A new year has arrived and, with it, a fresh 12 months of opportunities to communicate with customers and prospects. Like every year, 2021 brings distinctive marketing trends to the table. The COVID-19 pandemic and resulting economic challenges continue to drive the conversation in most industries. To get more for your marketing dollars, you’ll need to tailor your message to this environment.

Continue to invest in digital

There’s good reason to remind yourself of digital marketing’s continuing value in our brave new world of daily videoconferencing and booming online shopping. It’s affordable and allows you to communicate with customers directly. In addition, it provides faster results and better tracking capabilities.

Consider or re-evaluate strategies such as regularly updating your search engine optimization so your website ranks highly in online searches and more people can find you. Adjust your use of email, text messages and social media to communicate with customers and prospects.

For instance, craft more dynamic messages to introduce new products or special events. Offer “flash sales” and Internet-only deals to test and tweak offers before making them via more expansive (and expensive) media.

Seek out better deals

During boom times, you may feel at the mercy of high advertising rates. In the current uncertain and gradually recovering economy, look for better deals. The good news is that there are many more marketing/advertising channels than there used to be and, therefore, much more competition among them. Paying less is often a matter of knowing where to look.

Track your marketing efforts carefully and dedicate time to exploring new options. For example, podcasts remain enormously popular. Could a marketing initiative that exploits their reach pay dividends? Another possibility is shifting to smaller, less expensive ads posted in a wider variety of outlets rather than engaging in one massive campaign.

Excel at public relations

When the pandemic hit last year, every business had to address current events in their marketing messaging. This stood in stark contrast to decades previous, when companies generally tended to steer clear of the news. Nowadays, public relations is a key component of marketing success. Your customers and prospects need to know that your business is aware of the current environment and adjusting to it.

Ask your marketing department to craft clear, concise but exciting press releases regarding your newest products or services. Then distribute these press releases via both traditional and online channels to complement your marketing efforts. In this manner, you can disseminate trustworthy information and maintain a strong reputation — all at a relatively low cost.

Strengthen ROI

Your company’s marketing dollars need to provide a return on investment just as robust as its budget for production, employment and other key areas. Our firm can help you evaluate your marketing efforts from a financial perspective and identify ways to make those dollars go further.

© 2021 Covenant CPA

The IRS announced it is opening the 2020 individual income tax return filing season on February 12. (This is later than in past years because of a new law that was enacted late in December.) Even if you typically don’t file until much closer to the April 15 deadline (or you file for an extension), consider filing earlier this year. Why? You can potentially protect yourself from tax identity theft — and there may be other benefits, too.

How is a person’s tax identity stolen?

In a tax identity theft scheme, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund.

The real taxpayer discovers the fraud when he or she files a return and is told by the IRS that the return is being rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the legitimate one, tax identity theft can be a hassle to straighten out and significantly delay a refund.

Filing early may be your best defense: If you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

Note: You can get your individual tax return prepared by us before February 12 if you have all the required documents. It’s just that processing of the return will begin after IRS systems open on that date.

When will you receive your W-2s and 1099s?

To file your tax return, you need all of your W-2s and 1099s. January 31 is the deadline for employers to issue 2020 Form W-2 to employees and, generally, for businesses to issue Form 1099s to recipients of any 2020 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors).

If you haven’t received a W-2 or 1099 by February 1, first contact the entity that should have issued it. If that doesn’t work, you can contact the IRS for help.

How else can you benefit by filing early? 

In addition to protecting yourself from tax identity theft, another benefit of early filing is that, if you’re getting a refund, you’ll get it faster. The IRS expects most refunds to be issued within 21 days. The time is typically shorter if you file electronically and receive a refund by direct deposit into a bank account.

Direct deposit also avoids the possibility that a refund check could be lost, stolen, returned to the IRS as undeliverable or caught in mail delays.

If you haven’t received an Economic Impact Payment (EIP), or you didn’t receive the full amount due, filing early will help you to receive the amount sooner. EIPs have been paid by the federal government to eligible individuals to help mitigate the financial effects of COVID-19. Amounts due that weren’t sent to eligible taxpayers can be claimed on your 2020 return.

Do you need help?

If you have questions or would like an appointment to prepare your return, please contact us. We can help you ensure you file an accurate return that takes advantage of all of the breaks available to you.

© 2021 Covenant CPA

The Small Business Administration (SBA) announced that the Paycheck Protection Program (PPP) reopened the week of January 11. If you’re fortunate to get a PPP loan to help during the COVID-19 crisis (or you received one last year), you may wonder about the tax consequences.

Background on the loans 

In March of 2020, the CARES Act became law. It authorized the SBA to make loans to qualified businesses under certain circumstances. The law established the PPP, which provided up to 24 weeks of cash-flow assistance through 100% federally guaranteed loans to eligible recipients. Taxpayers could apply to have the loans forgiven to the extent their proceeds were used to maintain payroll during the COVID-19 pandemic and to cover certain other expenses.

At the end of 2020, the Consolidated Appropriations Act (CAA) was enacted to provide additional relief related to COVID-19. This law includes funding for more PPP loans, including a “second draw” for businesses that received a loan last year. It also allows businesses to claim a tax deduction for the ordinary and necessary expenses paid from the proceeds of PPP loans.

Second draw loans

The CAA permits certain smaller businesses who received a PPP loan and experienced a 25% reduction in gross receipts to take a PPP second draw loan of up to $2 million.

To qualify for a second draw loan, a taxpayer must have taken out an original PPP Loan. In addition, prior PPP borrowers must now meet the following conditions to be eligible:

  • Employ no more than 300 employees per location,
  • Have used or will use the full amount of their first PPP loan, and
  • Demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021, are eligible to utilize the gross receipts from the fourth quarter of 2020.

To be eligible for full PPP loan forgiveness, a business must generally spend at least 60% of the loan proceeds on qualifying payroll costs (including certain health care plan costs) and the remaining 40% on other qualifying expenses. These include mortgage interest, rent, utilities, eligible operations expenditures, supplier costs, worker personal protective equipment and other eligible expenses to help comply with COVID-19 health and safety guidelines or equivalent state and local guidelines.

Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors and small agricultural co-operatives.

Deductibility of expenses paid by PPP loans

The CARES Act didn’t address whether expenses paid with the proceeds of PPP loans could be deducted on tax returns. Last year, the IRS took the position that these expenses weren’t deductible. However, the CAA provides that expenses paid from the proceeds of PPP loans are deductible.

Cancellation of debt income

Generally, when a lender reduces or cancels debt, it results in cancellation of debt (COD) income to the debtor. However, the forgiveness of PPP debt is excluded from gross income. Your tax attributes (net operating losses, credits, capital and passive activity loss carryovers, and basis) wouldn’t generally be reduced on account of this exclusion.

Assistance provided

This only covers the basics of applying for PPP loans, as well as the tax implications. Contact us if you have questions or if you need assistance in the PPP loan application or forgiveness process.

© 2021 Covenant CPA

Many startup companies require access to large sums of investment capital to take on well-established competitors. The need to raise such funding may encourage a startup’s founder to paint an overly optimistic picture of the business and exaggerate its ability to succeed. In some extreme circumstances, founders may resort to deception to convince investors to back their ventures. That’s fraud.

Silicon Valley warning

A medical testing startup provides a cautionary tale of what can happen when an aggressive entrepreneur plays fast and loose with the truth. Based on the extravagant claims of the Silicon Valley company’s founder, the startup raised more than $700 million and secured a $10 billion valuation. When evidence emerged that it couldn’t conduct extensive medical tests on tiny amounts of blood as it had claimed, the company collapsed.

Its founder has denied allegations that she made false claims. She and the startup’s former president currently are defending themselves against criminal charges leveled by the U.S. Attorney’s Office (a trial is scheduled for this spring). The founder has already settled a lawsuit alleging fraud filed by the Securities and Exchange Commission.

Getting adequate information

So how can you avoid fraudulent investments? The simple answer is that you must investigate any claims that sound too good to be true and closely scrutinize new investment opportunities — and the entrepreneurs behind them.

The founder of the medical testing company deflected requests for information about its inner workings. She often cited the need to protect intellectual property. Protecting proprietary information is a valid concern. But before investors inject capital into a project, they need to have an intimate understanding of the company and its products and services. If a startup refuses to provide adequate information, you’re better off walking away.

The startup also lacked an audited set of financial statements. This is another glaring red flag that investors should have heeded. According to MarketWatch, none of its investors requested access to the company’s financial statements.

In addition to developing a detailed understanding of a company’s operations, set aside time to conduct background checks on its founders and key executives. A founder’s so-called stellar business track record may not jive with public records that show a history of failed ventures. Or you may find that a programming “prodigy” enjoys little respect or confidence in the tech community. Ask direct questions of the business’s owner to resolve issues.

Reduce your risk 

Startups have a strong incentive to provide potential investors with overly optimistic financials and hyperbolic growth claims. Most startup founders aren’t involved in promulgating fraud. Nevertheless, you should work with experienced financial advisors when investing in a new company.

© 2021 Covenant CPA

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