD is actively seeking 1099 contractor misclassification cases since the passage of AB-5 the Gig work bill in January 2020.  

The new ABCs of worker classification set stricter criteria for workers to be classified as contractors vs wage-earning W-2 employees.  In the case of this client, there was one worker who was misclassified and EDD sought to compel the company to reclassify ALL of their 1099s as W-2s.  

In cases like this, the advocacy of an experienced audit attorney can make the difference between a financially damaging penalty and a manageable penalty amount due.  While no one case can determine the outcome of any other, we do know that EDD’s audits are swift, decisive, and aggressive. 

Not sure what an EDD Benefit Audit is? Find out here

CPA Tips

If you are a CPA, here are 5 things to help your client reduce the risk of an EDD, IRS, or SBA audit:

1: Confirm that your client’s 1099-K (provided by a merchant processor) does not report gross proceeds from credit card sales that are higher than the amount you are reporting as “gross receipts” on a business income tax return. 

If there is a difference, you may consider adding a statement to explain a legitimate difference. For instance, chargebacks and returns are not subtracted from the amount of “gross proceeds” on the 1099-K form.

2: If you have a client who has more 1099 contractors than employees, have your client provide facts to support these workers have a legitimate and independent business i.e. EIN, business entity, website – something to establish a legit business. 

EDD and IRS typically look under one the following expense categories for contractors to identify contractors that paid by a business: 

  • Schedule C: “commissions and fees”; “contract labor”; or “Legal and professional”; 
  • 1120S (S corp) and 1065 (LLC): typically find these are reported under COGS or under “other deductions” with a label such as “outside services” or “contractors.”

If you prepare a business return where the business has, for instance, 10 independent contractors and only 2 employees (i.e. where the business owners are also officers of the corporation), you should spend time with the company’s management team to analyze whether the 1099 contractors are legitimate under your state’s law and federal law. 

California recently passed a new law called AB5 (effective as of 1/1/2020) that changes the analysis of a worker’s status. AB5 now has a 3-part test that is more difficult for companies to satisfy. 

You will want to review your client’s general ledger and confirm they are properly reporting ALL 1099s. You should confirm that every independent contractor who provides services (over $600) receives a 1099. If one is missed, the Employment Development Department (EDD) may extend a 3-year audit to 8 years and assess an additional penalty, where the penalty may be higher than the tax.

When reviewing the general ledger, confirm the payees are truly contractors and not workers that should be reported as employees.

3: If your client is selling a business, the buyer will require the current owner to produce a “tax clearance certificate” from the California Department of Tax and Fee Administration (CDTFA), the agency responsible for collecting and regulating sales tax in California.

We have had numerous audits that commenced during escrow, possibly a result of the Tax Clearance Certificate application that was filed with the tax agency. So, you may want to review your client’s general ledger and confirm that the amount of sales tax reported and paid to the state is accurate and the proper correct sales tax rate was used (that includes both local and city tax), as well as confirming that exempt sales are truly exempt.

4: If your client applied for a PPP loan, and receives a request for information and documents from their bank to substantiate their financials, consider calling a tax attorney to review SBA’s regulations and any questions from the bank. 

The Small Business Administration (SBA) is currently investigating all SBA Payment Protection Program (PPP) loans, regardless of the dollar amount of the loan.

Based on information obtained from SBA, once a request has been made for additional documents following the funding of the loan, there is an active investigation. The response from you, the CPA, and your client will affect whether the case is referred to for potential criminal investigation. This would be the case when the information simply does not support the financials or the requirements of the PPP loan.

Issues that have come up in some of our cases include: 

  • Not having a legitimate work visa
  • Using PPP funds obtained by one company that another company applied for and obtained through SBA

5: There are significant benefits to a CPA working with our firm. Some include the following: 

  • Our law firm does NOT prepare tax returns. We work with CPAs referring clients who need a business/personal tax return.
  • We typically have joint representation during an EDD or IRS audit.
  • We also handle criminal tax investigations to protect you and your client. AS you well know,  your communications with an IRS Criminal Investigator are NOT protected by any privilege. However, having an attorney represent your client will ensure the communication and evidence your client provides is protected.

For more information or to get started working with us, contact us today. 

CPA vs Tax Attorney: What’s the difference?

In some cases, it may be difficult to distinguish what your CPA is capable of helping you with and which tasks are better suited for a tax attorney. Both are experts when it comes to tax matters but in different ways. 

While your CPA is an expert at preparing and submitting your taxes correctly, you’ll need a tax attorney in the event that Internal Revenue Services (IRS) notices inconsistencies in your tax submissions or if you’re the subject of an audit. In any case, you’re best off having access to both experts. 

What does a CPA do? 

A Certified Public Accountant (CPA) has a significant educational background under their belt. They are required to have completed 150 hours or more of undergraduate educational studies before passing an extensive CPA examination. 

Additionally, they have to commit to 120 hours of continued education every 3 years. As such, they considered some of the highest level experts when it comes to handling tax preparation. A simple way to think of CPAs is that all CPAs are accountants, but not all accountants are CPAs. The process of becoming a CPA is more complex than an average accountant. 

A CPA’s services are not often used by any average taxpayer but instead are usually used in more complex cases. CPAs know how to abide by federal laws while still minimizing your tax liability and maximizing benefits. Developing a strong ongoing relationship with a CPA may suit your needs if you are looking to build a long-term tax plan and need support sticking to it. 

CPAs are often capable of providing various services to their clients in addition to tax preparation. Some additional services they may provide include the following: 

  • Financial record review
  • Maximizing deductions 
  • Business structuring 
  • Health insurance selection
  • General accounting

Many people choose to have a go-to CPA available for support on a regular basis. If this is not the case for you, you may choose to consult them when:

  • Filing your taxes
  • Completing an application for a loan
  • Completing an internal audit
  • When reviewing tax payments and balances

Their skills and expertise are best suited to assist you when handling these situations. 

What does a tax attorney do?

While a tax attorney is still an excellent resource to taxpayers, they serve a different set of needs than CPAs. While CPAs are technically qualified to represent you before a court in the event of an audit, a tax attorney is likely a better choice in situations where you may be involved with trouble with tax authorities. 

Similar to CPAs, tax attorneys have to complete an intensive educational path before qualifying to satisfy their role. After completing a bachelor’s degree, they must complete a Juris Doctor degree and study to take the bar exam for the state in which they intend to practice. Once they have passed the bar exam, their license must be kept up with continued ongoing education. On top of that, many tax attorneys choose to pursue a Master of Laws in Taxation to further their specialization in their field. 

Tax attorneys specialize in the legalities of tax payment and their services are most often called upon in defense cases when taxpayers are faced with audits from IRS, EDD, or other federal tax authorities. While tax attorneys may have slightly varying specialties, one thing most tax attorneys have in common is expertise in tax controversy and dispute resolution. 

One of the benefits of working with a tax attorney is that only tax attorneys have an attorney-client privilege that protects communication between a client and an attorney. This privilege can restrict IRS and California State tax agencies from discovering information provided to attorneys in confidence.

Tax attorneys fulfill various services for their clients as previously mentioned. The following include the various reasons you may need to consult a tax attorney: 

  • IRS tax audits 
  • Criminal tax defense 
  • Reporting ownership of foreign bank accounts and corporations 
  • International business transactions 
  • Tax disputes and IRS tax collection 

Who can represent your business during an SBA PPP Loan Forgiveness Appeal?

SBA has started giving loan forgiveness for businesses that used the PPP loans during the early stages of the pandemic. However, businesses deemed to have not used the funds as they were intended received loan forgiveness denials. 

If SBA denied your business’s loan forgiveness application, they will send an SBA Final Decision Letter in the mail. If you wish to appeal your forgiveness denial, you must reply and submit an under 20-page appeal 30 days before the date printed on the decision letter. Submission after the 30-day mark forfeits your appeal rights and will require you to repay the full PPP loan amount. 

Only three people can legally represent your business during an SBA PPP Loan Forgiveness Appeal:

  • An attorney
  • Shareholder owner
  • An officer

Those who are not legally entitled or allowed to represent businesses during an SBA appeal include: 

  • Certified Public Accountants (CPAs)
  • Lenders 
  • General Employees

An attorney is legally entitled and allowed to represent your business during the appeals process. They will be able to research why your application was denied, collect supporting evidence, and create the 20-page appeal for SBA.  

Final Thoughts

While CPAs and tax attorneys both work within a similar framework, their unique specialization equips them for varying roles. In some cases your business may only need to use the services of one or the other, however, in most cases, the two roles complement one another. While your CPA may be an excellent ongoing partner to assist with the day-to-day management and filing of your taxes, they may not be the best-suited partner in the event of trouble with tax authorities. 

Rather than challenging your CPA to attempt to manage tasks outside of their usual specialties, reach out to an experts attorney to assist with any legal tax concerns you may have. Curious about what you should be paying for a tax attorney? Read our article here explaining different instances when hiring an attorney may be worth your while. 

 

CPA vs Tax Attorney: What’s the difference?

CPAs and MSELF

For CPAs, one of the most important parts of the CARES loan package which has brought $2.3 trillion in loans to households, businesses, and state and local governments is the Main Street Lending Program, which provides for up to $600 billion in loans to small and midsize businesses. The Fed will also supply liquidity and certain regulatory relief to financial institutions in an effort to bolster the effectiveness of the U.S. Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP).

The Main Street Facility fills a need for mid-market business funding not covered by the PPP, which was authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, to make $349 billion in forgivable loans to businesses with up to 500 employees and is being refunded at the end of April to provide an additional $310 Billion to that same demographic. 

The Main Street loan program is available to U.S. companies with up to 10,000 employees and less than $2.5 billion in 2019 revenue that were in good financial standing before the COVID-19 crisis sparked widespread stay-at-home orders and stalled the American economy, leading to nearly 17 million people filing new claims for unemployment benefits over the past three weeks.

Start the application process today

As with PPP loans, businesses seeking Main Street funding will need to apply through banks and other lenders authorized to process the loans. The opening of the PPP application window on April 3rd prompted a large number of small businesses to seek funding through SBA-authorized lenders. The large amount of applications—as many per day as the SBA usually receives in a year—resulted in delays within the agency, within banks, unprepared for the influx of applications online and in Fintech which was well-positioned to process large numbers of digital applications. 

If you haven’t already, firms should start gathering the information clients will need to apply to the Main Street program. This will be particularly urgent for clients that were ineligible for the PPP, though eligible companies can receive funds from both the PPP and the Main Street program.

Pay attention to the fine print

New Main Street loans range between $1 million and $25 million (or an amount, when added to the borrower’s existing outstanding and committed but undrawn debt, four times the borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA).) 

Main Street loans added to existing loans must be at least $1 million and no more than the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the borrower’s 2019 EBITDA.

The Main Street program requires companies that borrow the funds to make “reasonable efforts” to maintain their payroll and retain their employees during the term of the loan. Borrowers also must commit to not using the funds to repay or refinance pre existing loans and lines of credit.

Watch for changes

Due to the evolution of the outbreak and its impact on the global economy, provisions are being made to these loan programs near daily. Over the last week alone, the Fed has already taken actions to help bolster the effectiveness of the PPP. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. 

In addition, the Fed, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. issued an interim final rule permitting banks to not include PPP loans made under the PPPLF with any of their required capital ratios, meaning that the loans won’t be counted against the banks when examiners review their books.

In addition, the Fed said PPP lenders would not be held liable for representations made by borrowers in connection with a borrower’s request for loan forgiveness under the PPP.

Milikowsky Tax Law’s team of legal experts are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential business implications. Visit our COVID-19 Resource Center for more news, tools, and insights you need to know in these uncertain times.

Bernie Minton Testimonial

John’s level of precision and attention to detail is unmatched.

At Milikowsky Tax Law, we partner with CPA firms to provide the highest level of service and support to their clients in case of IRS Audit, EDD investigation or other tax controversy matters.

Bernie Minton, CPA is a trusted CPA partner who trust our tax expertise to serve and support his clients with precision and attention to details.  Our office does NOT prepare taxes, we are lawyers who dedicate to protecting and defending the rights of taxpayers in California and across the country. If you are a CPA and one of your clients has a tax controversy, IRS Audit or EDD investigation, reach out to the team of Tax Attorneys at Milikowsky Tax Law today.

Woman talking to a couple

Preparing and filing accurate business tax returns can be complicated. That’s why so many business owners rely on CPAs to help them navigate the complexities of the tax world. 

As a CPA, it is your responsibility to help your clients manage their tax compliance and achieve the best possible outcomes for their business’ health. That means not only finding as many deductions as possible, but also ensuring the accuracy of the document and minimizing a client’s risk of audit

If you’re just getting started as a CPA, you may still be honing your skills and enhancing your abilities to recognize red flags in an instant. With the support of a tax attorney, you can take your CPA services to the next level. 

Give Your Clients the Confidence They Need

Here at Milikowsky Tax Law, we’ve spent years working with hundreds of small business owners and partnering with their CPAs to ensure they’re prepared to handle taxes with confidence. Not only are we trained to spot the signs of an impending audit, but are also experienced in helping clients respond to IRS requests.

Over time, every dedicated CPA masters the art of tax return preparation. In the meantime, it pays to learn from those with experience and expertise in the field. Milikowsky Tax Law has perfected the process of analyzing and preparing tax returns to reduce the risk of audit for our clients. Our approach to managing tax matters helps to deliver incredible accuracy and peace of mind to hundreds of business leaders. 

In our new e-book, you can learn how to harness the same techniques to serve your own clients. As experts in the world of tax law and audit management, we’ve explored every facet of the California tax environment, making us the ideal partner for local CPAs

Learn how you can protect the rights and livelihood of your clients, keeping the threat of audit to an absolute minimum. 

The information contained on our website and in blogs is provided for information purposes only and does not constitute legal advice.

Resources:

https://www.caltaxadviser.com/blog/2019/04/the-tax-attorney-a-cpas-secret-weapon/

https://www.usatoday.com/story/money/taxes/2018/03/24/20-of-americans-are-making-this-tax-filing-mistake/33109881/ 

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Your CPA isn’t just there to ensure that the numbers add up on your tax returns. They can also provide useful advice on how to manage your income for the year and estimate your tax liabilities going forward. A qualified and knowledgeable CPA can also give you insights to help guide crucial decisions about the future of your business and your financial goals. 

For business owners, the end of the tax year often means rushing around, gathering paperwork and taking stock of what is happening in your business. Wrapping up your annual accounting is more than just preparing taxes. It is an excellent opportunity to take an in-depth look at what is happening in your business so that you can improve in time for next year. 

Here are four questions to ask your CPA as you wrap up this year’s finances.

What Does My Tax Liability Look Like?

One of the most crucial things your CPA can do for you is to analyze your income and determine the best financial strategy to keep your tax bill at a minimum. The first step in that process is understanding how much you can expect to pay. The 2018 tax law changes have led to many significant changes for LLCs and sole proprietors in particular. Ask your CPA how your liability is changing and what you can do to lower your payments in the months to come. 

Your CPA may recommend changing the legal structure of your business to take advantage of specific deductions and opportunities for limiting expenses. If you think that you might be in a different tax bracket this year, discuss your situation and weigh your options with your CPA. A lower tax bracket, for example, may allow you to defer any year-end bonuses to January 2020 to keep your tax liability lower. 

How Can I Estimate Quarterly Payments for Next Year?

Small businesses and entrepreneurs are required to pay their tax bill quarterly. The more prepared you are to pay your bills, the less of an impact these costs will have on the flow of business. Speak to your CPA about how much you can expect to pay quarterly in 2020. The amount will depend on an estimate of your total income for the year ahead.

If you believe that your income next year will change significantly, it may be a good idea to ask your CPA what you can do to reduce your tax payments. This may help to keep more money available for business needs in the coming year. 

What Can I Do to Better Manage Cash Flow?

As your CPA examines your receipts and financial documentation, they may be able to share insights into your current cash strategy. In some cases, they may be able to give advice on how to improve your cash flow management to take better advantage of business resources. 

CPAs are masters of cash flow. They understand how you can spend money to make money, and what sort of investments you can make to ensure that your cash flow remains positive each year. Consult with your accountant about your current financial health, and what you can do to adjust your strategy to suit your goals for the year ahead. 

What Lessons Can I Learn From Last Tax Season?

Many of the conversations you will have with your accountant will be focused on best-practice strategies for growth and planning for the future. While you’re discussing steps to improve your cash flow in the year ahead, don’t forget to ask your CPA about lessons you can learn from the last tax season to improve moving forward. 

Because your accountant may have years of experience working with different businesses, they’re in an excellent position to give you advice on how to upgrade your tax standing in the years to come. They’ll be able to discuss things with you like payments, deductions, and record-keeping, and point out the areas where you can improve. Your CPA may also be able to give you advice on how to take advantage of additional deductions in the next year. 

Leverage Your Year-End Meeting with Your CPA to Plan Ahead

While taxes are just one part of running a business, the time you spend discussing your future and liabilities with your CPA at the end of the year can help set you up for continued success. Remember that your CPA is brimming with expertise, so leverage their professional perspective to help you make decisions to grow your business.

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If you need more specialized advice in legal tax matters, ask your CPA to refer you to a trusted tax attorney who can support you from a legal standpoint.

Here at Milikowsky Tax Law, we act as a partner and value-added resource for CPAs when business owners need to navigate complicated tax law issues such as IRS audits, California state EDD audits, back taxes, tax law investigations, and more. If you have questions about a tax law matter, reach out to our expert team today.

The information contained on our website and in blogs is provided for information purposes only and does not constitute legal advice.

Resources:

https://www.caltaxadviser.com/tax-law/

https://www.nolo.com/legal-encyclopedia/how-the-new-republican-tax-bill-affects-businesses.html