SBA Loans Now on Sale!

That's right, major improvements to the Small Business Administration loan programs have been recently announced. Two of the most important changes:

• The SBA will increase it's guarantee to 90% on certain loans, reducing lender risk. What this means is that lenders will be more likely to approve SBA applications than they were just a few weeks ago.
• The SBA is waiving the guarantee fees for all SBA 7(a) loans with maturities exceeding 12 months. This is big.....SBA fees range from 2% to 3.75% of the guaranteed portion of the loan. So while the SBA interest rate is usually acceptable, the SBA fees, on top of the lender's fees, are expensive. Think of this as a one-time sale on SBA financing!

So if you're worried about your company's financing or maybe you were recently turned down, it's a good time to take another look at SBA financing.

Frequently Asked Questions:

1. Why SBA? With the current economic recession and increasing bank capital and regulatory pressure, SBA financing has become one of the strongest remaining sources of financing for small businesses. Loans that would otherwise be turned down under traditional lender guidelines may qualify under the frequently more lenient SBA loan guidelines. SBA loan programs also allow longer terms....an important factor in today's uncertain economy.

2. Who offers SBA financing? Many local banks and financial institutions participate in the SBA lending programs.

3. How do I begin? You should begin by determining what your short and medium-term financing needs are. A cash flow projection which can be stress-tested under different scenarios is a good place to start. Once you know what your financing requirements are, it's time to approach the appropriate lender. You need to be ready to prepare a full application package (streamlined SBA loan programs are available in certain limited instances) including a business plan and financial projections (while the SBA lending guidelines may be more lenient, the documentation standards are generally higher than with traditional bank financing).

4. Is there any help? Glad you asked! At Ghirardo CPA we specialize in SBA financing for our clients. If you need help calculating your financing needs, selecting the appropriate lending source, preparing/presenting your application package or negotiating the rates and fees, we have experienced professionals ready to help. Contact our Director of Business Consulting, Paul Breimayer at 415-408-5021 for more information.

2008 Tax Law Change Highlights

Some of the changes taxpayers will see on their 2008 tax returns include: a rise in AMT exemptions, a new standard property tax deduction, a special first-time homebuyer credit and expanded retirement savings incentives. Economic Stimulus Payments Tax Free

Economic stimulus payments are not taxable, and not reported on 2008 tax returns. However, the stimulus payment does affect whether a taxpayer can claim the Recovery Rebate Credit and how much credit he or she can get. The credit is figured like last year’s economic stimulus payment except that the amounts are based on tax year 2008. A taxpayer may qualify for the Recovery Rebate Credit if, for example, she did not get an economic-stimulus payment or had a child in 2008.

AMT Exemption Increased for One Year

For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:

• $69,950 for a married couple filing a joint return and qualifying widows and widowers, up from $66,250 in 2007
• $34,975 for a married person filing separately, up from $33,125 and
• $46,200 for singles and heads of household, up from $44,350

Currently, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2009.

Expiring Tax Breaks Renewed

The following tax breaks that expired at the end of 2007 were renewed for 2008 and 2009. Eligible taxpayers can claim:

• The deduction for state and local sales taxes
• The educator expense deduction
• The tuition and fees deduction
• The District of Columbia first-time homebuyer credit

In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.

The non-business energy property credit for insulation, exterior windows, exterior doors, furnaces, water heaters and other energy-saving improvements to a main home is not available in 2008 but will return in 2009.

Standard Deduction Increased for Most Taxpayers

Almost two thirds of taxpayers choose to take the standard deduction rather than itemizing deductions. The basic standard deduction is:

• $10,900 for married couples filing a joint return and qualifying widows and widowers, a $200 increase over 2007
• $5,450 for singles and married individuals filing separate returns, up $100 and
• $8,000 for heads of household, up $150

New this year, taxpayers can claim an additional standard deduction, based on the state or local real-estate taxes paid in 2008. Taxes paid on foreign or business property do not qualify. The maximum deduction is $500, or $1,000 for joint filers.

Also new for 2008, a taxpayer can increase their standard deduction by the net disaster losses suffered from a federally declared disaster.

First-Time Homebuyer Credit

Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only – on homes bought from April 9, 2008, to June 30, 2009. It is repaid each year as an additional tax. Income limits and other special rules apply.

Contribution Limits Rise for IRAs and Other Retirement Plans

More people can make tax-deductible contributions to a traditional IRA this filing season. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $53,000 and $63,000, compared to $52,000 and $62,000 last year.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $85,000 to $105,000, up from $83,000 to $103,000 last year.

Where an IRA contributor who is not covered by a workplace retirement plan is married to someone who is covered, the deduction is phased out if the couple’s income is between $159,000 and $169,000, up from $156,000 and $166,000 in 2007.

The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work.

For 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans remains unchanged at $15,500. This limit rises to $16,500 in 2009. The catch-up contribution limit for those aged 50 to 70-½ remains at $5,000 in 2008 but rises to $5,500 in 2009.

The AGI phase-out range for taxpayers who contribute to a Roth IRA is $159,000 to $169,000 for joint filers and qualifying widows and widowers, compared to $156,000 to $166,000 in 2007. For singles and heads of household, the comparable phase-out range is $101,000 to $116,000, compared to $99,000 to $114,000 in 2007.

Standard Mileage Rates Adjusted for 2008

The standard mileage rate for business use of a car, van, pick-up or panel truck is 50.5 cents per mile from Jan. 1, 2008, to June 30, 2008, up 2 cents from 2007. The rate is 58.5 cents for each mile driven during the rest of 2008.

From Jan. 1, 2008, to June 30, 2008, the standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents per mile, down a penny from 2007. The rate is 27 cents from July 1 to Dec. 31.

The standard mileage rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

Exemptions Rise

The value of each personal and dependency exemption is $3,500, up $100 from 2007. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent. An individual who qualifies as someone else’s dependent cannot claim a personal exemption, and though personal and dependency exemptions are phased out for higher-income taxpayers, the phase-out rate is slower than in past years.

Taxes Lowered for Many Investors

The five-percent tax rate on qualified dividends and net capital gains is reduced to zero. In general, this reduction applies to investors whose taxable income is below:

• $65,100, if married filing jointly or qualifying widow or widower
• $32,550, if single or married filing separately or
• $43,650, if head of household.

Kiddie Tax Revised

The tax on a child's investment income applies if the child has investment income greater than $1,800 and is:

• Under 18 years old
• 18 years of age and had earned income that was equal to or less than half of his or her total support in 2008, or
• Over 18 and under 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support

Previously, the tax only applied to children under age 18.

Self-Employment Tax Changes

For those who receive Social Security Retirement or disability benefits, any Conservation Reserve Program (CRP) payments are now exempt from the 15.3-percent social security self-employment tax.

More farmers and self-employed people this year can choose the optional methods for figuring and paying the self-employment tax. These optional methods allow those with net losses or small amounts of business income a way to obtain up to four credits of Social Security coverage. The income thresholds for both the farm optional method and the nonfarm optional method are increased for 2008 and indexed for inflation in future years. Choosing an optional method may increase a taxpayer’s self-employment tax but it may also qualify him for the earned income tax credit, additional child tax credit, child and dependent care credit or self-employed health insurance deduction.

Weather Proof Your Business

Now that we have your attention, we would like to talk to you about liquidity and cash flow. In prior recessions, a business owner could pretty well predict how much their business would be impacted. Unfortunately, all bets are off with the current recession which has hit harder and is more far reaching than any other economic downturn in our lifetime. Nobody is quite sure how long and how deep the current recession will be and the next steps necessary to turn things around. If you’re a small business owner, the uncertain economy makes it difficult to predict what 2009 will bring. One thing for certain is that cash is king. You will need to make sure your company has the liquidity to weather this economic storm and, if possible, take advantage of acquisition opportunities at prices unimaginable 12 months ago.

If you have a financial forecast, great. If you don’t have one, even though it may be difficult to build, it is more important than ever. In today’s market, you have to be able to answer the following questions:

1. Based on your key revenue drivers and current pipeline, what is your best estimate of revenues over the next 12-18 months? With that, what is your forecasted net income and cash flow?
2. What happens to net income and cash flow if you stress test your forecast under “best case” and “worse case” scenarios?
3. What is your current break even point and how can that break even point be reduced?
4. What strategies will you implement if revenues or net income fall below the monthly forecast?
5. What are your peak cash flow needs over the next 12-24 months and how does that compare to your current bank financing?

Whatever you do, don’t get caught short of cash in this market. Anticipate what may happen. Prepare today....don’t wait until your options are more limited. Consider hiring outside expertise to help make sure you are ready. Our Director of Business Consulting, Paul Breimayer, specializes in financial modeling, profitability analysis, cash flow improvement and helping small businesses obtain bank financing. He has an extensive background in running businesses in good times and in bad. Please do not hesitate to give him a call at 415-408-5021 if we assist you in any way.

California Tax Update

California Mandates Electronic Payments for Certain Individuals For tax years beginning on or after January 1, 2009, individual taxpayers will be required to make their tax payments electronically if:

• An estimated tax payment is made for more than $20,000,
• A payment with an extension request is made for more than $20,000, or 
• An original return is filed reporting a tax liability of more than $80,000.

Note that these provisions do not apply to 2008 tax return payments made in 2009. If the first estimated tax payment for 2009 is included with an extension payment for the 2008 tax return, then the first payment required to be filed electronically will be the one due June 15, 2009. 

Once a taxpayer becomes subject to the electronic payment requirement, all future payments regardless of amount, type, or year, must be paid electronically. Failure to comply with the electronic payment requirement will trigger a 1% penalty on the amount of the required payment.

Note that these provisions apply only to individual taxpayers. Fiduciaries, estates and trust are not required to make electronic payments.

California Raises Threshold for Required Individual Estimated Tax Payments

For tax years beginning January 1, 2009, the threshold for required estimated tax payments is increased to $500 (from $200) for individual taxpayers filing single or married/RDP filing joint. The threshold is increased to $250 (from $100) for those who are married/RDP filing separate. If an individual taxpayer’s actual tax (after withholding and credits) for the preceding year or estimated tax for the current year is below these thresholds, then estimated tax payments are not required. 

California Removes Safe Harbor for Estimated Payments

 For tax years beginning on or after January 1, 2009, the “safe harbor” rule will no longer apply to individual taxpayers with adjusted gross income equal to or greater than $1 million dollars ($500,000 for married/RDP filing separately). Affected taxpayers will be required to pay an underpayment penalty for any quarterly estimated tax payment that falls short of the required percentage of the total taxable income for the subject tax year. 

Note that for large corporations, those with taxable income of at least $1 million, the “safe harbor” rule had already been eliminated in prior years. For all other taxpayers the “safe harbor” rule continues to apply. This rule exempts the taxpayer from underpayment penalties if the estimated tax payments equal or exceed the prior-year tax liability.

California Accelerates Individual & Corporate Estimated Tax Payments

For tax years beginning on or after January 1, 2009, the required estimated tax payments for individual taxpayers and corporations will be 30% for the first and second quarters and 20% for each of the third and fourth quarters. Previously, estimated tax payments were required in four equal installments (25% each).

Corporations whose estimated tax is not over the minimum tax are still required to pay the entire amount of the tax for the first quarter. 

California Accelerates LLC Fees

For taxable years beginning on or after January 1, 2009, the due date for the LLC fee is the 15th day of the sixth month of the current taxable year. The fee must be paid with the new FTB Form 3536. A 10% penalty will be added to the fee for any underpayment. The underpayment penalty does not apply if the LLC timely pays a fee equal to or greater than the total LLC fee paid for the previous taxable year. The annual minimum tax of $800 continues to be due on the 15th day of the fourth month of the current taxable year and is paid with FTB Form 3522. 

California Changes Net Operating Loss Rules

NOLs are suspended in 2008 and 2009 for businesses with net business income of more than $500,000 for the taxable year. Businesses with net income of $500,000 or less will continue to be able to claim NOL carryovers from prior years. The carryover period for denied NOLs will be extended. For NOLs after January 1, 2008, the carryover period is 20 years. For years beginning on or after January 1, 2011, NOLs will be allowed a 2 year carryback (reducing 2009 and 2010 income) limited to 50% for 2011 and 75% for 2012.