EP 170: Insights into ESOP
In this episode, I was joined by Nathan Perkins of CSG Partners who focuses on ESOP. This is the latest in our partnership with Material Handling Wholesaler for the May 2021 issue. Nathan wrote the cover story entitled “Dealers at a Crossroads – Choosing the Right M&A Transaction” and we discuss how material handling dealers did throughout the pandemic and how they are now dealing with coming out of the pandemic. He also explains what an ESOP is and why this could be a good choice for a company. Key Takeaways Nathan and CSG Partners focus specifically on ESOP transactions and also work with a lot of material handling companies to help navigate this type of deal. ESOP stands for Employee Stock Ownership Plan which means that the employees take ownership in the company through the owner issuing stock. The owner can sell all or partial amounts of the stock and it is a way for them to get liquidity out of the company but still preserve the company as they know it. With the pandemic occurring over the last year, Nathan discusses how material handling dealers have done throughout the pandemic and they have fair pretty well according to him. Additionally, some have seen increases in business due to the increase in work throughout the warehousing and logistics space. Now as we come out of the pandemic these dealers are holding strong as well which is good news for the industry. We also discuss the driving factor behind the interest in mergers and acquisitions lately. Initially, my thought was due to the pandemic but Nathan explains that there is high interest right now so owners are trying to take advantage of that while there is a window of opportunity. Additionally, we discuss how many owners are getting to the age of retirement and also how there is a need for younger individuals to become interested in the space. With the supply chain coming to the forefront during the pandemic hopefully, we can get more interest from younger professionals in the supply chain space. Listen to the episode below and leave a comment if you have experience with an ESOP. The New Warehouse Podcast EP 170: Insights into ESOP
Transitory Planning
We have been hearing the word “TRANSITORY” coming out of DC a lot lately. Transitory this and Transitory that to the point where I had to look it up to make sure what DC was inferring or talking about. TRANSITORY– Not permanent. Brief duration. Temporary. Not persistent. Interesting since DC uses the word TRANSITORY when discussing inflation, the value of the dollar, interest rates, unemployment numbers, and so on in response to Fed numbers which seem to indicate inflation, the value of the dollar, material costs, fuel costs, and interest rates are starting to head in the wrong direction. From what I have been reading that seems to be the case and after adding in Stimulus dollars and the Infrastructure dollars it kind of makes sense that we will have a lot of dollars trying to buy goods or invest in the market. Costs and interest rate increases seem to be real with the value of the dollar becoming more volatile than anticipated. You feel it every day. Gasoline prices, material costs to build and service your product lines, a slowdown in purchase delivery’s, a lack of chips, wage increases, projected tax increases including a “driving” tax (to pay for infrastructure bill) all have been increasing and show no signs of backing off even though DC says they are transitory and scheduled to reverse shortly. So, industry leaders have two choices to consider. Believe these “transitory” increases will soon return to normal with zero interest rates, 2% inflation, and reductions in your current costs of doing business. Or believe these cost and tax increases are here to stay to the point where planning for them to stay is required. I believe the latter course of action is the one to take even if you believe these financial metrics will reverse the course and not require any action to protect your balance sheet and income statement. But better to be prepared than find yourself behind the eight-ball a year from not unable to pay your bills or meet bank covenants. What makes this planning exciting are price changes dramatically moving up at unprecedented rates, making it almost impossible to bid jobs unless they have a Cost-Plus adjustment to capture price increases incurred to protect your margins. With this type of activity taking place annual budgets may be a think of the past for a while. You may be better off using 13-week budgets and cash flows to capture what is taking place currently. Then slowly move back to a more formal budget process once your cost structure and activity return to “normal”. Both balance sheets and income statements tend to deteriorate during times like these. Not only do we incur unplanned cost increases, but also delays in finishing a job, or delays in delivering new and used units. And let us not forget that your rental costs will increase as well. In short, costs are jumping around and mostly increasing while at the same time billing gets delayed, both of which causing reduced profits and cash flow. Bottom line: less cash in the bank and higher inventory cost levels requiring additional financing and interest costs. Let us recap the impact on your Balance Sheet. Cash- down A/R- Down because of delayed billing and up from price increases Inventories- Higher, which may cause a problem once prices settle down Rental Fleet- Costs higher Fixed Assets- Cost increases with a higher cost to operate A/P- higher Accrued expense- higher Notes payable-higher. Equity- most likely takes a hit. How about the income statement? Sales down due to delays. Up from price increases Higher Cost of Sales. Higher cost of inventory Higher labor costs due to extended time to complete job Travel costs higher- increased fuel costs Higher interest expense- higher rates and additional inventory to finance The actual cost to service rental units may be higher than the contract amount Higher-income taxes being discussed Bottom line- most likely takes a hit And even if cost transitions back to pre-pandemic levels dealers may wind up with inventory costs higher than normal on the books that get costed out at higher than anticipated costs which reduce margins. Needless to say, using annual budgets does not work under these circumstances. Shorter budget periods a must. In addition, cost and inventory controls are more important than ever because you do not want unit or parts costs on your books that destroy your normal expected margin rates. Transitory planning for short periods necessary for the balance of 21 and probably 22. Transitory revenue planning required to offset volatile cost activity. Hope you had a chance to read Part 1 of Job Shock. Part 2 now available.
Ascentium Capital LLC
Things are happening
I hope you took advantage of the JOB SHOCK comments prepared by Edward Gordon I referred to in last month’s column. Be sure to share it with the younger members of your family, especially those close to entering the job market. Dean kindly attached the article to the MHW website to give you access. And after reading it you may find yourself saving some money. I am not going to get into the details here because you really need to read the entire article and pass it around to those you feel may benefit from the information. What is currently available is Part 1 of this story and I will make sure you have access to Part 2 and so on as they become available. What is discussed in JOB SHOCK will impact both your personal and business world. What else is happening is that interest rates are starting to increase along with a weaker dollar. Not good for highly leveraged companies, especially those who import their product line. And who knows how these metrics will move once the Stimulus money hits the streets. Since there is no time like the present it may be prudent to spend a little time thinking about interest-bearing obligations, banking arrangements, and how competitors without the import issues will impact your business. If the dollar value increasingly gets weaker there could be pushback about equipment pricing. I was thinking about this and wondered what I would do if a major customer were negotiating a $1 million dollar transaction, and as you were about to close the deal, he/she say they plan to pay with Bitcoin? Think about that, because it is entirely possible for a large transaction to fall into this arena at some point and you need to be able to handle it or maybe lose the deal to someone who can execute with Bitcoin. Maybe your OEM should put together a white paper about non-dollar transactions. Could not hurt and you would have another value-added cookie to offer up. Is your vault big enough to handle 20 Bitcoin (only kidding)? We all probably spend time trading or investing in stocks, and if you do you probably pay attention to the Q4 and year-end financial reports related to your portfolio and the industry you are in. I was just doing that last week when I heard three reports: one from GM, one from Ford, and one from JLG. All three noted that they have definite plans to switch to products using cleaner energy…..electric vehicles. I was most surprised concerning construction equipment, but it is happening. It appears that advanced battery technology is taking the front stage with these companies investing in this technology. What does this mean for you? Plenty. Based on what I have been hearing the demand for electric lift trucks using lithium-ion batteries is sure to increase above the norm and as a result will change many aspects of your business. Inventory investments will probably increase because you must maintain inventory to cover more and more for the electric business while also maintaining inventory related to lines or products you had pre-electric. Could be a substantial investment because battery technology as of today is not cheap. And part of this inventory issue may deal with non-electric used units coming off rent that may not be worth as much as you planned when the original lease was put into place. Technology and training will also add to your cost to own and operate this type of equipment. The major planning issue regarding battery technology is having the right partners to help carry the load and make the transition. There are only so many “partners” out there to work with. So, the sooner you find who you want to work with the better. OEMs should assist with this process. The American Rental Association (ARA) offered up a webinar entitled Rentalytics that was quite good. It was scheduled for 60 minutes which turned out to be 90 minutes. They covered how OEMs, rental companies, and end-users see ’21 and ’22 unfolding. Three industry experts and economists also provided estimates regarding the Cap-X spend in ’21 and ’22. This Rentalytics is somewhat new to me but offered up projections and estimates that were of interest. They even had a section on the material handling industry and expect 4% growth in ’21 after being down 4% in ’20. Not bad compared to other types of dealers or rental companies. On the OEM front, the Manufacturing HMI index expects a 6% increase overall in ’21, with durable goods at an 8,5% increase and non-durable goods at a 5.8% increase. Again, not bad. It seems your business life will keep you hopping over the next couple of years. Time to get things under control and plan for the coming changes. Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail editorial@mhwmag.com to contact Garry
Getting the most out of the Home Office Deduction
Over the past few months, nature has forced many working Americans and small business owners to work from home. Whether it be due to COVID-19, natural disasters, or the recent snowstorm that impacted almost all of the lower 48 United States, more Americans are working from home than ever before. A small consolation to working from home is that taxpayers can count part of that heating bill as a home office expense on their tax return. A taxpayer can do the same if they qualify for the home office deduction. Basically, the taxpayer gets to count a portion of home-related expenses that typically aren’t deductible. This includes certain residential maintenance and operational costs, such as utilities. Before cranking up their heat/air conditioning, a taxpayer needs to note a particular portion of the previous sentence: count a portion of home-related expenses. For example, a taxpayer’s house is 2,500 square feet. A taxpayer’s home office is a 250-square-foot room. A taxpayer can then claim 10 percent of a taxpayer’s annual heating, air conditioning, and water bills, as well as other common housing expenses, that make it possible for a taxpayer to do their work from there. People can only deduct the number of their residence expenses that apply to their home office. A home office is usually either a separate room or a portion of a room that meets the Internal Revenue Service qualifications. Notably, a taxpayer uses the area/room exclusively and regularly to conduct their business. Most of all, it should be noted that the home office deduction is not available to W2 employees. A taxpayer can usually deduct the business percentage of their utility payments and other services that pertain to the entire house. In addition to the heat, cooling, and running water, this may also include trash collection, security services, pest control costs, and even cleaning services. Keep in mind however that if a taxpayer is a DIY type of person, a taxpayer can only deduct the cost of the material and not the cost of their labor. If a taxpayer pays for a service that is not related to the business in any way, it is not deductible (i.e., painting their bedroom). However, so long as the service is related to the business (i.e., painting their office) then the direct expense is allowable. The type of home expense that a taxpayer claim is particularly important. The IRS breaks the type of home expenses down into three categories: (1) Direct expenses are expenses only for the business part of a taxpayer’s home (i.e. painting their office) and they are fully deductible; (2) Indirect expenses are expenses for keeping up a taxpayer’s entire home (i.e. insurance, utilities, and general repairs) and they are deductible based on the percentage of a taxpayer’s home used for business: and (3) unrelated expenses are expenses for only the parts of a taxpayer’s home not used for business (i.e. lawn care) and these expenses are not deductible. A taxpayer’s monthly mortgage or rent payment is probably a taxpayer’s largest home-related expense that can be counted toward the home-office deduction. Many homeowners already itemize and claim their home’s mortgage interest payments, as well as property taxes on Schedule A. If a taxpayer has a home office, a taxpayer can apportion part of these payments, again using the square footage percentage, toward their home office. A taxpayer’s Schedule A deduction amount then will be reduced. For most homeowners who work from home, it is more advantageous to claim at least part of the cost as a business expense. Homeowners know that home maintenance and repairs are treated differently for tax purposes. This is also true with regards to claiming the home office deduction. If a taxpayer can claim the home office deduction, then a taxpayer can deduct a portion of the taxpayer’s repairs. These are actions that keep a taxpayer’s home in ordinary and efficient operating condition. And, per the earlier discussion and IRS expense type table, just how much is deductible again depends on whether it is a direct or indirect expense. Generally, repairs include things like fixing interior walls and floors or exterior components like roofs and gutters; painting the whole house; and repairing a furnace or air conditioner that was worn out, for example, by extreme weather events. Again, the home office deduction amount uses the percentage of space calculation. Capital improvements, however, are added to the basis of the property. These are things that add to the value of a taxpayer’s home or considerably prolong its useful life. They also help home sellers realize a smaller profit and possibly escape tax on the proceeds. But when it comes to a taxpayer’s home office, a taxpayer can claim depreciation on the portion of a taxpayer’s home that serves as a taxpayer’s home office. This allows a taxpayer to account for costs over the years of such things as a taxpayer’s payments toward their mortgage principal. There is no denying that during these uncertain times, it is crucial for small business owners and self-employed individuals to receive every dollar that may be owed to them come tax time. If a taxpayer owns a small business or is a self-employed individual with questions about the proper deductions to take, including the home office deduction, please reach out to the professionals at The Center for Financial, Legal and Tax Planning, Inc.
How can Business Owners lower last year’s tax bill?
Good news! Business taxpayers may still be able to take actions to lower their federal income tax liabilities for 2020, as well as for future years. Consider these ideas before you file last year’s return. Claim 100% First-Year Bonus Depreciation — Or Maybe Not For qualifying assets placed in service in 2020, business taxpayers can deduct 100% of the cost in the first year. The 100% immediate write-off is allowed for both new and used qualifying assets, which include most categories of tangible depreciable assets. Claiming 100% first-year bonus depreciation whenever it’s allowed is usually considered a tax-smart move. But you should think twice about claiming it for 2020 additions if you anticipate higher tax rates in future years. In that case, consider forgoing bonus depreciation on last year’s return and, instead, depreciate the assets in question over a number of years. That way, the depreciation write-offs will offset future income that you suspect might be taxed at higher rates. The choice to claim 100% first-year bonus depreciation for 2020 asset additions (or not) is made on last year’s return. Important: Factor the net operating loss (NOL) issue into your decision. The CARES Act allows a five-year carryback privilege for an NOL that arises in a tax year beginning in 2020. Claiming 100% first-year bonus depreciation can potentially create or increase an NOL for the year. If so, the NOL can be carried back, and you can recover some or all of the federal income tax paid for the carryback year. This factor argues in favor of claiming 100% first-year bonus depreciation on last year’s return. Talk with your tax advisor about what makes the most sense for your specific situation. Take Advantage of COVID-19 Relief Provisions The CARES Act included various tax relief provisions for business taxpayers. These provisions can impact last year’s business return. Here are four examples. Liberalized NOL deduction rules. Under the law, business NOLs that arose in tax years beginning in 2020 can be carried back up to five tax years. So, an NOL that’s reported on last year’s return can be carried back to an earlier year and allow you to recover some or all of the income tax paid in the carryback year. Because federal income tax rates were generally higher in years before the Tax Cuts and Jobs Act (TCJA) took effect, NOLs carried back to those years can be especially beneficial. Faster depreciation for real estate QIP. Qualified Improvement Property (QIP) is generally defined as an improvement to an interior portion of a nonresidential building that’s placed in service after the date the building was first placed in service. The CARES Act provision allows 100% first-year bonus depreciation for QIP that was placed in service in 2020. Alternatively, you can depreciate QIP placed in service in 2020 over 15 years using the straight-line method. Suspension of excess business losses. An unfavorable TCJA provision disallowed current deductions for so-called “excess business losses” incurred by individuals in tax years beginning in 2018 through 2025. An excess business loss is one that exceeds $250,000 or $500,000 for a married couple that files a joint tax return. The CARES Act suspended the excess business loss disallowance rule for losses that arose in tax years beginning in 2020. Increased limit on business interest expense deductions. Under the TCJA, the deduction for business interest expense was generally limited to 30% of adjusted taxable income (ATI) for tax years beginning in 2020. Business interest expense that’s disallowed under this limitation is carried over to the following tax year. In general, the CARES Act increased the taxable income limitation to 50% of ATI for tax years beginning in 2020. Special complicated rules apply to partnerships and limited liability companies (LLCs) that are treated as partnerships for tax purposes. Important: Businesses with average annual gross receipts of $25 million or less (adjusted for inflation) for the three previous tax years are exempt from the business interest expense deduction limitation. Certain real property businesses and farming businesses are also exempt if they choose to use slower depreciation methods for specified types of assets. Establish SEP for Big Tax Savings If you work for your own small business and haven’t yet set up a tax-favored retirement plan for yourself, consider creating a simplified employee pension (SEP). Unlike other types of small business retirement plans, a SEP can be created this year and still generate a deduction on last year’s return. In fact, if you’re self-employed and extend your 2020 Form 1040 to October 15, 2021, you’ll have until then to establish a SEP and make a contribution for last year. The deductible contribution can be up to: 20% of your 2020 self-employment income, or 25% of your 2020 salary if you work for your own corporation. The absolute maximum amount you can contribute for the 2020 tax year is $57,000. Beware: You may not want a SEP if your business has employees, because you might have to cover them and make contributions to their accounts, which could make this option cost-prohibitive. Extend Your Business Return 2020 was a crazy year. COVID-19-related tax relief measures and the election outcome have created lots of moving parts. Business owners have much to consider before filing their last year’s income tax returns. Moreover, what you choose to do on last year’s return can affect your tax bills for later years. All things considered, extending last year’s return might be a wise move. That would give you more time to evaluate all the relevant factors in your specific situation. Here’s an overview of the due dates for different types of businesses. For sole proprietorships or single-member LLCs that are treated as sole proprietorships for tax purposes, the filing deadline for the 2020 Form 1040 is April 15, 2021. Those returns can be extended for six months, to October 15, 2021. For the calendar-year partnerships, LLCs treated as partnerships for tax purposes and S corporations, the filing deadline is March 15, 2021. Those returns can be extended for six months, to September
Putting it back together
Here it is February already and I am still pondering about the balance of 2021 and 2022. I must confess that the Short Squeeze on Game Stop that took place last week kind of scared me because I could see it causing some major player to go BK and start the ball rolling like it did in 2007 or 2008 or whenever it was. When I hear a hedge fund CEO say “I only have a billion left” I cannot imagine what he lost in the process. “What’s in your wallet”? An item to clean up. #1 Both PPP1 and PPP2 forgiveness amounts are NOT taxable. They finally figured it out when issuing guidance re PPP2. If you received PPP1 using your 2019 payroll data, you can duplicate that for PPP2 if you opt in to use 2019 numbers. Makes it easy. But do not forget you have to prove you need it with a Quarter in 2020 that had 25% less revenues than it did in 2019. What popped into my mind for this month was the Humpty Dumpty rhyme because he had a great fall. Do not ask me why it did it just did. But the end of the rhyme is the most important because “all the Kings horses and all the Kings men couldn’t put Humpty together again! Could many businesses be facing the same result post-pandemic? Why would that be? Because every business must recreate a game plan going forward after working in a disrupted environment for the last 12 months or so. Things have changed. People have changed. Customers have changed. Vendors have changed. And throw in a $15 minimum wage into the mix. Things could get interesting as well as challenging. Even if you experienced a “good” year in terms of revenue generation opportunities it was probably tough to convert those transactions into a profit margin you were used to. The workflow was most likely irregular, or non-existent, or just finalized the best way you could. But you cannot do that any longer because it will put a permanent toll on the company. And the competition will not allow you that indulgence if you hope to get back your competitive edge. Time to get your organization chart out of the drawer to start filling in the blanks to replicate your position starting in 2020. Now go back and dig out the same chart from 2015 and 2000. Next, do a headcount by the department and see how they compare. Same number as in 2000- probably not good unless you expanded your operation thus requiring additional staff. The same number as 2015 – needs further review. The reason being that the technology strong competitors (lower headcount) will be able to operate in your market with lower prices and easier business practices which customers today are looking for. To see where you stand, I would suggest you formalize a Return-to-Work program with input from your legal, insurance, and other professionals. Assess the risks and decide how to protect all parties involved. Avoid the risk. Control the risk. Transfer the risk. (I always like the last option best). Next, I would schedule an appointment with a senior person related to the industry-specific business system you are using. Have them come in to review ALL the options available on their system, especially those that help manage time, communication with customers and employees, and data dives that reflect operating results by revenue silo, techs, drivers, and other data that will assist in comparing results to prior periods and against the current market. Many of you will be amazed how much you are not using, and eventually what it is costing you to not do so. And if our vendor cannot provide this service start looking for a new system because some of your competitors have high technology efficiency quotients you do not want to compete against. To make all this work, no matter where you fall regarding the technology score, someone needs to have the technical expertise along with a job description demanding a high level of data analysis to assist management with marketing schemes, email blasts, revenue silo results analysis, revenue/cost relationships including KPI’s, etc. This may even be a full-time job or maybe a 50-75% job. And if you do not have this person under your tent presently, I suggest (like I have in the past) to find a young recent graduate who is familiar with business accounting and technology and let them loose on your system as they experience the training they need to put it all together again. (the end of the last sentence repeats the end of the Humpty dilemma, but I bet many of you would have caught on). We are on the verge of entering into the Fourth Industrial Revolution where the ability to work with, control, and maintain is 100% required. Better to get a head start on it now and rebuild your current business entity. One last thing. I read a piece by Edward Gordon titled JOB SHOCK which defines the workplaces of the future, and it is not a pretty picture. They have provided approval to make this paper available and it will be on the MHW website. You must read it and pass it along to younger members of your families who may be looking for some guidance regarding future work opportunities. Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail editorial@mhwmag.com to contact Garry
Topics to consider regarding second draw of PPP Funding
Business owners, CPAs, loan officers, and if applicable, business brokers, should use a variety of tactics simultaneously as businesses pursue economic support in the form of the second draw of PPP funding. Per advice from the AICPA, the American Institute of Certified Public Accountants, borrowers may need to act quickly and diligently to fill out their forms for the second round of PPP funding. Some lenders are requiring PPP borrowers to apply for forgiveness on their first-draw PPP loan before they file to seek a second-draw PPP loan. However, according to the SBA and Treasury, this is not a requirement. Possible borrowers may want to consider other lenders to process the second-draw loan application without the business having to file for forgiveness on their first PPP loan. Compiling the relevant data that lenders seek is a critical step. Information such as average monthly payroll amounts and (for second-draw PPP borrowers) quarterly revenue comparisons are necessary. Supporting documentation for the average monthly payroll calculation used to calculate the maximum loan amount can be obtained from clients to support those amounts they come up with and will be helpful in the future, as it drove the amount of the PPP funds the borrower received. Borrowers also need to be aware of updates on PPP forgiveness and differences between first-draw and second-draw loans. Potential borrowers should understand that second-draw applications require borrowers to prove they have experienced at least a 25% reduction in gross receipts as a result of the pandemic by comparing one quarter of 2020 to the same quarter in 2019. The new guidance makes certain covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures eligible for PPP forgiveness. As of January 20, 2021, the SBA and Treasury released an updated and simplified version of the PPP Forgiveness application. The form is called PPP Loan Forgiveness Application Form 3508S. It can be used by borrowers that received a PPP loan of $150,000 or less. Borrowers are not required to submit any supporting documentation with the application but are mandated to maintain payroll, nonpayroll, and other documents that could be requested during an SBA loan review or audit. The groups also released a Form 3508 for entities that received PPP funds in excess of $150,000. The second-round of PPP funding also opens the possibility of PPP funding for entities that were not eligible for the first-round such as certain 501(c)(6) not-for-profits. These entities include chambers of commerce, destination marketing organizations, certain housing cooperatives, and some local media stations. If a borrower falls into this category, they should take notice of specific lender restrictions regarding funding as lender requirements for these entities tend to vary by lender. The rules seem to be constantly changing with regards to PPP loans, as evidenced by the weekly release of procedure notices, interim final rules, and other forms of guidance from either the IRS, SBA, or the Treasury. For example, recently released guidance explains how both first-draw and second-draw loan calculations should be evaluated by lenders. The new guidelines also discussed what happens in the event that a borrower receives a larger PPP loan than originally eligible for. If an application error caused a PPP borrower to receive a larger PPP loan than it was eligible for, the SBA and Treasury have determined that the borrower may not receive loan forgiveness for any amount exceeding the allowed maximum, regardless of whether the borrower or the lender is responsible for the error. The borrower will be required to begin making payments on the remaining loan amount that is in excess of the amount forgiven. The new guidance also discusses what happens if a borrower wants to resubmit their loan forgiveness application using the updated Form 3508S but originally applied using a different form. The borrower may resubmit the loan forgiveness application to its lender at any time until the SBA notifies the lender of a final SBA loan review or remits the lender the PPP loan forgiveness payment. If a lender receives a timely borrower resubmission of a loan forgiveness application using SBA Form 3508S, the lender should promptly request the withdrawal of any lender loan forgiveness decision by notifying the SBA through the SBA Paycheck Protection Platform. Resubmissions are not allowed after the SBA notifies the lender of a final SBA loan review decision or remits the PPP loan forgiveness payment to the lender. Next, professionals and business owners should always be aware of possible changes that can be made to the PPP application/forgiveness process. For example, earlier in 2020, the IRS released guidance stating that PPP recipients would be unable to look at the changes to claim tax deductions on expenses that were paid for using PPP loans. While the AICPA respectfully disagreed, the IRS refused to change its position on the ruling. It was not until the Consolidated Appropriations Act, 2021 passed in late December, that Congress passed legislation opposing the position of the IRS. Applicable expenses paid using PPP funds are also deductible on the tax return of the business. There is no denying that certain industries have been hit harder than others by the COVID pandemic and regulations. If a business is eligible under the 25% gross revenue test, there should be no issues obtaining the second draw of PPP funding. If you own a small business and have any questions regarding applying for the second round of PPP loans, forgiveness on the loan, or any questions regarding the treatment of PPP loans during a sale or transfer of your company please reach out to the professionals at The Center for Financial, Legal and Tax Planning, Inc.
Equipment Depot expands to 50 locations with CEH integration
Equipment Depot, America’s largest independently-operated material handling and equipment rental dealer group, announced that Capital Equipment & Handling, Inc. (CEH) has joined the Equipment Depot organization. Over the coming months, CEH will integrate each of its four Wisconsin locations into Equipment Depot, enabling their shared customers to capitalize on the strengths and resources of both businesses. The integration of CEH brings the total number of Equipment Depot locations to 50 nationwide and extends their service area to the entire state of Wisconsin and Upper Michigan. With the combined capabilities of CEH and Equipment Depot, customers will benefit from an expanded network of locations across the country providing full-service material handling solutions that help improve productivity and maximize uptime. Capital Equipment & Handling has officially changed its name to Equipment Depot, effective January 1, 2021. Equipment Depot’s President and CEO David Turner stated, “The Capital Equipment team already shares Equipment Depot’s focus on delivering exceptional customer experiences. It is exciting to unite our companies in supplying superior solutions that drive long-term success for businesses across the country.” Gary Hansen, Chief Operating Officer of CEH, added, “Capital Equipment has been providing exceptional value to our customers for over 35 years, operating with the belief that outstanding experiences lead to lasting relationships. As we integrate with Equipment Depot, we are thrilled to offer an even greater range of products and heightened levels of support to our customer base.” Equipment Depot offers an extensive line-up of industry-leading equipment and serves as a single source for forklift and aerial lift sales, service, rentals, parts, and integrated warehouse solutions. The company backs all products and services with its Performance. Guaranteed,® pledge and is committed to delivering the best service in the material handling and contractor services industries.
2021 based on 2020. The way I see it.
When Dean, the General Manager & Publisher of Material Handling Wholesaler, gave me this topic to cover for the January 21 issue I thought “Gee Dean, if I knew the answer to this question, I would be in my private jet heading to the Caribbean with my hot wife, a case of Scotch, and five boxes of Churchill size cigars.” But after settling down, curiosity got the better of me and I started researching the storyline and jotting down various topics I believe will be part of the 2021 landscape. Here is the list I started with and I am sure you can add another 100 topics to my list: RECOVERY Headwinds or tailwinds Business Resilience Your current business processes Your post-COVID-19 business process’ It is the Balance Sheet that counts Revenue recovery Do not count on major recovery in 21 Additional stimulus Changes to anticipate THE ECONOMY Recession or Depression Vaccine acceptance The Biden Plan-Infrastructure Plan The Biden Plan- Taxes The Biden Plan-Spending INDUSTRY ISSUES Customer status Supply chain status Personnel status Inventory availability OEM financial health Refurb units HOW DO WE PLAN FOR 2021? Revenues Costs- fixed Cost- variable Cost- Semi-variable Financing HOW DO WE KNOW WE ARE BACK? COVID-19 vaccine acceptance Consumer spending. Employee demands increase Before we go any further, I want to mention last month’s lead story by Dave Baiocchi. What he covered about directions OEM’s are taking should wake all of us up. The acceptable playing field, as far as OEMs are concerned, is moving higher and higher and will continue to do with the hope of maintaining and increasing market share. On the other hand, with COVID-19 and a potential long-term recession facing us, a dealer should avoid overextending their operations beyond reasonable financial guidelines. You should be committed to your OEM but at the same time communicate what you can and cannot do until this pandemic is under control and the economy returns to 2019 levels. Material handling dealers have access to the retail, wholesale, distribution and logistics services, manufacturing, and other venues where lift trucks or warehouse distribution systems are employed. If this continuing customer base is active and essential, dealers should have a constant base level of work and products to sell these customers. But is it the same level as 2019 revenue? How about for Q1 20? I bet not. Customers are encountering the same financial pains as everyone else, with the added issue of having more efficient and more knowledgeable competitors planning to increase sales because of a lower-cost alternative. Current customers still operating using the same business model as they were 10 years ago will find themselves at risk, which extends that risk to you. Come to think about it, you also need to review your current business model, and compare it to your competitors and other equipment-related business offerings. Not doing so could put you in the crosshairs of your OEM to move you out of your territory as Dave discussed last month. In terms of the economy, it appears we are stuck in neutral until the virus is under control and our population believes that is the case. Two different issues, with both requiring getting control of the virus. Me, I do not see this happening until late in 21 or not in 2021 at all. The budgets I am preparing for 2021 are flat and mirror Q2-Q3-Q4 2020 results. This budget naturally contains heavy cost reductions in terms of payroll and other variable and semi-variable expenditures, with an assumption that when revenues and profits increase, both payroll and expenditures will also increase to support higher revenue levels. I just cannot make myself believe that GDP will return to 2019 levels in the next twelve months. Too many companies and businesses have closed. Too many people remaining without a viable income to support their families. And not enough consumer spending to bring GDP up in any significant way. AND SEEING THAT CONSUMER SPENDING MAKES UP 70% OF OUR ECONOMY I GUESS OUR CITIZENS WILL TELL US WHEN THIS PANDEMIC IN UNDER CONTROL AND WE ARE BACK ON TRACK TO 19 LEVEL WHEN SPENDING HITS 19 LEVELS. When do you see this happening? Am I being too pessimistic about this? Maybe. Who knows, maybe the vaccine will produce a miracle which provides more flexibility regarding our business activities. But even if that occurs will there be adequate income to spend to get us to pre-COVID-19 levels? I doubt it. The time it will take to convince the population to participate in the vaccine program, provide comfort, and get them back to work will be tough to do in the next twelve months. Heck, it may take six months to convince people to get the vaccine shots. Let’s move on to the “economy” The Biden Plans propose to raise $3.375 trillion in taxes over a 10-year period. They will increase spending by $5.37 trillion over this same period. The taxes will come from corporate tax ($1.4 trillion), payroll tax ($993 billion), and individual tax ($944 billion). Over the same period, there will be spending on education ($1.9 trillion) and Infrastructure ($1.6 trillion.) About 80% of the increase in taxes fall on the top 1% of the income distribution, primarily those making more than $400,000 per year. Our problem or maybe benefit is that most of these changes will probably not take place until after 2021. On a more specific tax issue, the IRS has stated that the spending of the PPP funds received will not be deductible for tax purposes in the year spent. In other words, the PPP funds spent are taxable. And from an accounting standpoint, the forgiveness amount will be recorded as miscellaneous income. So, make sure you know your situation if you are a PPP recipient. After going through this 2021 planning process, I suggest you plan for the worst and hope and produce better or best. Doing your homework to mitigate revenue losses by going after the