On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provides additional assistance for small business owners. Under the Act, the U.S. Small Business Administration (SBA) provided two disaster relief programs known as the Paycheck Protection Program and the Economic Injury Disaster Loan Program.
There are unique eligibility requirements for these programs and the lenders. But in general, other than businesses are not eligible to apply for both programs, the SBA also requires the Loan Recipients to:
Paycheck Protection Program
The Payroll Protection Program application will be available within 30 days once the SBA issues its final guidance to lenders. Once that is done we will provide further details on the application process.
For Early Stage Tech Startups that have raised outside capital, they may not be eligible for the small business loan program according to Axios. Small businesses with venture capital investors who control more than 50 percent of voting stock are also disqualified, as are cannabis-related companies. VC-backed startups may also be left out due to SBA "affiliation rules." The SBA takes into account the collective number of employees from an investor's portfolio. For more information please see the Geekwire article and for SBA Affiliation Rules, see here.
For certain hospitality and food service companies, special considerations such as waiving the affiliation rules are applied if their NAIC code begins with "72". If they have more than 500 employees across multiple locations, they are eligible to look at each physical location with under 500 employees and apply for a loan accordingly. These special considerations do not extend to other industries.
Please contact us or use the link to my calendar to schedule an appointment to discuss eligibility. We will need to review your cap table to give you a definitive answer on whether you will be eligible for the program.
Businesses that meet the SBA's "Small Business Concern" and businesses such as nonprofit organization, can apply for Paycheck Protection Program if they have the lesser of:
The number of employees includes full-time and part-time, and seasonally or temporary basis. Whether or not the businesses use a PEO, it will not impact the number of employees. For eligible self-employed individual, independent contractor, or sole proprietorship, documentation such as payroll tax filings, Form 1099-MISC, and income and expenses from the sole proprietorship will need to be submitted.
The maximum amount that can be borrowed is 250% of the average monthly payroll costs that is based on 12-month look back from the date the loan is made and cannot exceed $10 million. For seasonal employer, the average total monthly payment for payroll shall be for the 12-week period beginning February 15th, 2019 or at the election of the eligible recipient, March 1, 2019 and ending June 30, 2019.
Payroll costs will include the following:
The loan will be issued via the SBA's network of 7(a) program lenders and is 100% guaranteed y the SBA. By having available credit from other sources will not disqualify the business. There will be no application fees or closing costs and no collateral or personal guarantee required. The maximum interest rate is 4% and the maximum loan term is 10 years. The first 6 months of payments (principal and interest) are automatically deferred and the deferral period can be extended up to a year.
Paycheck Protection Program: General Loan Forgiveness
A portion of the total loan would be eligible for forgiveness in the amount equal to the payroll costs as well as any covered obligations for interest on a mortgage, rent, and utilities between the covered period. The amount forgiven will not be taxable as income and the covered obligations must have been in place prior to February 15, 2020. The loan amount ultimately forgiven by the federal government will be reduced by the number of employees laid off or experiencing salary reductions of more than 25% prior to, or during the covered period. And to be eligible for the forgiveness, eligible loan recipients should expect to have to verify for the employees kept on the payroll and the wages paid to these employees, as well as any other qualified expenses between the covered period.
If the eligible loan recipients already had to lay off some employees, then reduction in loan forgiveness can be avoided if re-hire previously laid off after February 15th, 2020 and/or restore the salary for those people that may have seen a wage reduction, no later than June 20, 2020.
Paycheck Protection Program: Tax Relief Option
Businesses can also elect for tax relief options instead of the forgiveness option mentioned above but cannot opt for both. Businesses may be eligible for an employee retention credit, which is a fully refundable 50% tax credit applicable to the employer's share of payroll taxes on wages up to $10,000 per employee. Businesses must demonstrate the operations were suspended because of an official government order related to COVID-19, or that gross receipts declined by at least 50% compared to the same quarter in 2019.
Businesses that choose the option of tax relief instead of forgiveness will also be provided a temporary payroll tax holiday. This would give the option to defer payment of the employer share of Social Security taxes for the period March 27, 2020 to January 1, 2021. Deferred amounts would be 50% due by December 31, 2021, and the remaining will be due by December 31, 2022. Employers would retain sole liability for the eventual payment of these deferred taxes regardless of whether they use a PEO/CPEO.
Paycheck Protection: Application Process
Again, once the SBA have issued its final guidance to lenders, we will provide further details on when and how to apply for the Paycheck Protection Program. Please check here for regular updates - https://www.sba.gov/funding-programs/loans/paycheck-protection-program. From our initial understanding the Paycheck Protection Program will be administered by the banks and lending institutions so it's a great idea to get in touch with them now in preparation for the program being rolled out. Some frequently requested information would include most recent tax filings for your business and personal, most recent financial statements including Balance Sheet and Income Statement. Most lenders will accept financials and tax returns from Calendar Year 2018 at the bare minimum so have these ready.
Economic Injury Disaster Loan (EIDL) Program
The Economic Injury Disaster Loan (EIDL) program provides small businesses affected by the Coronavirus (COVID-19) with working capital loans of up to $2 million that can be used for fixed debts, payroll, accounts payable, and other bills. The credit history must be acceptable to the SBA, and the small business owners must prove the working capital damage caused by COVID-19 and the ability to repay which will be used to determine the payment terms. The low interest rate provided by this program will be 3.75% for For-Profit businesses and 2.75% for Not-For-Profit businesses.
The term for repayment can be up to maximum of 30 years and an EIDL Loan over $25,000 will require collateral. The SBA will not decline a loan for lack of collateral but will require a pledge of what is available. Small business owners will also have the opportunity to receive up to a $10,000 Advance on the loan for emergency capital. The SBA has finished updating the system to implement this provision so small businesses can request an EIDL advance when they apply for the loan.
The following businesses will not be eligible for EIDL Loan:
Economic Injury Disaster Loan (EIDL) Program: Application Process
Application for EIDL Program can be done online or through mail. The estimated decision time is 2 to 3 weeks and the estimated disbursement will be 5 days. And it is critical that the ECONOMIC INJURY box be checked on Page 1 of the EIDL Application to make sure you are applying for the correct loan. If more funds are needed, applicant can submit supporting documents and request an increase. If less funds are needed, applicant can request a reduction. If application is denied, applicant will be given up to six months to provide new information and a written reconsideration request. For more information on how to apply please visit HERE.
To learn more about EIDL Loan, please see here for Zoom Sessions.
Among the provisions under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, we would like to introduce these two topics that may be helpful to you: Unemployment Assistance and Recovery Rebates.
There are three new Unemployment Insurance (UI) Programs created by the CARES Act:
We will be introducing these programs in a broadly manner based on the information provided in this Fact Sheet from the National Employment Law Project. Please visit this fact sheet if you would like to know more details for each UI Program.
Pandemic Unemployment Compensation (PUC)
From March 27, 2020, the date the bill is signed into law, through July 31, 2020, all regular UI and PUA applicants will receive $600 per week in compensation in addition to their usual calculated benefit. It may be paid with the regular UI payment or at a different time, but it will be paid on a weekly basis.
Pandemic Emergency Unemployment Compensation (PEUC)
An additional 13 weeks of state UI benefits will become available after the applicants exhausts all their regular state UI benefits. Most of the states will offer 26 weeks of UI benefits except the following:
To be eligible for PEUC, applicants must be actively engaged in searching for work. The CARES Act does provide that a State is obligated to provide flexibility in meeting such requirements in case of individuals unable to search for work because of COVID-19, including reasons of illness, quarantine, or movement restriction.
The States are also obligated to follow the "Non-Reduction Rule" in the CARES Act, which suggest that they may not do anything do decrease the maximum number of weeks of UI or the weekly benefits available under state law of as January 1, 2020, as long as they are participating in these programs.
Pandemic Unemployment Assistance (PUA)
Pandemic Unemployment Assistance (PUA) provides emergency unemployment assistance to workers who are left out of regular state UI or who have exhausted their state UI benefits. PUA will be available to workers who are immediately eligible to receive PUA for up to 39 weeks. This program will expire on December 31, 2020 unless otherwise extended.
You will be eligible for PUA if you are a:
Applicants for PUA Program will need to provide self-certification that they are partially or fully unemployed, or unable and unavailable to work due to one of the following circumstances:
It's important to know that workers who can either telework with pay or are receiving paid sick days or paid leave are not eligible for PUA.
This graph provided by New York State Department of Labor provides a good summary.
For New Yorkers filing for unemployment see details below:
Important Information for Unemployment Insurance Claimants:
The CARES Act was enacted on Friday, March 27, 2020. Please see the CARES Act web page for information about how the Act may affect UI benefits. Please do not call if you already have a UI claim; it will only make it difficult for others to reach an agent.
Information regarding the CARES Act and other COVID-19 updates will be posted in the Frequently Asked Questions about Unemployment Insurance During the Coronavirus Emergency.
If you are filing a new Unemployment Insurance claim, the day you should apply is based on the first letter of your last name.
A - F file on Monday | G - N file on Tuesday | O - Z file on Wednesday
Missed your day? File on Thurs-Fri-Sat
Any claim you file will be backdated to the date you became unemployed. If you are eligible, you will be paid for all benefits due.
Department of Labor is extending telephone filing hours as follows:
Monday through Thursday, 8 am to 7:30 pm.
Friday, 8:00 am to 6:00 pm.
Saturday, 7:30 am to 8:00 pm.
2020 Recovery Rebates for Individuals
In addition to Unemployment Benefits, the CARES Act also provides Recovery Rebates, also known as the Stimulus Checks, for individuals. Because the distribution of the Stimulus Checks will be coming from the Internal Revenue Service (IRS), the IRS will use 2019 tax forms to determine how much and where to send the checks. If 2019 tax forms have not yet been filed, the IRS will use 2018 tax forms to determine.
The Treasury Secretary Steven Mnuchin said that Americans should start getting these checks within three weeks, however, according to NBC News, some experts believe that with the budget cuts and the outdated technology, it may take up to months to distribute the checks. Another factor that will also delay the receiving of the check is change of address after previously filed tax forms. People whose address have changed after filing their tax return will need to submit a change of address form to the IRS which can take up to 4 to 6 weeks to process. But for those who have set up direct deposit as the method of refund on their previously filed tax return, they can get the check a little bit sooner than those who elected for paper checks.
The IRS does not have my direct deposit information. What can I do?In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.
The amount of the Stimulus Check one can receive will be based on the previously filed tax return of how much they've made. See below for the thresholds:
In order to be eligible for the Stimulus Check, an individual cannot be one of the following:
For individuals who have not filed a tax return since 2018, the IRS will use the following 2019 forms to determine the amount and address for the Stimulus Check:
Once the Stimulus Check have been distributed, a notice will be sent by mail to the taxpayer's last known address no later than 15 days. The notice will indicate the method of distribution (by direct deposit or paper check), the amount distributed, and a phone number for the appropriate point of contact at the IRS to report any failure to receive such payment.
For FAQ published by the IRS regarding the stimulus checks please see link here.
Tax Relief - Federal Income Taxes
In addition to the CARES ACT, there will be automatic extensions to file and pay Federal Income Taxes until July 15, 2020. Such extensions apply to individuals, partnerships, and corporations. There will be no interest or penalties, but it does not apply to gift, estate, payroll or excise taxes. First quarterly estimated payments that are due April 15th will be applicable. Most States will likely to follow and New York State is confirmed to be one of them.
Time flies by quicker than you think, and we are already going through the second month of 2020. With new year, comes new goals for companies. So it is vital that you plan out in detail of how you want to improve your business for 2020. This year is full of opportunities for growth, but it's up to you to take full advantage of it.
Here at Shay CPA, it is important for us to fully understand our clients' business goals. We believe we can build stronger relationships that way, as well as produce better work results together. Therefore, we have created a short survey. It has detailed questions on how you plan to expand your firm, raise money, and what is the key performance indicator for your success.
Click here to have an access to the survey and share us what your goals are for this year. As always, it is a pleasure for us to work together with you, and we will share the results of it in our next newsletter.
The Delaware Annual Filing is due on March 1st, which is just a month from now. So make sure to be on the lookout for an email from your registered agent in Delaware. You can sometimes use their portal to file an entire annual report.
You will need your file number, which you can find on your articles of incorporation or by conducting a simple search or Delaware's Division of Corporation website.
The other two main pieces of information you will need to prepare the Delaware Annual Report is your Balance Sheet as of 12/31/2019 and a copy of your Cap Table. Contact us if you need assistance with this step.
If you are not using your registered agent's site the filing can be done here.
The calculation of the tax is based on either the Authorized Share Method or the Assumed Par Value Capital Method. See attached calculator to see the calculation using both methods.
As always we are available to help prepare the filing or assist with questions.
Akshay Shrimanker, founder of Shay CPA P.C, recently spoke with The CPA Journal about the 2019 Rosenberg Survey -- which focused on nationwide CPA firm statistics. He discussed multiple topics ranging from the age difference between partners and staff to artificial intelligence within the industry.
Shrimanker opened up the conversation by talking about the emerging technology in the industry and the impact it has made. For example, thanks to a much faster reporting than before, clients now want a constant view of their numbers before they make big decisions regarding hiring, setting prices, and budgeting. Also, CPAs will be needing a more diverse skill set going forward especially in areas like analyzing data and technology due to industry demands.
Technology also has a positive impact on senior firm owners. Now that it is becoming easier to work from home, aging practitioners can still have a control on their companies while they prepare for retirement and focus on other things.
There is, however, a significant shortage of accountants joining Fortune 500 companies these days and Shrimanker sees this first-hand as someone who works closely with startups. A lot of graduates are now choosing to go with startup companies instead of traditional route due to equity. "The days of defined pensions are long gone and the prospect of staying in one company for 30 years with them," Shrimanker said regarding the matter.
The 2019 Rosenberg survey also found that the percentage of women partners is growing very slowly. He admitted that it's a big issue in the industry and many women practitioners are starting their own firms so they can control their own destiny instead of waiting for a promotion at larger firms. This trend is only going to continue unless the mid-size and large firms change things up to make women and minorities feel more included.
Lastly, Shrimanker touched on another important trend that's impacting the industry: a combination of automation and outsourcing. Although outsourcing isn't as easy as one might expect due to firms in India and the Philippines increasing their prices, the popularity of artificial intelligence continues to rise. It is especially being used in some of the traditional work CPAs used to do such as data entry and bookkeeping, which is definitely helping with faster reporting.
You can read the full article by clicking here.
Early-Stage technology startups have nuances compared to more traditional small businesses that they need to consider when putting together their financial statements and chart of accounts. Often I find that entrepreneurs have used a financial model to assist them in their fundraising efforts but this model can often differ wildly from their actual financial operations.
Having a good chart of accounts lays the foundation for having a clean set of financial statements that are easy to understand and contain information that the management teams can use to make important decisions. Founders sometimes can make the mistake of not paying enough attention to the chart of accounts, and in the opposite circumstance having too detailed of a chart of accounts that makes recording transactions an unpleasant chore that is time-consuming and of no real value-add.
We have created two sample charts of accounts based on our years of experience that we think can help early-stage tech founders and their accountants/bookkeepers with this crucial step. Here is the link to download. This chart of accounts is designed to uploaded into Quickbooks Online however the basic framework can be used for other G/L packages such Xero and Wave Apps.
The first chart of accounts is for an e-commerce startup that sells inventory, and the second one is for a Software as a Service (SAAS) company. The chart of accounts can be imported into a brand new Quickbooks Online by following instructions here. Using account numbers ensures that accounts ordered the way you want to see them presented.
E-Commerce Startups should make sure to record Inventory on their Balance Sheets. In the sample chart of accounts you will see we have created three accounts for Inventory including raw materials, work-in-progress, and finished goods. If your startup is selling few SKUs, it may be helpful to separate them out on the chart of accounts. However, past 5 or 6 SKUs the balance sheet will become cluttered with this information so using fewer accounts will lead to more clarity. The detail level can be maintained under the parent account.
Using the parent account and sub-account, you can view a more detailed breakdown of your transactions. For example, you can track your domestic and international contractors by creating sub-accounts under the parent account of Contractor. You can also track your employee reimbursements by various breakdowns such as travel, meals, office expenses, etc.
Early stage founders sometimes make the mistake of recording convertible debt and investments as revenue on the P&L. We have created some commonly used accounts such as SAFE Notes, Convertible Debt, and the various equity accounts which include common stock and preferred stock. If there are multiple rounds raised it is common to see a separate equity account for each round for instance - Preferred Stock - Series Seed, Preferred Stock - Series A etc.
For the revenue section, we have included e-commerce sales which can also be broken down further by channel for example - amazon sales, website sales, etc. Cost of services such as Amazon Web Services and other hosting costs should also be captured as part of the gross margin calculations.
Using account numbers comes in handy in Quickbooks Online especially when it comes to expenses as otherwise things are ordered alphabetically. Larger expenses such as salaries, rent, and subcontractor payments should come first.
For those of you have a finance background and want to calculate EBITDA (Earnings before interest, tax depreciation, and amortization) I would recommend ordering those accounts last.
We hope this guide and sample chart of accounts will be a good foundation for your company to start. As always customization is key to get the accounts to line-up the best way for your taste and ultimately to help you make decisions. We would very much recommend that you work with a CPA and Quickbooks ProAdvisor to help your startup get an optimum setup that is customized to your company. If you would like to schedule a time to speak to us regarding this please use link to my calendar to schedule a call.
To download the chart of accounts please see the link to download.
Many early-stage founders feel they don’t need to worry about taxes for their tech startups since they are incurring losses, however, tech startups have exposure to taxes in many ways so without careful planning and consideration, you could leave your company vulnerable to these and also leave valuable tax credits on the table at the same time. The following are tips for U.S. based founders who are organized as Corporations or LLCs.
1) Organize Your Bookkeeping
Having your books in order is the first key step to make tax time painless. If you are a pre-seed founder that has received some early traction from a Kickstarter campaign or received funds from a pitch competition or a government grant (NSF-SBIR etc.) it is imperative that you understand the total revenue and expenses that have been received by your company to see whether you may have any tax exposure. Also if you are incurring losses - these losses can be carried forward indefinitely under recently passed tax law so it is key to stay organized. There is no shortage of options and we usually recommend founders use a cloud-based solution like Quickbooks Online or Xero as far as accounting systems go and work with a CPA or bookkeeper to assist with getting the books in order as doing by yourself can be an onerous task. Most early-stage tech companies are unique in that they track their books on the accrual basis of accounting for both financial reporting and tax purposes. This can further complicate the recordkeeping process as you would need to ensure your accounts receivable and accounts payable have been correctly recorded as of year-end. Other common errors we have seen in the past are investments incorrectly labeled as revenue which could have huge tax ramifications. The key with bookkeeping is to get into good habits early and often and stay on top of your bookkeeper and CPA so your company doesn’t get lost in the shuffle. You as a founder are ultimately responsible for your books even if you hire outside help so keeping everyone accountable is extremely important.
2) Preparing 1099s and Other Year-end Reporting
Any contractors you pay over $600 in a calendar year need to be issued a 1099-MISC form. To do this you will need to have your contractors complete a W9 form where they provide you with some key information to prepare the year-end 1099’s. 1099’s are due to your contractors by January 31st, 2020. If you are using a payroll service like Gusto or Justworks they have a contractor module included in there that can help with this process. Intuit also has a pretty streamlined process if you are using Quickbooks to get the 1099’s processed electronically. With those of you who are using payroll systems remember that you may be paying some of you contractors such as lawyers, accountants, consultants outside of that system so to capture them as well you will need to issue them 1099’s separately or opt out of the payroll system’s 1099 process, and process them all from one place.
3) State Franchise/Income Taxes and Estimated Taxes
Most early-stage tech companies that are planning to fundraise from outside sources usually incorporate in Delaware. Delaware has an annual tax requirement that is based on assets and the number of outstanding shares issued. If you owe more than $5,000 in Delaware taxes you may be required to also pay in taxes to them quarterly. In addition to Delaware, many tech companies have locations all around the U.S. Your startup probably needs to register to do business as a foreign corporation in those States and pay the relevant corporate taxes which for loss-making companies could be based on gross receipts (revenue), total assets (cash, inventory, etc), or other fixed dollar minimum taxes. These taxes may also be due quarterly so it’s important to be cognizant of the deadlines if you are required pay and file.
4) Sales Taxes and Nexus Issues
If you have been collecting sales taxes you usually need to remit these taxes either on a monthly or quarterly basis, however, some states like New York accept an annual return if your sales tax collection is more sporadic and for a low-dollar-amount usually under $3,000 (in NY).
An annual tax filing also helps start the Statute of limitations so the States where you are doing business have a time limit usually 3 years to inspect your records if they disagree with your filings. More details here for New York-based tech founders.
How do you know whether you should be collecting sales tax in any particular State? Nexus is the connection your business has with a particular state. There are many different ways that nexus can be triggered including physical presence (office or inventory), sales volume, remote employees, affiliates, click-thru nexus (website),
Due to the highly publicized South Dakota vs Wayfair Supreme court case States can now mandate remote sellers to collect sales tax even though they have no physical presence in the State. This is a game-changer for out-of-state sellers and can impact small businesses based upon how much business they are doing in a particular State. There are some good guides and sales tax advise given by software companies such as Avalara and TaxJar. E-Commerce companies in particular need to keep a keen eye on this area. I usually advise founders to run reports in their e-commerce platforms to understand which States they have the most sales volume in. Once you understand that you can manage your risk exposure by making sure you are compliant with all laws in the States where the majority of your sales are.
5) Do You or Your Business Have Any Foreign Bank Accounts or Foreign Presence?
Be aware of the Report of Foreign Bank and Financial Accounts (FBAR). A United States person (Citizen or Resident) that has an aggregate value of all foreign financial accounts that exceed $10,000 at any time in a calendar must file this report. Learn more here. Failure to file the FBAR report can lead to penalties that can be draconian. The Foreign Account Tax Compliance Act (FATCA) requires foreign banks to disclose to the IRS whether any US persons have a bank account at their branches. This means that the IRS will soon know whether you have a foreign bank account, whether you like it or not – so I recommend discussing this issue with your CPA if you feel it may have an impact. The tax deadline for the FBAR is April 15th.
If your business has foreign founders/shareholders or foreign branch/subsidiaries there are additional tax form requirements including Form 5471 (Information return of U.S. Persons with respect to Certain Foreign Corporations), and Form 5472 (Information return of a 25% Foreign-Owned U.S Corporation or a foreign corporation engaged in a U.S. Trade or Business. Failure to file these forms on time have serious penalties starting $10,000 for each form that isn’t filed or not filled out correctly.
6) Founders - Speak to Your CPA Before the End of the Year
Having a conversation with your CPA before the end of the year can save you a lot of time and hassle and mentally prepare you for tax time. As a CPA I’m buried in work from January through April and can be often difficult to do any meaningful tax planning during that time. Having a conversation with your CPA in the fourth-quarter of the year gives you time to understand all of your tax obligations and plan your cash-flow accordingly. To schedule a time to speak with me before the end of the year use link to my calendar.
On November 14, Akshay Shrimanker of Shay CPA P.C. participated in a panel discussion about accounting and artificial intelligence hosted by Michael Guthammar inside the offices of 24SevenOffice. The panel also included 24SevenOffice CEO Stian Rustad and Westmusa Inc. President Ann-Christine Westerlund, and lasted for about two hours.
Rustad started off the evening by giving background information on his firm, which he founded in Norway back in 1997. He spoke about their unique cloud-based approach, as well as their plan to expand in the United States and other countries. He also touched on the benefits of using artificial intelligence for accounting and bookkeeping, which he feels is the future for the industry as humans can be too error-prone.
The discussion then followed after Rustad's presentation, with Guthammar asking related questions to fellow panelists Shrimanker and Westerlund.
Shrimanker first explained about Shay CPA P.C. and our services to everybody in the room, before transitioning to the importance of artificial intelligence. He mentioned how some of our clients are already using artificial intelligence for various purposes such as security, pattern recognition models, autonomous vehicles, and risk management.
He also talked about both the positives and negatives of the increased use of artificial intelligence. For instance, it can get the work done faster but fees might increase as a function of lower-order tasks being automated, and higher order tasks being more valued such as analysis and planning.
He summed it up by explaining artificial intelligence requires more access to inputs and sensory information to truly reach its potential, and it's going to take some really charismatic people to make people buy into it.
The discussion wrapped up around 8 p.m., and some light snacks and drinks were served to attendees.
QUALIFIED EMERGING TECHNOLOGY COMPANIES (QETCS)
Are you an early stage technology startup based in New York State? If so read about the tax incentive below that is available. The company doesn’t necessarily need to be incorporated in New York to qualify as most early stage tech companies are setup as Delaware C-Corps. The tax deadline is November 30th of each year to file or recertify. If you would like to learn more about the incentive and need help with the application forms please contact us for assistance. The information below was sourced from the Empire State Development website and the New York State Tax Department.
A QETC is defined as a company located within New York State, whose primary products or services are classified as emerging technologies under Public Authorities Law section 3102-e and whose total annual product sales are $10 million or less.
A company which has Research & Development (R&D) activities in New York State and whose ratio of R&D funds to net sales equals or exceeds the average ratio for "all surveyed companies classified as determined by the National Science Foundation" in its most recent Survey of Industry Research and Development, or any comparable successor survey as determined by the New York State Department of Taxation and Finance and whose total annual product sales are $10 million or less.
Emerging technologies may include:
TAX CREDITS FOR QETCS
Qualified Emerging Technology Employment bCredit
A refundable tax credit of $1,000 per new full-time employee (i.e. employees in excess of 100% of base year employment level), available for one three-year period (i.e. the year the credit is first claimed and in each of the next two years) provided minimum employment levels are maintained.
Qualified Emerging Technology Company Capital Tax Credit
QETC investors are allowed a credit equal to a percentage of each qualified investment in a qualified emerging technology company that has been certified by the Commissioner of Taxation and Finance as follows:
Qualified Emerging Technology Company Facilities, Operations and Training Tax Credit A taxpayer that is a QETC and has no more than 100 full-time employees, of which at least 75% are employed in New York State; has a ratio of research and development funds to net sales (as referred to in Public Authorities Law section 3102-e) which equals or exceeds 6% during its authorized taxable year; and has gross revenues, along with the gross revenues of its affiliates and related members, not exceeding $20 million for the taxable year immediately preceding the year the taxpayer claims this credit may earn a refundable tax credit equal to the sum of the following three components:
Source: New York State Empire State Development.
If you are interested in applying for your company to be part of this program the tax deadline is November 30th of each year. An application must be completed every year to remain in the program. If you would like to learn more about the incentive and need help with the application forms please contact us for assistance.
Clarification of Qualifications for Qualified Emerging Technology Company (QETC) Tax Credits
Application for Certification of a Qualified Emerging Technology Company.
Instructions for Claim for QETC Employment Credit (PDF)
Claim for QETC Employment Credit (Form DTF-621) (PDF)
Department of Taxation and Finance
Empire State Development Homepage
Corporation Tax Resource Center
For more information, contact:
NYS Department of Taxation and Finance
W.A. Harriman Campus
Albany, NY 12227
Phone: (518) 485-2889
Photo credits: Campaign Creators (https://unsplash.com/@campaign_creat), Alex Kotliarskyi (https://unsplash.com/@frantic)
On Wednesday October 23rd, Akshay Shrimanker of Shay CPA P.C. conducted an accounting, finance, and tax workshop for early stage startups inside New Lab -- a coworking space in the Brooklyn Navy Yard which is home to over 130 startups and considered an oasis for entrepreneurs. The talk was presented to the H2 Accelerator -- an accelerator program that is sponsored by Shell and Toyota in partnership with NYSERDA. The program is led by Fraunhofer USA Center for Sustainable Energy Systems, Greentown Labs and the Urban Future Lab - NYU Tandon.
The workshop began around noon, with Shrimanker starting it off with a simple introduction to himself and a general background information about his firm.
He focused on the finance and accounting part of the workshop first, explaining the importance of basic financial planning such as budgeting, historical financial data, and estimating revenue and expenses. He also went over some key terms like MRR, ARR, Churn, COGS, and GAAP.
The workshop then continued with Shrimanker talking more in-depth about financial statements, which include things such as balance sheet, income statement, and statement of cash flows. Financial modeling was covered as well, where he went over six types of financial model drivers.
The first part of the workshop concluded with the talk of startup revenue recognition, which is key to generating accurate financial statements.
He then went over tax implications and planning, explaining why most early tech companies set up as either LLCs or C-Corps. Tax credits and incentives for tech startups were also discussed, as well as highlighting some of the key changes from tax reform that went into effect in tax year 2018.
Some of the important dates for startups in the upcoming 2020 tax season were picked out and analyzed as well, and Shrimanker brought up the benefits of Qualified Opportunity Zones -- a new incentive that is intended to promote investment in economically distressed communities.
R&D credit claim was also mentioned, which is a general tax credit that can help qualified startups to cover research and development costs in the United States. He thoroughly explained how to fill out IRS Form 6765, which is needed to claim the R&D Tax Credit to offset payroll taxes.
The workshop came to an end around 2 p.m. with a discussion of some inhouse and outsource options that startups can use to complete their accounting, bookkeeping, and tax compliance. He then went over some optimal tools to track revenue such as SaaSOptics, QuickBooks Online, and Financial Modeling with Excel Spreadsheets.
A Q&A session continued after the workshop, where Shrimanker answered individual questions from different startups in attendance.
We would like to thank the startup founders in attendance for asking some great questions and the NYU Urban Future Lab team including Rachel Fleischer and Joe Silver for hosting us. To learn more about the H2 Accelerator and Hyrdrogen innovation please visit the following site. https://www.h2refuelaccelerator.com/
Written by Tony Kyaw