With 2020 gone (praise the Lord), we are facing a new challenge as we recover from what will be one of the most memorable year of our lives. Our clients have been asking us about the impact of a Biden/Harris White House. There are many potential impacts with a new administration. Here we willl address the minimum wage.

Incomming President Joe Biden is seeking to increase the minimum wage from $7.25 per hour to $15.00 per hour. This is part of his $1.9 trillion pandemic relief bill that his economic team released yesterday, Thursday January 15th, 2021. Biden’s new plan also eliminates the minimum wage thresholds that apply to workers who receive tips, such as restaurant servers. The restauraunt industry will certainly take the biggest hit up front. Currently, an employer of a tipped employee is only required to pay $2.13 per hour in direct wages.

FINANCIAL IMPACT

We are accountants, and we listen to the politicians’ sales pitches and calculate the impact on our clients. Let’s put this into real numbers. With Covid-19 impacting the heart of industries like restaurants, you’d think our government would do everything they could to revive those indistrues. Consider this: If you own a restaurant with 10 servers who each work 30 hours per week, increasing the minimum hourly wage from $2.13 to $15.00 will cost you exactly $216,131.06 in additional payroll expenses in one year. If you were a restaurant owner and were faced with this, what do you think you would do? My thoughts exactly…

HISTORY

Raising the minimum wage has been a topic in Congress for many years, with employers arguing that this will hinder job creation by making it more costly to hire new employees. Despite these economic concerns, states like Florida voted to increase the minimum wage to $15.00 per hour in November 2020.

The federal minimum wage has not increased since 2009. Though Biden had promised to raise the minimum wage to $15/hour if he were elected President, there is no clear path in 2021 to having a filibuster-proof majority in the Senate to accomplish this task. The 2019 the House attempted to raise the minimum wage to $15 with a bill called the “Raise Minimum Wage Act”. This was passed by the House and pushed up to the Senate. The Republican Senate rejected it quickly.

WHAT’S NEXT?

Currently, increasing the minimum wage is a state’s issue. With this new era of government overreach into our lives, it may not remain that way. The Democratic Party will now take control of the Senate in the 117th Congress due to a 50/50 tie with Vice President Harris as the deciding vote. Even though the Democratic Party now controls 2 out of the 3 branches of our government, the earliest that Biden can pull off a federal wage increase would be 2022.

We suspect the President will push his Congress to make him a man of his word and assist him with re-election to a second term. At best, Biden can increase the minimum wage immediately for workers on federal contracts via executive order, but not for the rest of America. This will take an act of Congress, and they will certainly act quickly.

BIG CHANGES ON THE WAY

Over the past few years, we have played a huge role in our clients’ lives. In 2020, this need for us solidified with our community, as we became one of the most valuable & relied upon advisors in issues tax related and beyond. Whether it was a banking issue, tax concerns, or being in need of a “socially distanced” shoulder to cry on, our clients called us first. And we were here, and we care. We Care Here.

We should all plan now more than ever for both tax and overhead cost increases, and we need to prepare for the big changes that are coming. Certainly, we should all plan on this new Congress to pass a bill to raise the minimum wage within the next 2-3 years. And President-elect Biden will certainly sign it.

– OG

PPP Loan Forgiveness

Ready to apply for loan forgiveness? Most of us are ready to get as much of 2020 behind us as possible. In this blog, we discuss the timing on when to apply for forgiveness, and some recent releases from the IRS that have major tax implications.

Banks are now beginning to accept PPP loan forgiveness applications. Under the current law, we have exactly 10 months from the end of the 24 week PPP period to apply for loan forgiveness. In other words, your 10 month window to apply begins when your 24-week loan period ends, which is 24 weeks after the date of your PPP loan deposit. Below are three important things to consider:

1) You Have Plenty of Time

Very similar to the initial anxiety-fueled rush of applying for the PPP loan, I do understand that there will be a sense of urgency to hurry and apply for PPP forgiveness. The AICPA is working closely with their affiliates at the US treasury/IRS/SBA, and they are advising us all to wait to apply for forgiveness. The FAQ’s on the SBA website are constantly being updated with new additions and guidance.

Congress is currently debating a new round of COVID-19 relief, which is expected to include a second PPP initiative more targeted than the first one. This comes directly from Mark Peterson, the executive vice president who heads the AICPA’s advocacy team in Washington, D.C. Those Congressional discussions also may include major changes relaxing the forgiveness requirements for the smallest loans, possibly those up to $100,000 or $150,000. Much is up in the air, all of which could affect your existing PPP loan.

2) IRS & Tax Implications

From a tax perspective, the CARES Act states that the forgiven PPP loan proceeds are not to be considered taxable income. Sounds great, but there is a massive catch, one that we suspected would come later than sooner. The IRS released revenue bulletin 2020-32 which states, “no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan” (https://www.irs.gov/pub/irs-drop/n-20-32.pdf). In other words, you will not be able to deduct those payroll/overhead expenses on your tax return. Though the CARES Act states that debt forgiveness income is not taxable, you are essentially paying tax on the loan proceeds in the form of not being able to deduct those PPP related expenses. This makes reporting a bit more complicated on the tax return, so tracking these PPP expenses will be vital.

3) You Are Not Alone

Please remember that our team is here and ready to assist you. Many of our clients have already reached out to us with questions, asking for assistance with tracking their PPP expenses, and applying for forgiveness. Do not hesitate to contact us to help you navigate through the steps of applying for forgiveness and planning for income taxes. Our firm takes a proactive approach to help our clients stay up to date with the lastest news. We stay ahead, and tax planning time begins now.

2020 will be the year we will all remember, and this upcoming tax season will be challenging. We are here to serve our clients and take as much of the stress off of their shoulders to allow them to focus on their business. We Care Here.

Sincerely,
Kevin Oliver
Oliver Financial Group LLC
kevin@olivergrouptx.com
469-630-1228

LEADERSHIP: The Game of Thrones, or The Tribe of Many?

In this blog post, we want to talk about something that is not directly tax related. For this discussion, we propose the analogy of two types of leaders, a King and a Chief. Maybe we’ve been watching too much Game of Thrones…

As tax professionals and business consultants, we have a unique vantage point to witness the success stories of our clients. We see the fails and the wins alike. We see the good decisions and the impact of the bad ones. Regardless of your industry, the moves you make each day have an impact on both your tax position and your business.

When meeting with tax clients, especially business owners, discussions of taxes lead into business strategies and internal operations. From there, we sometimes find ourselves in conversations of how and when to make tough choices. You can either be a King running your Castle, or a Chief serving your Tribe.

Both a King and a Chief have similar responsibilities and attributes. They are often strong in personality, they are warriors, they take risks, they must make hard decisions that impact those around them, they don’t sleep as much as they’d like to, and of course, there’s the power. The method of how a leader uses that power (aka takes on that responsibility) make the difference between a King and a Chief.

A Chief has a true love for their tribe, their people, their Team. Without the Team, a Chief is nothing. A strong Team supports the business, and not because it is commanded of them. A Chief looks out to their team for guidance and council, admitting their own flaws. A King has all the solutions, and those rules must be followed by the team, or else they will be banished from the kingdom.

We are learning from our clients that listening is leading. A Chief is a skilled listener, and collaborates with the Team to achieve a goal, whereas a King only commands. A Chief is humbled by their responsibility, whereas a King seeks safety by controlling their surroundings. Castles fall, but a Team of empowered individuals, all with their different temperaments, talents, and convictions, make the business strong for generations.

Our logo here at our firm is a tree, and for good reason. Good ideas are a good seed, and a good seed can’t grow in the wrong conditions. Surround yourselves with good soil to grow your tree (friends, mentors, accountants, bankers). Your business is your tree, your Team is the trunk, the infrastructure & internal systems are your branches, and the fruit of the tree is both stability and profit.

At OG, we are your soil. We Care Here.

Oliver Financial Group, LLC

To Be, or Not to be. Is a Limited Liability Company for me?

In my opinion, if you’re doing business in Texas, you need to limit your personal liability. PERIOD. Whether you’re mowing yards, taking photos, or investing in real estate, you always need to consider your liability and how you can protect your personal assets. From a tax perspective, an LLC may not be worth all the hype, not at first anyway.

In the eyes of the IRS, LLC’s that only have one member are considered “disregarded entities”. In other words, the IRS does not require you to file a federal tax return for an LLC when you are the 100% member. You will have to file the annual Texas Franchise Tax & Public Information reports each year by May 15th to keep the LLC in good standing, but there is no other filing requirement for an LLC.

Most sole proprietors file their taxes on Schedule C or their personal tax return. The net profits of the business are subject to the dreaded self-employment tax, which is upwards of 15.3% on top of their federal tax burden. No fun. An LLC may give you personal asset protection in Texas, but you will still file your tax return the exact same way as you did when you were not an LLC, reporting your income and expenses on Schedule C with profits subject to SE tax. So what’s the big deal about setting up an LLC to save on taxes? As a single member LLC, there is NONE.

Though setting up an LLC is more of a legal move than a tax savings move, there is a very special election that certain taxpayers can make to save on self-employment taxes: The S-Election.

When you fill out the form 2553, you are telling the IRS, “Hey, IRS! I know you didn’t care about my LLC in the past, but as of this date, I want to be treated as an S-Corporation.” As an S-Corporation, the net profits of the business are no longer subject to self-employment taxes. You will now file a federal tax return for the S-Corp, and the profits/losses pass-though to page 1 of your personal return and are taxed at ordinary income tax rates. Sounds like a reason to celebrate right? Don’t run to make the S-election just yet, as there are certain prerequisites that must be met to protect and preserve that valuable S-election.

In conclusion, setting up an LLC may help you out on your legal exposure (contact your attorney for legal advice). From a tax perspective, setting up an LLC won’t help you out at all and will generate an annual filing with Texas each year. LLC’s don’t save tax dollars, that is unless you make an S-election for the LLC to be taxed as an S-Corp. We will discuss S-Corporations in a later blog.

Give us a call if you have questions.

Oliver Financial Group LLC