The Goodwill Rule for SBA Changed: What You Need To Know

As of January 1, 2018, SBA has changed the Business Acquisition Equity Requirements. This requirement is commonly referred to as the “Goodwill Rule.”

Updates are as follows:
  • They eliminated the $500,000 benchmark all together.  
  • They now require that the buyer puts down a minimum of 10% of the Project Costs. (NOTE: This is 10% of the project costs not the purchase price. If working capital is included, along with closing costs and SBA Fees, they have to come up with 10% of everything.)
  • They changed the seller note counting as equity from 2 years standby to standby for the life of the SBA loan.  

You might want to continue preparing your clients for seller notes as most lenders have not figured out how they are going to treat these new rules. After speaking with several lenders recently about this and every lender seems to be scrambling to adapt to this change. Also, your buyers might want the seller to have skin in the game, even if it is not for equity reasons. 

If you have questions regarding the Goodwill Rule, please email Mark Pompeo with Wells Fargo SBA Lending at Mark.Pompeo@wellsfargo.com.

For any additional questions, please contact Saeed Moghadam with our Capital Advisors team. We provide the investment banking function for small to mid-sized companies and help large organizations identify acquisition targets. Our team provides middle market companies with their capital needs, due diligence, buy and sell side searches, in addition to analyzing and approving an overall growth strategy. We have the experience working for the largest banks and CPA firms in the country. Our professionals provide the knowledge of a large firm and the personal attention of a small firm.

Bitcoin: What is it and How is it Reported for Tax Purposes?

Bitcoin has been all over the news recently. Although we hear a lot about it, we are left with numerous questions. What is it, how does it work, and how we deal with it from a tax reporting perspective? Now, other cryptocurrencies are hitting the mainstream. All of this makes us wonder, will these cryptocurrencies continue to shape our future or is all of this a fad that will die down within a year? Jamie Dimon, chairman and CEO of JPMorgan Chase stated in October that “If you’re stupid enough to buy bitcoin, you’ll pay the price one day.” More recently, on December 12th, he stated: “Look, everyone has a personal opinion about Bitcoin. I remain highly skeptical of it. But as I’ve said previously, I’m open-minded to uses of cryptocurrencies if properly controlled and regulated.”

What are Cryptocurrencies?

A cryptocurrency is a digital or virtual currency that uses cryptography for security and is not issued by any central authority. For this reason, it is difficult for governments to manipulate or provide any kind of control or oversight. Bitcoin is by far the most popular cryptocurrency, but there are many other cryptocurrencies that are beginning to gain traction. These include Ethereum, Ethereum Classic, Litecoin, Ripple, and Dash.

How about Bitcoin?

Bitcoin was the first cryptocurrency. It was released in 2009 as an open-source software. It, along with other cryptocurrencies, leverage the use of blockchain, which is a digital ledger in which transactions me in bitcoin or another cryptocurrency are recorded chronologically and publicly.

The market price of a bitcoin remained substantially low until 2013, where it shot up to over $1,000. Since then, market price fluctuated in the $200-$800 until this year, where it hit $10,000 as of a couple of weeks ago, and is trading at $16,000 as of the date of this article. The Winklevoss twins, who many may know from their famous lawsuit against Mark Zuckerburg, recently became the first “Bitcoin Billionaires.”

Tax Reporting for Bitcoin

The IRS has released some guidance for the tax implications of Bitcoin and other cryptocurrencies (virtual currencies) with the release of Notice 2014-21. Within this notice, they state that virtual currencies are treated as property for federal tax purposes. Fair market value must be determined in U.S. dollars and capital gains rules apply if the taxpayer sells or exchanges virtual currency.

However, there has been some debate about the applicability of like-kind exchanges. The IRS has remained silent about 1031 (like-kind) exchanges for virtual currencies. One idea is that Bitcoin for Bitcoin exchanges might qualify, but a Bitcoin for Ethereum trade might not qualify. However, this question might be irrelevant if a new tax bill passes that limits like-kind exchanges to real-estate property.

The payment of virtual currency can also constitute wages if paid to an employee. If an independent contractor receives more than $600 of virtual currency, Form 1099-MISC will be required.

How about Bitcoin Mining?

The use of computer resources to validate transactions and maintain the public Bitcoin transaction ledger (mining), is classified as income at the fair market value of the virtual currency as of the date of receipt. Mining constitutes a trade or business. This can constitute self-employment income if the activity is not undertaken by the taxpayer as an employee.

Stay tuned for updates on this subject and if you have any questions, set up your no-cost consultation or give us a call 704-841-1120.

Charitable Contributions from Your IRA: What You Need To Know

Taxpayers that are age 70 and a half may direct their IRA to make a direct contribution to a qualified charity of up to $100,000.  This contribution counts toward the required minimum distribution.  The advantage to this is that the distribution to the charity is not included in the taxpayer’s adjusted gross income (AGI).  This could further reduce their tax since certain taxes, income and deduction items are directly affected by AGI.  Only an IRA is eligible to make this contribution.  SEP IRA’s and other qualified retirement plans are not eligible.

Congress is currently considering significant changes to the tax code.  One of these changes is to significantly increase the standard deduction amount so that fewer taxpayers will be able to itemize their deduction.  At least one of the proposals also eliminates the state tax deduction from itemized deductions.  If these changes are passed, then the ability to make charitable contributions from IRA’s will be much more valuable for taxpayers aged 70 and a half if Congress does not also make changes to the contribution rules.

Stay tuned to the news and to our blog for updates as Congress works through the proposed tax changes.  If you have any questions, please click the button below to speak with one of our Certified Public Accountants.

What Changes Are Coming To Your Social Security and Retirement Plans in 2018?

The Internal Revenue Service (IRS) recently released cost of living (COLA) changes for 2018.  From 401(k) plans to individual retirement accounts to Social Security, the federal government has been busy in recent weeks adjusting numbers for 2018. Whether you’re an employee or business owner, senior management or nonexempt staff, these changes may affect how you approach retirement in the coming months and years.

401(k) elective deferrals:

Employees who participate in 401(k)’s, 403(b)’s and certain 457 plans can electively defer up to $18,500 of compensation in 2018, up from $18,000 in 2017.

Individual Retirement accounts:

Eligible individuals will be able to contribute up to $5,500 to their IRA in 2018, unchanged from 2017.  The deduction phase out at certain AGI levels for individuals covered by employer plans will increase as well as AGI levels for allowable Roth contributions, depending on filing status.

Catch-up contributions:

Eligible individuals age 50 and above may continue to make contributions to IRA’s, 401(k)’s and other savings arrangements in 2018.  The amounts of $1,000 for IRA’s and $6,000 for 401(k)’s, SEP’s, 457’s, and 403(b)’s remain unchanged for 2018.

Annual compensation limits:

The maximum annual compensation counted for an eligible employee participating in 401(k)’s, SEP and certain other qualified plans will increase to $275,000 in 2018, up from $270,000 in 2017.  The total amount that can be contributed will increase from $54,000 to $55,000.

Social security and Supplemental Security Income (SSI):

Social Security and SSI beneficiaries will receive a 2% increase in their benefits in 2018 based on the increase in the Consumer Price Index for the year ending September 30, 2017.  However, beneficiaries having the Medicare Part B premiums deducted from their benefits may see an increase in the amount of monthly premiums by the lesser of $3.00 or their COLA increase in monthly Social Security benefit.

Other Social Security related changes for employees and employers:

The maximum taxable earnings for Social Security taxes will increase to $128,700 in 2018, up from $127,200 for 2017.  The Social Security withholdings will continue at 6.2% on the maximum earnings and the Medicare tax withholding will continue at 1.45% on all compensation.

In 2018 individuals under full retirement age who have filed for Social Security benefits can earn $17,040 per year or $1,420 per month before $1 in benefit will be withheld for every $2 of earnings above these limits.  In the year the individual reaches full retirement age, they may earn $3,780 per month during the months prior to attaining full retirement age

Please contact us if you have any questions on these changes or the new phase out levels.

Fake Accounting Invoices Used to Steal Credentials

A recently resurfaced banking Trojan is now being used in a malware/phishing campaign targeting users of accounting services provider Xero. Similar attacks have also been used against users of Intuit and QuickBooks. The goal of these attacks is to gather login details for banking and financial accounts. Here’s how it works, what it looks like, and what do if you get this message:

How it works:

The attack sends a spoofed email message that appears to come from Xero/Intuit/QuickBooks regarding an invoice and attempts to get the recipient to click a link to download the invoice. This link will download a ZIP file which contains another file that appears to be the invoice itself but is actually a malicious JavaScript (.js) file which installs the malware.

What to do:

  • Before clicking any link in an email, hover your mouse over that link and observe where it will take you. Either a pop-up will appear next to the link, or look at the bottom of your email program to see the actual link address. If you don’t recognize the link or it’s slightly altered (for example, intuito.biz instead of intuit.com) from the official site: Don’t click on it!
  • Be cautious around ZIP files, often they are used by malware to disguise contents.
  • If you have already clicked on or opened something suspicious that doesn’t show or do what you expect: run extra malware scans – in addition to your regular anti-virus software, contact your trusted IT advisors to see if further checks are necessary, and take precautions to change your account passwords especially for financial institutions – from another computer!

Tax Deductions to Keep in Mind When Traveling for Charity

It’s almost that time again… Tax Season! We want to make sure that you are taking advantage of all the tax deductions that are available to you when you are traveling for charity. There are a few things that you want to make sure you are doing to make sure the deductions qualify. 

A few tips to remember are:
  • Make sure the Charity qualifies by the IRS standards
  • Ask the Charity about their status before you donate
  • Know what Out-of-Pocket Expenses are deductible
  • Recognize the travel expenses that are deductible and not deductible – some types of travel are NOT deductible

To see specific tips from the IRS on this topic, CLICK HERE. If you have any additional questions about tax deductions when traveling for charity, contact us today!

NC Tax Law Updates – NCACPA in Action

In North Carolina, the NCACPA is working to modernize and improve our state tax code. LBA Haynes Strand is proud to be a member of the NCACPA. This year they have made a few changes and have recently announced those changes. Take a look at what the NCACPA has been working on by CLICKING HERE!

If you have any questions on the law changes and how they may affect you, click the button below for a no-cost consultation.

5 Tips to Prepare for a General Contractor’s License Audit

Tip 1: Know Which Type of License you are Seeking:

The dollar amount of the project you are bidding on will likely be the determining factor of which license type is right for your company.  See the chart at the bottom of the post for the license thresholds, financial requirements and whether an audit is required to be performed by an independent CPA.

Tip 2: Possess the Necessary Working Capital:

Even though you may want a certain license type (i.e. unlimited), you may not meet the eligibility criteria for one, so be sure to review all of the eligibility requirements before submitting your application.

Tip 3: Engage an Independent CPA:

Please know that not all CPAs can perform audits.  Make sure you are working with a firm who has prior experience performing audits of general contractors.

Tip 4: Assemble all Documents Necessary for an Independent Audit:

Typical documents requested as part of an audit or review engagement include: a) access to QuickBooks or other accounting system used by the contractor; b) bank statements; c) access to source documents (checks received or paid); d) organizational documents including articles of incorporation.

Tip 5: Submit Audited Balance Sheet along with Completed License Application to your State Board of General Contractors:

Ensure that all of the necessary documents are attached to the State application form and the proper reports prepared by the independent CPA are attached.  States will not process your application without an attached audited balance sheet (if necessary).  Failure to include the audited balance sheet will result in costly delays in processing of your application.

For a quick outline of the requirements and thresholds for a GC licensure audit, CLICK HERE.

LBA Haynes Strand Volunteers To Fight Hunger in Our Community

Every year LBA Haynes Strand closes it’s doors for one day while the entire firm goes out into the community to help with a worthy cause. This year we were fortunate enough to team with Out of The Garden Project in Greensboro, NC. Out of The Garden Project is a food assistance program for families primarily in Guilford County.  Their mission is to partner with parents, teachers, friends, and organizations to provide food and hope for every child!  They supply a bag of food, including two meals, for a family of four (6-7 lbs) each Friday at 60+ schools in Guilford County, one school in Forsyth County and one school in Alamance County.  Overall they reach 1,750 families each week!  In addition, Out of The Garden Project provides 700 bookbags each week for the United Way of High Point.

Did You Know: Out of Guilford County Schools’ 73,000 students, 67% receive free or reduced price lunches and breakfasts?

This is one of the highest rates in the nation.  Greensboro and High Point were ranked #1 for food insecurity in the United States until July of 2016.  The area is currently ranked #9 in the nation for food insecurity.  Studies have shown that when students don’t eat on the weekend, it can take up to Wednesday of the next week after students have eaten for two days at school to begin to learn at the same rate as their peers who had access to nutrition during the weekend.

Out of The Garden Project – LBAHS Day 2017 on Biteable.

Our team had a great time packing meal bags, sorting food, cleaning the warehouse and handling many other tasks for Out of The Garden Project.  Dave Recchion, Principal in our Greensboro office had this to say, “It was a tremendous honor to work hand in hand with our team today in making a difference in our community.  We can all feel good about the impact that was made.  We take a lot for granted, and it is in moments like this where we can feel the pain of the less fortunate.  Every box, bag, and can that we touched will ensure that some people will get a meal for a day.  Thank you to Out of The Garden Project for allowing us to volunteer and make a real difference.”

To learn more about Out of The Garden Project and how you can help, CLICK HERE!

Navigation Changes Made To QuickBooks Online

We all know change is hard!  With this in mind we wanted to provide a highlight of the recent changes made to the QuickBooks Online navigation.  Even though the changes may take some getting used to, this is one of the main benefits of QuickBooks Online….you constantly have access to the most up-to-date version of QBO available!  The changes include:

  • A few of the changes are strictly name changes. For example, your home page is now called the “Dashboard.” No other changes were made here and all information you previously saw on the home page is still available on your new dashboard.
  • “Banking” is now at the top of your left menu bar on every screen. This is the item you click to access the transaction import screen and is possibly the most used button in QuickBooks Online. With its new placement it will be easy to get to without hunting through the menu options.
  • “Accounting” is a new item in the left menu bar. This will be where you click to access the bank reconciliations as well as your Chart of Accounts.
  • The Reconciliation screens did see some updates as well. The changes made will make the reconciliation process more streamlined and easy to complete.

As you can see, the QuickBooks Online support team does value the feedback we give them so make sure to let them know what you like and don’t like, or what you feel could be made easier to use.  To read the full article on the updates please click here.  

Free Webinar: “Cracking The Code To M&A Growth”

Join us on July 12th at 1pm for a free webinar. John Bly, Principal and CEO of LBA Haynes Strand, will deliver his signature presentation: “Cracking The Code To M&A Growth.” John has delivered this speech across the globe to rave reviews and even wrote a book on the topic. He is excited to bring it to a webinar platform.

“Cracking The Code To M&A Growth” serves as a guide to effectively find good deals for entrepreneurial businesses in the $1 to $30 million range.  John provides a blueprint for how to tackle such issues as: determining whether the deal is a good fit, due diligence, structuring the deal, tax issues, and how to land the perfect catch.

John will show you ways to find potential spots for rapid growth and accomplish, on a smaller level, what the larger companies do. By breaking down the M&A process into approachable elements, you will find that your entire outlook on the topic will be transformed!

If you would like to meet with John, contact us to schedule a no-cost consultation.

IRS Announces Top Tax Scams for 2017

The IRS has announced the completion of its annual “Dirty Dozen” list of tax scams. The annual list highlights various schemes that taxpayers might encounter throughout the year, and especially during tax-filing season. “Taxpayers need to guard against ploys to steal their personal information, scam them out of money or talk them into engaging in questionable behavior with their taxes,” the IRS said.

The “Dirty Dozen” scams the IRS highlighted in 2017 are as follows:

Phishing: Taxpayers are advised to be on guard against fake emails or websites looking to steal their personal information. Specifically, they are warned to avoid opening surprise emails or clicking on web links claiming to be from the IRS, as the IRS will never initiate contact with taxpayers via email about a bill or refund.

Phone Scams: Taxpayers are warned that aggressive and threatening phone calls from criminals impersonating IRS agents remain an ongoing danger. The IRS said it has seen a surge of these phone scams in recent years, as con artists threaten taxpayers with police arrest, deportation, and revocation of their driver’s license if they fail to pay a bogus tax bill.

Identity Theft: The IRS is advising taxpayers to watch out for identity theft, especially around tax time. Taxpayers are cautioned to always use security software with firewall and anti-virus protections, to make sure the security software is always turned on and can automatically update, to encrypt sensitive files such as tax records stored on the computer, and to use strong passwords.

Return Preparer Fraud: Taxpayers are cautioned to be on the lookout for unscrupulous return preparers, and to choose carefully when hiring an individual or firm to prepare a tax return.

Fake Charities: The IRS is warning taxpayers to be wary of groups masquerading as charitable organizations to attract donations from unsuspecting contributors, and especially of charities with names similar to familiar or nationally known organizations. Taxpayers should avoid giving out financial information to individuals soliciting for charity, and should check the status of charitable organizations using the IRS website.

Inflated Refund Claims: Taxpayers are cautioned to be on the lookout for individuals promising inflated refunds. In particular, taxpayers should be wary of anyone who asks them to sign a blank return, promises a big refund before looking at their records, or charges fees based on a percentage of the refund.

Excessive Claims for Business Credits: The IRS is warning taxpayers to avoid improperly claiming the fuel tax credit, pointing out that this tax benefit is generally not available to most taxpayers, as it is usually limited to off-highway business use. Taxpayers are also cautioned to avoid claiming the research credit unless they can demonstrate that they participated in qualified research activities or satisfy the requirements related to qualified research expenses.

Falsely Padding Deductions on Returns: Taxpayers are urged to resist the temptation to falsely inflate deductions or expenses on their returns. In particular, the IRS warned taxpayers against overstating deductions such as charitable contributions and business expenses, or improperly claiming credits such as the earned income tax credit or the child tax credit.

Falsifying Income to Claim Credits: The IRS is advising taxpayers to avoid inventing income to erroneously qualify for tax credits, such as the earned income tax credit. Taxpayers are warned that individuals are sometimes talked into falsifying their income by con artists. These scams can lead to taxpayers facing large bills to pay back taxes, interest, and penalties; and may even result in criminal prosecution.

Abusive Tax Shelters: Taxpayers are cautioned against using abusive tax structures to avoid paying taxes, and are advised to be on the lookout for individuals advertising tax shelters that sound too good to be true. The IRS emphasized that it is committed to stopping complex tax avoidance schemes and the individuals who create and sell them.

Frivolous Tax Arguments: Taxpayers are warned not to use frivolous tax arguments to avoid paying tax, as the penalty for filing a frivolous tax return is $5,000. The IRS noted that there are frivolous schemes that encourage taxpayers to make unreasonable and outlandish claims, even though such claims have been repeatedly thrown out of court.

Offshore Tax Avoidance: The IRS is cautioning taxpayers against trying to hide money and income offshore, pointing to a recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them. The IRS recommended that taxpayers with unreported funds in offshore accounts catch up on their filing and tax obligations through the Offshore Voluntary Disclosure Program.

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