STUFF TO READ

50 / 30 / 20 BUDGET
If you’re Googling budgets you will see this everywhere. So what does it mean?
The 50/30/20 budget is a simple rule of thumb for allocating your income.

It means that:
50% of your income goes to your needs (rent + utilities + food)
30% of your income goes to your wants (movies + meals + hobbies)
20% of your income goes to savings and debt

Is this a good budgeting system? It’s straightforward and certainly a good starting point. However, good budgets require personalization and an understanding of your goals. Ultimately, you should work with a financial advisor to help define your goals and create a budget that serves them.

ZERO-BASED BUDGETS
Most people have heard of a zero-based budget. Zero-based budgeting means that your income less your expenses should equal zero across time. It’s a handy budget to prevent over-spending. How does this work in practice?

Let’s say you have an income of $7,000 per month. Your expenditures within that month should also be $7,000. Expenditures won’t be only your monthly bills like rent and utilities, but also your debt payments and savings goals. To get to zero sum, let’s create an example:

Income:
Full-time job: $6,000*
Side-hustle: $1,000*
*after taxes!

Expenses:
Rent: $2300
Renters Insurance: $40
Utilities: $275
Gas/Travel: $150
Groceries: $350
Meals: $250
Student Loan: $1500
Credit Card: $500
Savings: $1400
Fun: $235

Final Total? $0.00
Is a zero-based budget right for you? It’s def an approachable starting point. The main goal, as with most budgets, is to help prevent you from spending money you don’t have. Zero-based budgeting is a great way to understand where all your money goes but it takes diligence to track your expenses and update each month, as well as proactively allocating money to the right places (like retirement, debt and savings). Sticking to the same spending month in month out is nearly impossible and zero-based budgeting often excludes those inevitable expenses like fixing a flat tire or forgetting your skateboard on the L train. Twice.

CARES = Coronavirus Aid, Relief, Economic Security Act.
You might be wondering, along with a record number of Americans that have filed for unemployment, what the CARES Act is all about and how it might benefit you, your family, and potentially your employees. Currently, a third of Americans have either themselves, or an immediate family member, lost their economic well being. This is a significant hit to the American economy. Here’s how the CARES Act is set to help both individual citizens, employers, and employees who have suffered due to closures, sickness, and a dramatically stalled economy.

EXPANDED UNEMPLOYMENT BENEFITS
One of the most significant reliefs that this bill introduces is the expansion of unemployment benefit eligibility to self-employed and part-time workers. That’s basically a third of the American workforce. The amount of unemployment that you would be eligible for depends on your state’s program. On average, most states provide coverage for up to 40-45% of weekly wages. The new bill adds $600 per week to that amount and will last up to four months of coverage. The bill also extends the duration of unemployment coverage from 26 to 39 weeks (though, this will ultimately depend on your state).

Who is eligible?

Simply put, if you’ve lost your employment or are unable to work due to the coronavirus, you’re likely eligible for unemployment benefits. Here’s the criteria:

• Cannot work as a result of being diagnosed with COVID-19, are experiencing symptoms, or are seeking a diagnosis.

• Cannot work because you are caring for an immediate family member or member of your household who has been diagnosed with COVID-19.

• Cannot work because your child’s school or daycare has closed, and you don’t have alternative care.

• Cannot work because a care facility has closed, and you do not have alternative care for an elderly or disabled family member.

• Cannot work due to being placed on quarantine, or your company has shut down due to quarantine.

• You were about to start a new job but have not started due to the coronavirus outbreak.

• Were laid off from a new job and did not have sufficient work history to qualify for benefits under normal circumstances.

Who is not eligible for unemployment benefits?

• Depending on circumstances, someone who left their job voluntarily over fears of contracting the coronavirus

• Someone who is able to work from home

• Someone who is receiving paid sick leave or paid family leave.

• A new entrant to the workforce and cannot find a job.

STIMULUS PAYMENTS
At this point, everyone has heard word of the government stimulus checks. These are the D2C (direct-to-citizen, can’t resist a little eComm language!) payments that will be sent directly to folks in the hopes that it will stimulate the economy. But, who exactly qualifies here? There are some pretty simple metrics:

1. Anyone who has a social security number.
2. Adjusted Gross Income (AGI) of $75,000 or less = total income from your most recent annual tax return.

So, what will I get?

Meeting these two requirements will net you $1,200 in a direct deposit stimulus check.
Married couples with a combined income of $150,000 or less will receive a total of $2,400.

Adults with qualifying children 16 or younger will also receive an additional $500 per child.

If you yourself or you and your spouse have earned above those thresholds, the amount paid out to you will decrease up until you reach the AGI cap of $99,000/$198,000, at which point you would no longer qualify for a stimulus payment.

Treasury Secretary Steven Mnuchin says Americans should see these funds in their bank accounts in about three weeks (as of time of writing this, March 27th). At this time, expect just this one payment. Future legislation may change, it really depends on how the heck the economy is doing.


SBA PAYCHECK PROTECTION PROGRAM
17.5% of the 2 trillion dollar bill is a tax relief for business owners. Specifically, to provide loans to help retain employees and pay their wages. If you have a business with 500 or fewer employees and you are continuing to pay your employees despite closure, loss of revenue etc., the CARES Act is setting aside 349 billion dollars , keeping them paid. There are some numerical conditions:

1. Loans will cover a maximum of six weeks of payroll.

2. $1,540 per week, per employee, max.

The loan amount is based upon the total monthly payroll cost for your business in 2019 multiplied by 2.5. If you weren’t in business or didn’t have payroll until 2020, then amounts will be averaged from the first two months of this year. You’ll need to verify payroll amounts prior to the loan and verify 8 weeks of payroll after receipt. You may also you use the loan money to cover utilities and mortgage interest/lease payments.
If your business already has a loan through the SBA, principle and interest will be waived for six months. Nice.


PAYROLL TAX CREDIT
Unfortunately, if a business claims a PPP loan, they will not be eligible for the Employee Retention Credit (which would provide a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis) or the deferment of payment of employer payroll taxes until 2021. Keep in mind that while this is great news for now, the payroll tax owed is deferred (postponed) and will need to be paid back starting in 2021. This payback will likely be 50% in 2021 and 50% in 2022.

FEDERAL STUDENT LOANS
The CARES Act is also looking out for all those students with federal loans. The Department of Education has suspended federal student loans through Sept. 30, 2020. During these six months, the Department will suspend involuntary collections, such as wage garnishments, related to the loan. Bonus: suspended loan payments will not accrue interest! Borrowers can continue to make payments towards their principal balance. Keep an eye on your federal student loan accounts in the coming weeks. Borrowers should see loan suspensions reflected in their current amounts due. Borrowers will also receive a paper notice, informing them of federal loan suspension.

If your loan ain’t federal, you still need to pay. Loans from private lenders are not eligible for suspension under the new bill. WOMP.

This is a lot to consider. If you have specific questions or concerns about the above or are looking for some help on how to plan for the next few months, please reach out.

Tax Forms

Form 8832 - to classify LLC as an S-CORP

W9 - Tax Payer Information Form

Form 1040 - Individual Income Tax Return

Form 1040ES - Estimated Tax (quarterly)

Schedule C - Form 1040 addendum

Form 1120S - S Corp Income Tax Return

Form 1065 - Partnership Income Tax Return

Frequently Asked Questions

What is a PNL?
Profit and Loss statement which is commonly referred to as a PnL, (aka comparative income statement). This report will detail income earned (gross + net) against the selling costs and operating expenses to ultimately provide the bottom line which determines whether there was profit, or not, during a specific time period.

How about a balance sheet?
A balance sheet details a company’s assets (inventory and cash), its liabilities (bills owed), and shareholders’ equity (ownership).


I need to be better at budgeting. What can I do?
Budgets are effectively limits and it takes time and experience to set them appropriately. If you have difficulty setting financial boundaries and sticking to them, you’re putting many things at risk (especially employees). So what’s a simple trick? Set incremental savings targets and meet them. Just like you budget for ice cream, budget for cash. It’s king, after all.


What the heck are COGS and why are they important?
Cost of Goods Sold.
COGS, or Cost of Service, is pretty dang important. They are the metrics used to tell the numerical story of how much it costs you to provide your goods or services.
So why is this so important exactly?
You can only truly understand your profitability and how effective your service rates are by examining what it takes to produce your work. Only then can you price your services and goods adequately so that you’re in the black and not the red.


Cash or Accrual Accounting?
So, there is a pretty simple difference between these two types of methods. Cash accounting recognizes revenue and expenses only when money moves in or out of your possession. Accrual accounting recognizes revenue when it is earned, and expenses when they're billed (not paid). There are benefits to each. If you’d like to learn more, get in touch.


How can I make sure not to freak out at tax time?
Good bookkeeping.
Don’t fall behind on your books. Poorly kept books are the biggest point of frustration for any size business at tax time. Not to mention the biggest payout for your tax accountant. Keep your books running smoothly all year round so your reporting is good to go January 15th, not April 15th at 11:59pm.

*legal disclaimer here