Changes To 2020 Form 1099

Changes to 2020 Form 1099

The IRS has a new Form 1099-NEC to report nonemployee compensation for tax year 2020. The IRS has also revised the Form 1099-MISC and rearranged box numbers for reporting certain income.

If your business has paid $600.00 or more in nonemployee compensation to an unincorporated entity in 2020, you will need to report the payment on Form 1099-NEC. If the payments are for legal services or for medical or health care, they must also be reported to incorporated entities.

If your business has paid $600.00 or more in rent (real property, machinery, or equipment) to an unincorporated entity in 2020, it will need to be reported on Form 1099-MISC. However, you do not have to report these payments on Form 1099-MISC if you paid them to a real estate agent or property manager.

A Form W-9 signed by the vendor should be obtained for each entity that you paid $600.00 or more and will need to report on a Form 1099-NEC or 1099-MISC. If possible, you should obtain a Form W-9 from each vendor that provides a service to your business, at the time of service. A Form W-9 can be downloaded from the IRS website at www.irs.gov.

The due date for filing 2020 Forms 1099-NEC is February 1, 2021. The due date for filing 2020 Forms 1099-MISC is March 1, 2021 for paper-filed returns and March 31, 2021 for electronically filed returns.

We will be glad to assist you with preparation and filing of your 1099s. We can also provide a spreadsheet to help input your information. If you would like for us to prepare your 1099s for you, we will need to receive your information no later than January 18, 2021. Please call us at 251-343-1012 if we can be of assistance.

Breaking Down The SBA Loan For Small Businesses: What You Need To Know

Are you a small business that has heard about Small Business Association (SBA) loan, but doesn’t know where to start? Or if you’re even eligible? With all the misinformation circulating about the SBA loan, we have broken down the facts so small businesses can be best prepared during this time, including who is eligible, how to calculate the amount you might receive, how the loan can be used, terms of the loan, the loan forgiveness program, and application.

SBA loans will be expanded according to recent legislation allocating $349 billion to this program. The eligibility requirements are being relaxed to extend credit to small businesses to help maintain payroll and pay bills (ex. rent, mortgage interest, other interest, utilities) during the ‘covered period.’ Regulations (expected to be final by the first of April) are expected to allow almost any FDIC insured entity to process loans and disburse funds on the same day.

ELIGIBILITY OVERVIEW

When is the ‘covered period’? The ‘covered period’ includes loans made between February 15, 2020 and June 30, 2020. Loans issued during this time are ‘covered loans.’

How do I know if I’m an eligible recipient of a covered loan? Small businesses (fewer than 500 employees or under the SBA NAICS industry guideline, whichever is greater) that have been in operations since February 15, 2020 are eligible for the loan. You must have employees that are paid salaries and payroll taxes and/or pay independent contractors (1099-MISC). Note, if you are a sole proprietor or independent contractor, you are also eligible to receive a ‘covered loan’ providing certain documentation. 

CALCULATION OF LOAN AMOUNT

What is the maximum loan I can apply for? The maximum amount you can apply for is the lesser amount of the following options:

  • Either $10 million, OR a sum of:
    1. Your average total monthly payments for payroll costs incurred for the year prior to the date on which the loan is made (12-week period if you are a seasonal employer), multiplied by 2.5
    2. Outstanding amount of existing SBA loans between January 1, 2020 and ending when your new ‘covered loan’ is made available. This will be refinanced under the ‘covered loan.’

(Avg. monthly payroll cost X 2.5) + (Outstanding SBA loans after January 1, 2020)

What do payroll costs include? The sum of payments for any employee compensation; examples include:

  • Salary, wage, commission
  • Payment of cash tips or equivalent
  • Payment of vacation, parental, family, medical, or sick leave
  • Allowance for dismissal or separation
  • Payment required for group health benefits (insurance premiums)
  • Retirement benefits
  • State or local tax assessed on compensation

If I’m a sole proprietor or independent contractor, how can I calculate payroll costs? In this situation, payments of compensation cannot exceed $100,000 in one year, and are pro-rated for the ‘covered period.’

What do payroll costs NOT include? The following items are not considered payroll costs:

  • Compensation in excess of a $100,00 annual salary, pro-rated for the ‘covered period.’
  • Taxes imposed on IRC chapters 21, 22, or 24 during the ‘covered period’
  • ANY compensation of non-U.S. resident employees
  • Qualified sick leave for which a credit is allowed under section 7001, or qualified family leave wages for which a credit is allowed under section 7003 of Families First Coronavirus Response Act

USE OF LOAN PROCEEDS 

What can I use the loan for? The SBA loan can be used to cover the following:

  • Payroll cost
  • Employee salaries, commissions, or similar compensations
  • Costs related to continuation of health care benefits during periods of sick, medical or family leave, as well as insurance premiums
  • Payments of interest on any mortgage obligations (not including prepayment of or payment of principle on a mortgage obligation)
  • Rent and utilities
  • Interest on any other debt obligations that were incurred before the ‘covered period’

TERMS OF LOAN AND THE PROCESS OF SECURING THE LOAN 

Who has the authority to delegate a loan? Approved SBA lenders are able to make and approve ‘covered loans.’

What are the borrower requirements? The borrower requirements include a “good faith certification” stating that uncertain economic conditions make the loan necessary to support ongoing operations. These funds will be used to retain workers and maintain payroll, rent payments, mortgage interest payments, and utility payments. It also is in good faith that the applicant DOES NOT have an application pending for a loan under a 7a loan for the same purpose and duplicative amounts, and no other amounts have been received under section 7a loans between February 15, 2020 and December 31, 2020.

Will I be able to obtain credit elsewhere? The requirement that small businesses are unable to obtain credit elsewhere DOES NOT APPLY to ‘covered loans’ during the ‘covered period.’

What about 7(b)(2) loans? 7(b)(2) loans made after January 31, 2020 can be refinanced as part of the ‘covered loan.’

Will there be nonrecourse? Or collateral needed for this loan? SBA has no recourse (or will demand compensation or payment) against individuals, shareholders, members, or partners of an eligible recipient unless the ‘covered loan’ proceeds are used for unauthorized purposes (see above). There are no personal guarantee requirements and no collateral requirements for ‘covered loans.’

What about the interest rate? Interests rates for the SBA loan are not to exceed 4%.

Is there a deferred payment arrangement? Lenders must provide complete payment deferral for a period of not less than six months, including payment of principle, interest, and fees. Deferrals are not to exceed one year.

LOAN FORGIVENESS PROGRAM

Is there a forgiveness amount? Any possible forgiveness amount may not exceed the loan amount, and is calculated as the following amount of costs and payments made during the eight-week period beginning on the date of origination of the ‘covered loan’ (‘covered period’):

  • Payroll costs
  • Payments on interest of any mortgage incurred prior to February 15, 2020
  • Rent obligations on leases in force between February 15, 2020
  • Utility payments for which service began before February 15, 2020 – electricity, gas, water, transportation, telephone, or internet access

What is the forgiveness amount limited by? The forgiveness amount is limited by the following:

  • Multiplying possible forgiveness amount (as calculated above) by dividing average full-time equivalent (FTE) during ‘covered period’ by either of the following:
    • Average FTEs between February 15, 2020 and June 30, 2019
    • Average FTEs between January 1, 2020 and February 20, 2020
    • Note, average FTEs are calculated as the average number FTEs for each pay period
  • Amount of any reduction in total salary or wages of ANY employee during the ‘covered period’ that is in excess of 25% of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the ‘covered period’
    • Note, this does NOT include any employee receiving compensation in excess of $100K

LOAN FORGIVENESS APPLICATION

What should my application include? The application should include documentation verifying the number of FTEs and pay rates during the ‘covered period’ including:

  • Payroll tax filings reported to IRS
  • State income, payroll, and unemployment insurance filings
  • Documentation of expenses such as rent and utilities

The application should also include certification stating:

  • Documentation is true and correct
  • Amount for which forgiveness is requested was used for authorized purposes
  • Any other documentation SBA determines necessary

Crow Shields Bailey is proudly serving as a resource for small businesses to protect for their future during this time. If you have further questions about how the SBA loan can benefit your business, feel free to contact our office 251.343.1012, or visit our Coronavirus Resource Center to stay up-to-date on changes made daily.

Crow Shields Bailey PC – SBA Loan & Loan Forgiveness Information

Our team has been researching around the clock to keep you up to date on the latest details regarding the COVID-19 crisis. What we currently know is that the CARES Act that includes the Paycheck Protection Program (SBA Loans) has been signed by the President, but the banks are still waiting guidance from the SBA. We have spoken with numerous bankers, and although they do not know the specifics of what will be required for the loan application, they have suggested to us that you start gathering the following information. It is imperative that you have this to us as soon as possible. $350 billion has been set aside for this program, but those funds will move quickly because everyone in the country will be applying. As far as we know, loans will be processed on a first come, first serve basis. There may be additional items they will require or the items below may change, but as of today, this is what they think will be required. Please call us at 251-343-1012 with any questions you have so we can have you at the front of the line with your bank.

  • Personal and Business Financial
  • Business Financial Info
  • Business Ownership (Articles of Inc., Operating Agreement, etc.)
  • Business Overview/History
  • Copies of Business Leases
  • Description of how COVID-19 has impacted your business
    • Outline income shortfalls
    • Have you experienced any supply chain or other business interruptions?
    • Have you experienced a delay in receipt of accounts receivable?
    • What steps have you taken to anticipate or mitigate risk related to the Coronavirus (i.e. contingency plan, travel ban, work from home, quarantine, business closure etc.)?
    • Employees retained during impacted period
    • Utility Costs
    • All scheduled debt and lease payments made during impact.
    • Number of employees, payroll cost and frequency
  • Monthly payroll costs for the past twelve months
    • Payroll costs include the sum of the following:
      • Salaries, wages, or commissions
      • Payment of cash tip or equivalent
      • Payment for vacation, parental, family, medical, or sick leave
      • Allowance for dismissal or separation
      • Payment required for the provisions of group health insurance premiums
      • Payment of any retirement benefit
      • Payment of State or local tax assessed on the compensation of employees

A summary of the loan program is below. Let us know how we can best serve you.

Maximum Loan Amount During the covered period, with respect to a covered loan, the maximum loan amount shall be the lesser of  the average monthly payroll costs incurred during the 1-year period before the date on which the loan is made  times 2.5 or $10,000,000, whichever is less.

Loan Maturity Maximum of 10 years from the date on which the borrower applies for loan forgiveness under that section. Covered Loans will be required to be deferred for 6 months to a maximum 12 months

Fees: All SBA Guaranty Fees normally applicable to the 7a loan will be waived

Certification As a condition of receiving a loan under this section, a borrower shall certify under terms acceptable to the Secretary that the borrower— (1) does not have an application pending for a loan under section 7(a) of the Small Business Act (15 U.S.C. 636(a)) for the same purpose; and (2) has not received such a loan during the period beginning on February 15, 2020 and ending on December 31, 2020.

Loan Forgiveness Borrowers are eligible for loan forgiveness equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on the following items: payroll costs; interest payment on any mortgage note incurred prior to February 15, 2020; payment of rent on any lease in force prior to February 15, 2020; and payment on any utility for which service began before February 15, 2020.

  • Amounts forgiven may not exceed the principal amount of the loan. Eligible payroll costs do not include compensation to any employee above $100,000 in wages.
  • Amounts forgiven will be reduced proportionally by any reduction in employees retained during the eight-week period after the date of the loan as compared to either (i) the period from February 15, 2019 to June 30, 2019 or (ii) the period from January 1, 2020 to February 29, 2020. The borrower can elect the period of time used for the analysis.
  • Amounts forgiven will also be reduced by the reduction in pay of any employee beyond twenty-five percent (25%) of their compensation for the most recent full quarter during which the employee was employed.
  • Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
  • The remaining loan balance of any portion of a loan that is not forgiven will have a maturity of not more than ten (10) years

Crow Shields Bailey PC – The Families First Coronavirus Response Act

In response to the COVID-19 pandemic, Congress passed, and the President signed into law on March 18, 2020, the Families First Coronavirus Response Act.  The Act contains two sections that significantly alter the FMLA: the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act (“FMLA Expansion”).

For full-time employees with more than 30 days of work history, the two sections work in conjunction to mandate 12 weeks of partially paid leave due to a school or child care facility closure.  As a stand-alone section, the Paid Sick Leave Provisions mandate 10 days of paid sick leave for all employees, regardless of work history.

To offset the cost of the Act, covered employers will receive dollar for dollar tax credits against quarterly payroll taxes, subject to the requirements of forthcoming Treasury Department regulations.

For small businesses, the Act is expected to provide some flexibility with respect to workers who return to work following a COVID-19 related illness or event, including whether or not they are allowed to return to work at all.  In some cases, small businesses may be exempted from the paid leave provisions of the Act entirely.

Covered employers must be prepared to implement the provisions of the Act on or before April 2, 2020. Covered employers are businesses with up to 500 employees.  The provisions of the Act are temporary and will automatically sunset on December 31, 2020.

Emergency Paid Sick Leave Act

Under the Emergency Paid Sick Leave Act, employers with fewer than 500 employees and government employers are required to provide all employees with paid sick leave for the following Covid-19 related reasons:

  1. The employee is subject to a federal, state, or local quarantine or isolation order;
  2. A health care provider has advised the employee to self-quarantine;
  3. The employee has symptoms of COVID-19 and is seeking diagnosis;
  4. The employee is caring for an individual subject to a federal, state, or local quarantine or isolation order related to COVID-19 or who has been advised to self-quarantine by a health care provider;
  5. The employee is caring for a child whose school or place of care has been closed, or whose child care provider is unavailable due to COVID-19 precautions; or
  6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

For qualifying circumstances, employers are required to provide 10 days or 80 hours of paid sick leave at the employee’s regular rate, but not more than $511 per day or $5,110 in aggregate.  Those qualifying circumstances are:

  1. The employee is subject to federal, state, or local quarantine or isolation order.
  2. A health care provider has advised the employee to self-quarantine.
  3. The employee has symptoms of COVID-19 and is seeking diagnosis.

For other qualifying circumstances, the employer is required to pay 2/3rds of the employee’s regular pay, subject to a maximum of $200 per day and $2,000 in aggregate for the first 10 days of leave. Those qualifying circumstances are:

  1. The employee is caring for an individual subject to a federal, state, or local quarantine or isolation order related to COVID-19 or who has been advised to by a health care provider to self-quarantine.
  2. The employee is caring for a child if the child’s school or place of care has been closed, or the child care provider is unavailable due to COVID-19 precautions.
  3. The employee is experiencing any other substantially similar condition specified by the Secretary.

FMLA Expansion

The FMLA Expansion requires employers having less than 500 employees to provide 12 weeks of job protected FMLA leave to eligible employees who are unable to work because their child’s school or place of care has been closed, or the child care provider is unavailable due to the COVID-19 health emergency

The first 10 days of this leave is typically unpaid; however, some employees may qualify for pay during the first 10 days of leave under the Emergency Paid Sick Leave Act.  During these first ten days, employees may use their accrued sick leave or PTO, but employers may not require that they do so.  After the first 10 days, employers are required to pay qualifying employees 2/3 of their regular compensation, but no more than $200 per day or $10,000 total, for ten weeks if there is a public health emergency related school or child care closure.

Under the FMLA Expansion, the usual FMLA requirement that an employee must have been employed for at least 12 months and have worked 1,250 hours to be eligible for leave do not apply.  Any employee is covered if the employees has been employed for at least 30 calendar days.

Job Protected Leave

Prior to the amendment, the FMLA required that an employee returning from leave be restored to the employee’s original job or to an equivalent job with equivalent pay, benefits, and other terms and conditions of employment. The Act leaves in place most of the key job protection provisions of the FMLA without any change.  However, there is one significant change affecting small businesses.  Under the FMLA Expansion, the job restoration requirements will not apply to employees who take COVID-19 related leave if they are employed by an employer with fewer than 25 employees and these conditions are met:

  1. The employee’s job no longer exists on account of economic conditions related to the outbreak of the coronavirus;
  2. The employer makes reasonable efforts to restore the employee to an equivalent position; and
  3. The employer makes reasonable efforts to contact the former employee for up to one year if a position becomes available.

Exemptions for Certain Businesses

The Secretary of Labor may choose to exempt small businesses with fewer than 50 employees if the sick leave mandate “would jeopardize the viability of the business as a going concern.”  The Secretary is expected to issue guidance and regulation with respect to this provision.  The Secretary is also expected to issue regulations that exclude certain health care providers and emergency providers from coverage if their employer chooses to opt out of the paid sick leave mandate.

Noticing Issues

By Employer: Employers falling under the provisions of the Act must post conspicuous notices of the Act in the workplace once the Secretary of Labor provides the form of the notice.

By Employee:  Under the Act, if the leave is COVID-19 related, an employee does not have to give the employer notice prior to beginning leave.  After the first workday of COVID-19 related paid sick leave, the employer can require the employee to follow reasonable notice procedures for the use of additional paid sick leave.  The employer cannot require the employee to look for a replacement worker.

Tax Credits

The Act includes a dollar-for-dollar tax credit in an amount equal to the sick and FMLA leave required to be paid under the Act, subject to the following caps:

  1. $200 per day per employee up to $10,000 for all calendar quarters for paid family leave; and
  2. $511 per day per employee up to $5,110 for all calendar quarters for paid sick leave.

The credit is applied against the employer share of FICA taxes.

In addition to the tax credit, amounts paid for sick and FMLA leave under the Act are not included in wages for purposes of the employer share of Social Security tax. Although the benefits are not excluded from wages for purposes of the employer share of Medicare taxes, the credit calculation will offset the employer share of Medicare tax due on the leave payments.

Leave payments are subject to the withholding of both federal income tax wages (and state income tax in most states) and all employee FICA taxes.

Alexandra K. Garrett is an attorney at Silver Voit & Thompson, Attorneys at Law, P.C. She was raised in Fairhope, Alabama where she currently lives with her husband and sons. She obtained her B.A. in Communications from Spring Hill College in 2004 and her JD from University of Alabama School of Law in 2007.  Alex’s practice focuses on business advising, employment law, business bankruptcy, and wealth and estate planning.  She may be reached at (251) 338-1081 or [email protected].

Matthew Butler is an attorney at Silver Voit & Thompson, Attorneys at Law, P.C.  He was born and raised in Mobile, AL.  He received a B.S. in Economics from the Wharton School of the University of Pennsylvania in 2003 and subsequently worked for Deutsche Bank Securities as an associate.  Matt obtained his JD from the University of Alabama School of Law in 2011.  His practice focuses on business advising, business bankruptcy, and wealth and estate planning.  Matt is married to Dr. Kristen M. Butler, an area surgeon, and they are the proud parents of four children. He may be reached at (251) 338-1084 or [email protected]

Crow Shields Bailey PC COVID-19 Update #1

As we navigate through these unprecedented times, we must work together to ensure the safety of our clients, team members, and families. To comply with the CDC and WHO’s recommendations of social distancing to help slow the spread of COVID-19, we recommend that our clients send in all necessary tax documentation electronically. If you have this capability, please e-mail to your tax preparer for a link to upload your information securely. You can find your tax preparer’s e-mail address on the Meet Our Teams section of our website. If you do not know who your tax preparer is, you can send an e-mail to Emilee Shuler at [email protected] requesting a link for secure upload.

If you do not have the capability to send information electronically, we have drop boxes located in each office and protocols set up to ensure everyone’s safety. You can also send via mail. Additionally, we are holding meetings by phone for now. We are all working either in the office or remotely and available by phone and email for any questions you may have.

If you have any questions or concerns, please do not hesitate to contact us at 251-343-1012. We hope that you and your families stay healthy and safe.

Crow Shields Bailey PC COVID-19 Response

As we all find ourselves in uncharted territory, we want to share with you how CSB is responding to Coronavirus (COVID-19).

CSB is concerned with the health of our clients, team members, vendors and the communities we serve.

We have a plan in place to ensure continuity of services to our clients.  Our team has the ability to work remotely and can access client information in a safe and secure manner. Whether we are working in our offices or remotely, the lines of communication will remain open.

What you should know:

  • CSB will have drop off boxes in the lobbies of each of our three locations to limit hand-to-hand contact.
  • We will also need to do more phone meetings rather than meeting face-to-face.
  • We will rely on the use of our secure file transfer services such as SafeSend (to electronically receive and sign tax returns) or Sharefile (to send and receive documents which do not require signatures).

Our plan is to have personnel in each of our offices. However, we will follow local regulations and guidance regarding whether an office should be closed.

We value our relationship with you and will continue to provide updates as needed as we navigate these unprecedented times.

Please feel free to reach out with any questions or concerns. We hope you and your loved ones are safe and healthy.

 

Gina McKellar

Managing Shareholder

Six Cliches That Are Still Relevant For Today’s Business Students

September 26, 2019

Abby Roveda, CPA | Senior Accountant | Published by Crow Shields Bailey

Has the statement clichés are clichés for a reason reached cliché status yet? Did that question hurt your brain just a little bit?

At some point in your life, clichés become perceived as the professional equivalent of dad jokes—they’re cheesy and you can hardly ever say them with a straight face. There is still more than an ounce of wisdom to them. In my time in public accounting and working the recruiting circuit, I’ve found that these clichés are still relevant for today’s students.

The Early Bird Catches the Worm

This is NOT about showing up early for interviews and work. This IS about starting to plan for your career now and setting yourself up for the best shot at success. If you don’t know what you want to do yet, you’re not alone. That doesn’t mean that there’s nothing you can do now to prepare for the unknown. Take every opportunity you have to go and hear speakers, attend career fairs, and shadow in different industries until something piques your interest.

If you do know what you want to do, why would you wait for an invitation to start pursuing it? Maybe you’re not at a point academically where it makes sense to do an internship; however, there is no bad time during your college career to attend socials with potential employers, take advantage of job shadowing opportunities, get your resume out there, attend leadership events to add to your resume, or participate in on-campus recruiting. The more a potential employer gets to know you, the less of a hiring risk you become for them.

Fail to prepare, prepare to fail

I do some work on the board of a not-for-profit, and this is the director’s favorite phrase when we have an upcoming event. We spend a lot of time planning for potential mishaps, such as inclement weather or IT problems, and preparing backup plans should any of them actually occur on the day of the event.

How does this apply to students looking for jobs? Have you ever been interviewing for a job and the interviewer asks if you have any questions for them and you replied, “No, I don’t think so?” For many employers, that indicates to them a certain level of disinterest in their company, and even in your own career. Having questions ready for your potential employer is one of the most important steps you can take to prepare for an interview – besides popping a breath mint if you had extra garlic and onions on your pizza at lunch. When you are competing with multiple students for the same job or internship slot, who do you think will have the edge when all other things are considered equal – the one with zero questions for the interviewer or the one with a couple of well-prepared questions?

What doesn’t kill you makes you stronger

Did you just imagine Kelly Clarkson belting that line? Who knew that Kelly was actually singing to business students when she recorded that power ballad?

Being a professional requires you to get out of your comfort zone. There are many aspects of the recruiting process that are just plain unenjoyable. For instance, getting dressed in an uncomfortable suit in the sweltering heat of Alabama, making sweaty handshakes with strangers, repeating the same small talk over and over again…I feel you. I hated career fairs when I was in college. There was not a single aspect of them that I found enjoyable, except that during the height of recruiting season I could usually count on being provided free dinner for 3 of the 5 nights of the week, which was a big help with the old budget. However, by forcing myself to continue to attend these functions, I found that I had actually grown comfortable talking to potential employers. I had become more confident in a room full of strangers and I had actually semi-mastered small talk that didn’t solely revolve around the weather.

Dress for the job you want, not the job you have

Speaking of getting dressed in uncomfortable suits…

Lots of employers have more relaxed dress policies in this day and age. Gone are the days (at most places) of dressing in full suit and tie every day for the office. However, until you know what that dress policy is and until you are actually employed there, you should err on the side of being overdressed. Except for a few exceptions—like showing up for your shift at Habitat for Humanity in a three-piece suit—you will never regret being overdressed in a professional setting. And, even more importantly, your potential employer is not going to note you being overdressed as much as they will if you are underdressed.

You are what you do, not what you say you do

This is really important for when you start working at your first job. However, there is another important spin on this for business students applying for jobs.

My husband has been giving advice to fourth year medical students applying for residency this fall since he just finished the process last year. One of the things we have talked about is the temptation to stack your resume with things that you think make you look good, but don’t necessarily reflect how you actually spend your time or what you value. His advice to fourth year students was, “If you can’t talk about it for 5 minutes, it should not be on your resume.”

What does that mean? You should prepare a 5-minute speech based on everything on your resume? No. If you list a community service activity and it was something you did just to fulfill service hour requirements and not something you actually believed in, do you think you could talk intelligently and passionately about it for 5 minutes if asked about it in an interview? Unless you’re minoring in drama, you probably can’t, and that will lead the employer to question the authenticity of other things listed on your resume as well.

When the going gets tough, the tough get going

If you haven’t experienced a setback at this point in your life, then you probably aren’t challenging yourself. Do you know why employers ask you in interviews to tell them about a time that you failed? Not because they are trying to expose you, but because if you failed, learned something from the experience, and bounced back from it, then you can guarantee that will stand out to them and give you an advantage.

Being a professional in any kind of industry is challenging and you will make mistakes and fail at things multiple times throughout your career. We are counting on it. Not because we like watching you squirm, but because it is absolutely the best way to learn. And if you can’t learn from failure, then there is a limit to what we can teach you.

If you have any questions about career development, recruiting, or any other topic, please feel free to reach out to us. We are always here to help!

 

Accounting Students – Should You Choose Tax or Audit?

June 19, 2019

Caitlyn Grimme, CPA | Supervisor | Published by Crow Shields Bailey PC

One of the biggest decisions an accountant will face is the choice to specialize in tax or audit.  While this decision may come easily to some, for others it can be the most difficult choice of their career.

Tax vs. Audit – What’s the Difference?

While both are accounting professions, the tax and audit paths can vary greatly.   In the tax division, your day will focus on trying to reduce the client’s tax liability.  Meanwhile, the purpose of an audit is to express an opinion as to whether the financial statements of a company are free from material misstatement. As such, auditors devise testing measures and scopes to evaluate the information provided by the client in order to express an opinion.  Additionally, auditors may also work on other forms of attestation engagements such as reviews and compilations, which provide limited to no assurance regarding the financial statements.

Both tax and audit are rules and research based. Tax professionals must comply with rules set by the Internal Revenue Service and The U.S. Securities and Exchange Commission. Auditors must also follow generally accepted accounting principles (GAAP), generally accepted auditing standards (GAAS), additional SEC and PCAOB guidelines if required, as well as certain industry-specific guidance.  However, while auditors rely on research and rules, they also rely heavily on auditor judgment.

Audit professionals must have strong interpersonal communication skills, as you are onsite communicating with clients on a daily basis.  Tax professionals typically work in the firm office and might not communicate directly with a client for several months.

Both career paths are now heavily dependent on computer and software applications, so regardless of your choice, proficiency in technology is important.

There is conflicting information from online sources regarding differences in pay for auditors vs. tax professionals.  Some sites state that lower level audit staff jobs are more plentiful than tax staff positions starting out and might offer higher initial pay.  However, other sites argue that tax professionals have higher initial earning power. At the end of day, I would recommend choosing the path that you are more passionate about, as the earning potential doesn’t appear drastically different for either course (note this may vary by firm, industry specialization, etc.).

Are There Pros and Cons to Each Path?

Although not every firm is the same, here are a few standard pros and cons:

Audit:

Pros:

  • Travel – audit professionals typically spend less time in the firm office than tax professionals. Whether the travel is local, regional, or national can depend on the specific accounting firm.  For instance, audit professionals at large regional or national firms might spend a significant amount of time traveling while professionals at local firms might travel primarily to clients in their area.  Independent of firm size, boutique firms specializing in a specific industry might travel more than others.  If you like a varied day/routine with occasional to frequent travel, audit might be a good fit for you.
  • Steady work flow – while the tax profession is driven by statutory deadlines, audit work is more consistent and constant throughout the year. There are still deadlines in the audit world, but these deadlines (which are usually set by governing bodies such as a board of directors or third parties such as bankers or bonding agencies) are usually spread more evenly throughout the year.
  • Teamwork – audit engagements typically consist of an “audit team” with a partner, manager/in-charge, and staff member, at the least. This environment yields itself to mentorship and in-the-field hands-on learning for those new to the profession.
  • Client interaction – with audit, a large portion of the engagement is performed “in the field” (i.e. at the client’s office). As a result, staff will be interacting with client personnel ranging from accounting clerks to the CEO on a daily basis.

Cons:

  • Travel – while travel might appeal to some, it might be a significant deterrent to others. It is important when interviewing for an audit internship or staff position to question the firm’s expectation regarding amount of time spent traveling, as it can range by firm size or specialization as noted above.
  • Professional skepticism – attestation engagements require independence from the client. This can be a problem for professionals who get too involved in order to “help” the client, as it can lead the auditor to making management decisions for the client and impairing independence and objectivity.

Tax:

Pros:

  • Deadline-driven – while the time surrounding tax deadlines can typically be very busy for CPAs in the tax department, there is usually a lull between these storms that provides plenty of time for vacation, continuing education, professional development, etc.
  • Independent work – while the audit department works on a team, tax professionals have more opportunity for independent work. While there is always someone available for questions if needed, if you prefer to work on projects on your own, then tax might be a better fit.
  • Fast turn-around – while audits may drag out for weeks or months, tax returns are usually much smaller individual engagements which lead to quicker turnaround. If you are someone who likes to quickly cross projects off your list, this might be the path for you.
  • Exposure – although you are not in the field with the client on a daily basis as in auditing, tax professionals receive more exposure to different clients throughout the year. For example, an auditor might work directly with 10-15 clients a year, while a tax professional might deal with 100.

Cons:

  • Deadlines – while the lull provided after a deadline is nice, the weeks and months leading up to a deadline require overtime work by tax professionals, which dissuades many from joining the profession.
  • Client exposure – since tax professionals work primarily in the office, they do not interact face-to-face with clients daily. This could be preferred if you tend to be more introverted, but extroverts might find this arrangement challenging.

I’m Still Undecided – What Can I Do?

If you are still unsure which path is a better fit, try out some of the following:

Apply for an internship – internships are a fantastic way to learn the basics of both disciplines.  Most large firms will offer internship experience on a tax or audit basis which allows full immersion in either path.  Smaller local firms may offer internship opportunities with exposure to both tax and audit in the same internship round (typically a “busy season” internship from January through April 15th).

Online forums – in the age of technology we live in, information is at the tips of our fingers, literally.  There are several sites with forum posts or resources surrounding this subject.  Check out the CPA exam forum on www.another71.com or the AICPA career guidance section, just to name a few.

Ultimately, the career you choose must be the best fit for you.  What are pros for one person might be cons for another (ex. frequency of travel engagements).  However, as long as you know yourself and what is most important to you, you will make the right decision.  Feel free to contact us to set up a job shadowing appointment if you would like to get a glimpse at a normal day for tax and audit professionals.

 

Crow Shields Bailey and the RSM US Alliance

February 11, 2019

Gina McKellar, CPA, CVA | Managing Shareholder | Published by Crow Shields Bailey

Our firm is proud to be a member firm in the RSM US Alliance, which is a premier affiliation of independent accounting and consulting firms in the US, with more than 75 members throughout the country.  RSM US LLP, the fifth largest accounting and consulting firm in the United States, backs the Alliance.  CSB has been a member since November of 2015 and our membership has enhanced our firm in many ways. The RSM US Alliance has afforded CSB numerous resources while allowing us to remain an independent hometown firm with a culture that only the beautiful Gulf Coast can provide to our clients and our team.

Technical Resources

Technical resources at our fingertips allow us to solve complex issues for our clients and access to research in any area with the expertise of a national firm behind us. From tax reform to revenue recognition to research and development tax credits and beyond, we have access to a wide variety of resources.

Training Opportunities

Our team members now receive training from a national firm and participate in leadership programs that prepare them as future leaders of CSB.  From specific training by level and area of expertise to leadership programs by level to leadership conferences for management, RSM training programs cover a broad spectrum.

Networking

Networking with member firms provides our management team with cutting-edge opportunities for both our clients and our team. From learning about new tax opportunities for clients to sharing best practices with our firms throughout the country, we have built great relationships with our peers.

 

CSB’s Guide to Understanding Classification and Accounting for Leases Under ASU 2016-02

July 26, 2018

Kirsten Sokom, CPA | Supervisor | Published by Crow Shields Bailey

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02 on Topic 842 for leases, introducing a principles-based approach in classification and accounting for lease agreements.

 

The changes under the new standard will require most leases to recognize a lease liability and a related right-of-use asset on the balance sheet, regardless of whether or not it is considered an operating or capital lease. ASU 2016-02 becomes effective for public companies’ fiscal years beginning after December 15, 2018. For all other organizations, the standard is effective for fiscal years beginning the following year, December 15, 2019; however, early adoption is permitted. This article summarizes classification and measurement of leases under the new standard.

 

Lease Classification

ASC 842 revised the lease classification criteria as outlined in ASC 840, and those new standards are as follows:

  • Does the lease transfer ownership to the lessee by the end of the lease term?
  • Does the lease contain a purchase option that the lessee is reasonably certain to exercise?
  • Is the lease term a major part of the remaining economic life of the asset?
  • Is the sum of the present value of the lease payments and any residual value guaranteed by the lessee equal to or greater than substantially all of the fair market value of the assets?
  • Is the underlying asset of a specific nature such that it would have no alternative use to the lessor?

If any of the above lease criteria are met, the lease is classified as a finance lease (formerly known as a capital lease). If none are met, the lease is classified as an operating lease. The classification of lease agreements under ASC 842 is similar to current guidance under ASC 840. One change to note is that the 75 percent and 90 percent bright-line tests are no longer included in lease classification criteria; however, ASC 842 indicates that these bright-line tests are acceptable criteria in determining the definition of “major part” or “substantially all.”

 

Operating Leases and the Short-Term Lease Election

Under current guidance (ASC 840), operating leases are not recorded on the balance sheet. This will change under ASC 842. Operating leases will generally be required to be recorded on the balance sheet unless certain exceptions are met, which will result in the addition of a right-of-use asset and the related liability for each operating lease asset.

One of these exceptions is the short-term lease election. Operating leases qualifying for this treatment are not required to be capitalized. Accounting under the short-term lease election would result in similar treatment for an operating lease under the current standard. However, to choose the short-term lease election, the initial lease term and all renewal options reasonably certain to be exercised must not exceed 12 months.

 

Initial Measurement

Initial measurement for operating and finance leases under ASC 842 are the same. The lease liability is calculated based on the present value of unpaid lease payments. This amount will also serve as the right-of-use asset’s cost basis, assuming there are no initial direct costs, prepaid lease payment, or lease incentives received to be taken into account.

 

Subsequent Measurement

While initial measurement is treated the same under ASC 842, subsequent measurement varies for operating and finance leases. For finance leases, the lease liability is reduced using the effective interest method. The interest portion is shown as interest expense on the income statement. The right-of-use asset will be reduced on the straight-line basis over the shorter of the expected lease term or the useful life of the asset. Amortization expense will also be presented on the income statement. If there are variable lease payments also associated with the finance lease, the payments will be classified as rent expenses.

With regard to operating leases, the lease liability is subsequently measured based on the present value of the unpaid lease payments using the effective rate of interest upon lease commencement. The right-to-use asset will be measured at the carrying amount of the operating lease liability while also considering any reduced initial direct costs, prepaid or accrued lease payments, and lease incentives received. On the income statement, both the amortization expense of the right-to-use asset and the recognized interest expense will be shown together as rent expense.

ASC 842 also requires reassessment and remeasurement of the lease if there have been significant changes to the lease term or other aspects of the lease. If you have questions about whether your lease needs to be reassessed, our CSB team is prepared to assist your specific situation.

Consensus surrounding the new standard suggests that finance leases will be more desirable due to the required calculations and disclosure requirements for operating leases. While the ASU 2016-02 language indicates that each lease agreement must be evaluated individually, the FASB has released transition guidance including several practical expedients that may be utilized upon implementing ASC 842.

 

If you have questions regarding how your current lease agreements will be categorized or measured under ASU 2016-02, give us a call. We are happy to provide guidance regarding changes in reporting requirements and your company’s financial performance under the new standard.