2021 Main Street Small Business Tax Credit in California

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California’s governor signed Assembly Bill (AB) 150 establishing the Main Street Small Business Tax Credit II.

However, You must claim this credit on a timely filed original tax return. You cannot claim this credit on an amended (not original) tax return.

Taking a deeper dive into the 2021 main street small business tax credit

This bill provides financial relief to qualified small businesses for the economic disruptions in 2020 and 2021 that have resulted in unprecedented job losses.

Taxpayers can use the credit against income taxes, or can make an irrevocable election to apply the credit against sales and use taxes.

How to qualify for the Main street small business tax credit in California

To qualify for the credit, taxpayers (qualified small business employers) must:

  1. Have 500 or fewer employees on December 31, 2020 (all employees, including part-time employees), whose wages are subject to California withholding laws.
  2. Have experienced a decrease of 20% or more in gross receipts:
    • Calendar year filers compare gross receipts for 2020 to gross receipts for 2019.
    • Fiscal year filers can either:
      • Compare gross receipts for fiscal year 2019-20 to the gross receipts for fiscal year 2018-19.
      • Compare the gross receipts average for fiscal year 2019-20 and fiscal year 2020-21 to the gross receipts for fiscal year 2018-19.
    • New businesses that commenced business after January 1, 2019, but on or before January 1, 2020 can determine by comparing gross receipts from:
      • January 1, 2020, through February 28, 2020, multiplied by 1.5 to gross receipts for the period of April 1, 2020 and ending on June 30, 2020.
  3. Apply for a tentative credit reservation from CDTFA during the period of November 1, 2021 through November 30, 2021, and receive a tentative credit reservation.
  4. Not be required or authorized to be included in a combined report.

For each taxable year beginning on or after January 1, 2021, and before January 1, 2022, the new law allows a qualified small business employer a small business hiring tax credit, subject to receiving a tentative credit reservation through the California Department of Tax and Fee Administration (CDTFA).

All taxpayers (including those electing to use the credit to offset qualified sales and use taxes) must reduce any deduction otherwise allowed for qualified wages by the amount of the credit allowed.

Tentative credit reservation period

You can apply for a tentative credit reservation from November 1 through November 30, 2021, or an earlier date if the limit for the credit is reached before November 30, 2021. The credit is allocated by CDTFA on a first-come, first-served basis. The allocation limit for this credit will be approximately $116 million.

Considerations for S corporations

S corporations electing to apply the credit against qualified sales and use taxes:

  • Can claim the full credit against sales and use taxes.
  • Cannot pass through any of the credit to its shareholders.

S corporations electing to apply the credit against franchise and income taxes:

  • Are limited to applying 1/3 of the tentative credit reservation amount (from their confirmation from CDTFA) against the tax on net income at the S corporation level. They may not use the credit to offset the $800 minimum franchise tax.
  • Must disregard the remaining 2/3 of the credit and the S corporation may not use it as a carryover credit.
  • Can pass through the full credit amount to their shareholders, who may use the credit against their personal income taxes.

Credit amount

The amount is equal to $1,000 for each net increase in qualified employees, measured by the monthly average full-time employee equivalents. For more information on computing the credit, visit CDTFA.ca.gov.

Each employer is limited to no more than $150,000 in credit.

The amount of credit you may receive for the 2021 taxable year is reduced by the Main Street Small Business Tax Credit for taxable year 2020. Your 2021 credit will be reduced by either:

  • Your 2020 credit allocated for application to Sales and Use Tax; or,
  • Your 2020 credit received for application against income taxes

Qualified employee:

  • Must be paid wages subject to withholding under the California Unemployment Insurance Code.
  • Cannot receive wages that are used in the calculation of any other tax credit, except for the Main Street Small Business Tax Credit, for taxable year 2020.
  • Is not paid as an independent contractor.

How to claim the Main Street Small Business Tax Credit

  • File your income tax return timely.
  • Include your Main Street Small Business Tax Credit (FTB 3866) form, to claim the credit.
    • We’re currently updating the FTB 3866 for the 2021 tax year and it will be available by January 1, 2022.
    • Provide the confirmation number (received from CDTFA on your Tentative Credit Reservation) when claiming the credit.
    • Use credit code 241 when claiming the credit.
  • Review the Specific Line Instructions (page 2) for form FTB 3866, for more information.
  • Unused credits may be carried over for 5 years or until exhausted.

Fell free to contact us.

Looking for your Stimulus Checks

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The House passed Friday, and President Donald Trump is expected to swiftly sign, a $2 trillion stimulus bill to address the dramatic economic crisis caused by the coronavirus pandemic.
Included are direct payments to many Americans, an unprecedented expansion in unemployment benefits and $350 billion in small business loans.
But while people need help immediately, it will still take time to get everything moving.
Here’s what you need to know:

DIRECT STIMULUS PAYMENTS

How much do I get on my Stimulus Check?

Individuals would be due up to $1,200 and couples would receive up to $2,400 — plus $500 per child.
But the payments would start phasing out for individuals with adjusted gross incomes of more than $75,000. The amount would then be reduced by $5 for every additional $100 of adjusted gross income, and those making more than $99,000 would not receive anything.
The income thresholds would be doubled for couples.
Income would generally be based on one’s 2019 or 2018 tax returns. Those who made too much to qualify in those years, but see their income fall in 2020 would receive a tax credit when they file their return next year, according to the Senate Finance Committee.
And those who make more this year than last would not have to pay back any stimulus money they receive if they end up exceeding the thresholds. The payments would not be subject to tax, and those who owe back taxes would still get a check.

When will I receive my Stimulus Check Direct Deposit?

We don’t know how long it would take the IRS to send out all the money, but it would likely take weeks before the first payments start going out.
Treasury Secretary Steven Mnuchin said on Wednesday that the IRS would begin issuing payments within three weeks of the legislation being signed into law. The bill simply calls for payments to be made “as rapidly as possible.”
But experts say it could take longer. In 2001, it took six weeks for the IRS to start sending out rebate checks under a new tax cut, and in 2008, it took three months after a stimulus package was signed into law.
How do I get my money?
The money would likely be deposited directly into individuals’ bank accounts — as long as they’ve already authorized the IRS to send their tax refund that way over the past two years.
If not, the IRS would send out checks in the mail. For those that haven’t filed a 2019 or 2018 tax return, the IRS would rely on the information on file at the Social Security Administration, which keeps records on all Americans who have paid payroll taxes. It’s still possible that some people may fall through the cracks. On its website, the IRS says no sign-up would be needed to receive the money, but it’s possible the agency ends up offering further guidance.

UNEMPLOYMENT BENEFITS

How much do I get?
Jobless workers are poised to get an extra $600 a week on top of their state benefits for up to four months. It would significantly boost everyone’s regular state benefits, which range from about $200 to $550 a week, on average, depending on where you live.
Lawmakers also want to add up to 13 weeks of extended benefits, on top of state programs, which vary between up to 12 and 28 weeks.
Plus, more newly jobless Americans would receive checks. A new pandemic unemployment assistance program would expand eligibility to those who are unemployed, partially unemployed or unable to work because of the virus and don’t qualify for traditional benefits. This would include independent contractors, the self-employed and gig economy workers. The pandemic program benefits would mirror what’s available in one’s state.

When do I receive the money?
The timing would vary based on where you live, but likely several weeks at least.
Unemployment benefits are administered by states. They would have to reprogram their systems to account for Congress’ measures — of which there are a few, some more complicated to enact than others. Not helping matters is that many state unemployment agencies use antiquated technology.

Adding a $600 boost to everyone’s weekly check would be easier to accomplish, which is one reason why lawmakers designed the enhancement this way. During the Great Recession, the federal government temporarily increased benefits by $25 a week so this experience could help many states now, said Andrew Stettner, a senior fellow at The Century Foundation.
But Congress also wants to create a new pandemic unemployment assistance program, which would allow many more Americans to qualify for benefits. It’s modeled on the existing disaster unemployment assistance program, but only a few states have had to activate it in recent years, mainly because of hurricanes or floods.

All states would have to set up the pandemic program. So it would likely take even longer for jobless Americans who fall into this category to start receiving benefits, particularly in states that haven’t faced disasters recently.

All these federal changes come at a particularly tough time for states, which are being squeezed from both sides, said Rebecca Dixon, executive director of the National Employment Law Project. They are contending with a historic number of first-time filers, who are already overwhelming their online sites and call centers, forcing agencies to divert staff and boost technical capacity.

Plus, these agencies are operating at very low funding levels because of historically low unemployment rates.

SMALL BUSINESS LOANS

How much Stimulus is available?

The biggest provision for small business owners in the economic aid package is roughly $350 billion in new loans, at least a portion of which will be forgiven so long as the business continues to employ and pay its workers.
Business owners need to apply for the loans at a lender approved by the Small Business Administration. The forgiven amount would be equal to 8 weeks’ worth of payroll obligations (e.g., wages and benefits), plus rent or mortgage bills and utilities. And the forgiven debt would not be treated as taxable income to the owner.
How long will it take to get my Stimulus Check?
Normally SBA loans can take months, which many small businesses facing a cash crunch don’t have. To get the money out more quickly, the bill calls on Treasury and the Small Business Administration to expedite the loan process and approve more institutions to make the loans. It also loosens the rules normally governing SBA loans. For instance, borrowers do not need to issue a personal guarantee or provide collateral.
But SBA lenders themselves aren’t clear yet just how fast they can process the new loans, even though Treasury Secretary Steven Mnuchin has suggested publicly this week they can do so very quickly.
A joint letter from several banking and credit union associations this week urged the SBA to provide them with “clear and consistent” guidelines ASAP.
One non-bank direct SBA lender, Fountainhead, has been working for the past two weeks to streamline its own processes so that it will be able to process an application and close the new SBA loan in a matter of days, CEO Chris Hurn said. But lenders still need to know what documents and other reporting measures the SBA will require. Currently, Hurn noted, they have to upload a number of files on a borrower onto the SBA’s electronic system. With such an uptick in loans being issued, the chance for overload is real.

“There are some fundamental documents that I’m pretty sure the SBA is still going to want,” Hurn said. “To me, that’s going to be the bottleneck.”

2020 Tax Rate Increase Reported Today

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Here’s a Look At 2020 Tax Rates

  • 2020 Tax Projected Brackets
  • 2020 Tax Standard Deduction Amounts And More

The U.S. Bureau of Labor Statistics reported today that the consumer price index (CPI) has increased by 0.1% for August, after rising 0.3% in July. Here’s what that means for taxpayers in 2020, together with the first look at predicted rates for the next year as calculated by Bloomberg Tax & Accounting.

The CPI measures the cost of goods and services—in other words, your cost of living. Under the Tax Cuts And Jobs Act * (TCJA), the Internal Revenue Service (IRS) now figures cost-of-living adjustments using a “chained” CPI. The chained CPI measures consumer responses to higher prices rather than merely measuring the higher prices. What that means for taxpayers is that inflation adjustments will appear smaller: Most inflation-adjusted amounts, including the threshold dollar amounts for tax rate brackets, are projected to rise by less than 1.5% in 2020.

*(The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,[2] Pub.L. 115–97, is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs Act (TCJA),[3][4] that amended the Internal Revenue Code of 1986. Major elements of the changes include reducing tax rates for businesses and individuals, increasing the standard deduction and family tax credits, eliminating personal exemptions and making it less beneficial to itemize deductions, limiting deductions for state and local income taxes and property taxes, further limiting the mortgage interest deduction, reducing the alternative minimum tax for individuals and eliminating it for corporations, reducing the number of estates impacted by the estate tax, and cancelling the penalty enforcing individual mandate of the Affordable Care Act (ACA))

Projecting Smaller Tax Rate Increases in 2020

“We are projecting smaller increases for most inflation-adjusted amounts this year, as we expected, due in part to the use of the chained CPI to measure cost of living adjustments, and partly due to the slower rise in inflation overall,” said Annabelle Gibson, practice lead for U.S. income tax and IRS procedure, Bloomberg Tax & Accounting. “Our projections help taxpayers and tax planners get a jumpstart on the 2020 tax planning season in advance of the Internal Revenue Service’s publication of official 2020 inflation-adjusted amounts later this fall.”

Following are projected numbers for the tax year 2020, beginning January 1, 2020. These are not the tax rates and other numbers for 2019

 

What happens to the business when you’re no longer running it?

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SUCCESSION PLANNING

If you own a family business, retirement isn’t simply a matter of deciding not to go into the office anymore. You’ve got some critical questions to answer like…

“What happens to the business when you’re no longer running it?” and

“Will you have enough money to retire?”

 

The family dynamic complicates the whole transition because of the relationships and emotions involved. Most people are not comfortable discussing topics such as aging, death, and financial affairs.

Comfortable or not, succession planning should be a priority for any family business considering that more than seven out of ten family-owned businesses fail to survive the transition from founder to the second generation, typically falling prey either to estate taxes or family discord – or both.

Developing and implementing a well-designed succession plan is essential to the survival of a family business from one generation to the next.

We help you with these key issues within your business

  • Keeping it in the family. Are you going to pass the business on to your family or sell it to a third party? We help you weigh the advantages and disadvantages of each of these options.
  • Who’s going to run the business when you’re gone? Management and ownership are not one and the same. You may decide to transfer management of your business to just one of your children but transfer equal shares of business ownership to all your children, whether they’re actively involved in the business or not.
  • Minimizing the tax bite. The tax burden when transitioning a family business can be significant. The challenge is that a family business is not generally a liquid asset, but taxes are typically due when ownership is transferred.
  • Making it fair. Transferring family ownership often adds a tremendous amount of stress to individual family members. We talk with each of the family members to ensure that they feel they a getting an equitable and fair share of the pie.

HOW CAN WE HELP?

Once we understand how you feel about the key issues above, we begin constructing your succession plan focusing on these 5 issues…

  1. Business Valuation
  2. Business Restructuring
  3. Tax Consequences
  4. Retirement Projections
  5. Tax Projections

STRATEGIC BUSINESS PLANNING

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A Strategic Business Plan is much more than a tool to obtain financing. If you still have all your plans and ideas locked up inside your head, preparing a strategic plan can help you clarify your company’s direction. It can ensure that your key leaders are all on the same page, and keeps both management and staff focused on the tasks at hand.

A Strategic Plan is often needed when…

  • Starting a new venture, product or service
  • Expanding a current organization, product or service
  • Buying a new business, product or service
  • Turning around a declining business

The Strategic Plan provides a blueprint, describing your company, its products, the competitive environment, management team, financial health, and business risks.

The plan allows you to…

  1. Identify and describe the target customer profile, features, advantages and benefits of your new venture, product or service.
  2. Justify that your plans are credible by fully researching the need being filled with your new venture.
  3. Develop marketing plans including full descriptions of targeted promotional campaigns with implementation timelines. You also get to examine market conditions, the nature of your customers, as well as your competitors, sales potential, and projected results of your promotional campaigns.
  4. Develop staffing plans including identifying the key players, skills, attitudes and expertise needed to build the venture.
  5. Develop management plans including full descriptions of management systems and timelines for implementation.
  6. Develop financial plans including projected startup costs, operating costs, revenue, profits, and break-even analysis for the first 3 to 5 years.

    Projected financial plans allow you to effectively predict upcoming problems, or prevent them. In other words, the perspective gained through your Strategic Business Plan can make a significant contribution to your company’s success, and help you get the funding you require. In fact, most lending institutions and private investors will not even talk to you without a solid financial plan.

  7. Identify building and equipment needs including vendors and cost estimates.
  8. Formulate company milestones including timelines for upcoming products and services in development.

Remember: Failing to plan is planning to fail.

Let us help you develop a powerful Strategic Business Plan that drives your business to the level of success you deserve.