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Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 1
Use Tax Returns for Global Cash Flow with Multiple Pass-Through Entities
Questions
+ A copy of the slides and webinar recording will be emailed to you following the webinar
+ To ask a question during the webinar, enter it into the chat box in the GoToWebinar panel on right side of screen:
+ Ask questions at any time
+ Questions we do not answer during the webinar will be answered individually afterwards.
About Sageworks
+ Financial information company that provides credit and risk management solutions to financial institutions
+ Data and applications used by thousands of financial institutions and accounting firms across North America
+ Awards
+ Named to Inc. 500 list of fastest growing privately held companies in the U.S.
+ Named to Deloitte’s Technology Fast 500
+ NC Tech Awards: Excellence in Customer Service
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 2
About Linda Keith CPA
+ She provides credit training to financial institutions throughout the country with a focus on Tax Return Analysis and Financial Statement Analysis
+ Linda is an expert in Business & AgLending, Lending to the Wealthy & other Complex borrowers
+ She trains in both in-person and virtual formats and for in-house or open-enrollment audiences
+ Linda’s Sageworks Webinars are the most forwarded and have the highest attendance of our Credit Analysis Topics.
Please chat in your hot bu/ons on global cashflow.
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 5
My plan for the webinar: • Compare notes with others through polls • Consider your Guidelines and take back a list • Watch me walk-through three cashflow scenarios:
• Entity-only Cashflow with Margin and DCR approach
• Global Cashflow (Business and Personal focus) • Owner Cashflow (3 ways)
• Ask questions
My HOT buttons are: • Double Counting by mixing up taxable income, actual cashflow and
cashflow available. (I guess that could be triple-counting!) • Using 1040 Schedule E, Page Two figures for pass-through entities • Using a formulaic, numbers-only approach without adding judgment
Who is your borrower?
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 6
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 3
B&J Floors
Jan owns 25% Ben owns 67%
Zac owns 8%
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 7
Poll Question 1 What type of loans do you and your team typically make? ( Choose all that apply) 1. Business (C&I) 2. Business (CRE) 3. AgLending – Production 4. Mortgage Lending 5. Consumer – Direct or Indirect
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 8
Poll Question 2 What is your role? ( Choose one) 1. Loan Officer or Business Development Officer 2. Credit Analyst/Underwriter 3. Lending or Credit Manager 4. Senior Lending Officer 5. Something else
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 9
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 4
Ben owns 67%
Zac owns 8%
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 10
B&J Floors
Jan owns 25%
Poll Question 3 Business Lenders…who will guarantee your loan? (Check all that apply) 1. 65% owner Ben 2. 25% owner Zoe 3. 10% owner Zac 4. All owners regardless of % 5. It depends on something else
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 11
Note the results on your handouts for later comparison.
Ben owns 67%
Zac owns 8%
þ
þ
© Linda Keith CPA Inc Mar 2015 | 12
B&J Floors
Jan owns 25%
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 5
© 2013 Fiserv, Inc. or its affiliates.
Guideline Question
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks.htm | 13
1120S
1040 1040
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks.htm | 14
1120S
1040 1040
Jan owns 25% of B&J Floors Inc Jan owns 100% of Odds N Ends Medical Clinic Inc
1120S 1120S K-‐1 OR OR 1120S
1120S K-‐1
© Linda Keith CPA Inc Mar 2015 | 15
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 6
Poll Question 4 Assume you are lending to B&J Floors and require a guarantee from Jan. What returns do your guidelines require? (Pick one.) 1. Odds N Ends 1120S 2. Jan’s K-1 from Odds N Ends 1120S 3. Both the Odds N Ends 1120S & the K-1 4. It depends…it might go either way. 5. I do not do business lending
© Linda Keith CPA Inc Mar 2015| Resources at www.lindakeithcpa.com/sageworks.htm | 16
© 2013 Fiserv, Inc. or its affiliates.
Guideline Question
© Linda Keith CPA Inc Mar 2015 | 17
1120S
1040 1040
Jan owns 100% of Odds N Ends Medical Clinic Inc
1120S 1120S K-‐1 OR OR 1120S
1120S K-‐1
Hubby Dan owns 90% of Valley Vineyards LLC
Dan owns 10% of Donut Shop
1065 1065 K-‐1 OR OR 1065
1065 K-‐1
1120S K-‐1
| 18
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 7
Poll Question 5 You are lending to B&J Floors and requiring a guarantee from Jan who is married to Dan. What additional returns do you need? (Pick one.) 1. Valley Vineyards 1065 and Donut K-1 2. Valley Vineyards K-1 and Donut K-1 3. Valley Vineyards 1065 & the K-1 from both 4. None of these choices 5. I do not do business lending
© Linda Keith CPA Inc Mar 2015| Resources at www.lindakeithcpa.com/sageworks.htm | 19
1120S
Jan owns 100% of Odds N Ends Medical Clinic Inc
1120S 1120S K-‐1 OR OR 1120S
1120S K-‐1
Hubby Dan owns 90% of Valley Vineyards LLC
Dan owns 10% of Donut Shop
1065 1065 K-‐1 OR OR 1065
1065 K-‐1
1120S K-‐1
1040 1040
B&J Floors: Borrower
Ben 67%
Jan 25%
100% Odds N Ends Medical
Dan: 90% Valley Vineyards
Dan: 10% Donut Shop
Zac 8%
© Linda Keith CPA Inc Mar 2015 | 21
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 8
1065 K-‐1
1120S K-‐1
B&J Floors: Borrower
Ben 67%
Jan 25%
100% Odds N Ends Medical
Dan: 90% Valley Vineyards
Dan: 10% Donut Shop
Zac 8%
1120S
1040
1040
1120S
Other Options: 1040 1065 1120S
K-‐1
© Linda Keith CPA Inc Mar 2015 | 22
B&J Floors: Borrower
Ben 67%
Jan 25%
100% Odds N Ends Medical
Dan: 90% Valley Vineyards
Dan: 10% Donut Shop
Zac 8%
1040 1065 1065 K-‐1
1120S K-‐1
1040
1120S
1040
1120S 1120S K-‐1
© Linda Keith CPA Inc Mar 2015 | 23
Jan and Dan Borrower
Jan: 25% B&J Floors
Jan: 100% Odds N Ends Medical
Dan: 90% Valley Vineyards
Dan: 10% Donut Shop
1040
1065 1065 K-‐1
1120S K-‐1
1120S
1120S
1120S K-‐1
1120S K-‐1
© Linda Keith CPA Inc Mar 2015 | 24
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 9
© 2013 Fiserv, Inc. or its affiliates.
Guideline Question
© Linda Keith CPA Inc Mar 2015 | 25
© 2013 Fiserv, Inc. or its affiliates.
Guideline Question
© Linda Keith CPA Inc Mar 2015 | 26
© 2013 Fiserv, Inc. or its affiliates.
Questions on which tax returns to require?
© Linda Keith CPA Inc Mar 2015 | 27
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 10
It all starts with the Entity Return Income Passes Through to the Owner
28
1065 Information only
K-1
1040 A
B
D
E
Pass-throughs
K-1
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 29
Business Income is subject to Social Security Tax.
1065
K-1
1040 A
B
D
E
Pass-throughs
Charitable contributions Interest/Dividends Capital Gains/Losses
Business Income/Loss
Example: Net Capital Losses limited to $3,000.
K-1
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 30
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 11
1065
K-1 K-1
1040 A
B
D
E
Charitable contributions Interest/Dividends Capital Gains/Losses
Business Income/Loss Actual Cashflow to Partner: Guaranteed Pmnts + Distributions – Capital Cont Also consider rents, loans or loan repayments.
Cashflow Available to Partner: Use partner’s share of 1065 cashflow plus his/her Guaranteed Payments.
Use K-1.
© Linda Keith CPA Inc Mar 2015 | 31
1120S
K-1 K-1
1040 A
B
D
E
Charitable contributions Interest/Dividends Capital Gains/Losses
Business Income/Loss Actual Cashflow to Owner: And consider rents, loans or repayments to the owners.
Cashflow Available to Sharholder: Use partner’s share of 1120S cashflow plus his/her Wages.
Use K-1 Distributions.
Wages
© Linda Keith CPA Inc Mar 2015 | 32
Entity-Level Analysis of a Pass-Through for Business Loan Goal: Cashflow Available to Pay Debt using DCR or Margin/Deficit Guideline/Procedure Questions: • What is our guideline for DCR or Margin? • Do we worry about a deficit or low DCR
before doing the global?
Global Analysis of a Pass-Through for Business Loan Goal: Cashflow Available to Pay Debt using DCR or Margin/Deficit Guideline/Procedure Questions: • Who will guarantee? • If I do not require all owners to guarantee,
how to I get an accurate DCR? • What if a guarantor is an owner in another
pass-through? • For DCR analysis, what will I use for family
living expense? © Linda Keith CPA Inc Mar 2015 | 33
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 12
Poll Question 6 What is your approach regarding DCR? 1. We have a guideline at the entity level 2. We have a guideline at the global level 3. We use DCR but do not have a guideline 4. We do business loans but do not use DCR 5. This question does not apply to me
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 34
© 2013 Fiserv, Inc. or its affiliates.
Guideline Question
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 35
© 2013 Fiserv, Inc. or its affiliates.
Guideline Question
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 36
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 13
Poll Question 7 When calculating DCR for Global CF, what do you use to estimate family living expenses? (Choose all that apply) 1. General guidelines or number in the home 2. Lifestyle of borrower (boats, planes, hobbies) 3. What it takes to make the loan work 4. AgLenders: Live on-farm or off-farm 5. This question does not apply to me
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 37
Owner Analysis of a Pass-Through for a Personal Loan Goal: Cashflow from the Entity to the Owner Guideline/Procedure Questions:
How do I decide between actual and available cashflow? Do I ever use Schedule E, Page 2 taxable income/loss?
Guarantor Analysis of a Pass-Through for a Business Loan Goal: Cashflow from the Entity to the Owner Guideline/Procedure Questions:
How do I decide between actual and available cashflow? Do I ever use Schedule E, Page 2 taxable income/loss?
EnUty K-‐1
1065 K-1 1040
E Taxable Income
© Linda Keith CPA Inc Mar 2015 | 38
Poll Question 8 When do you use taxable income from 1040 Schedule E, Page 2 for owner/guarantor?(Choose all that apply) 1. When the pass-through entity is not obligated 2. When the owner has a low % ownership 3. When it is on the passive (left) side 4. I always do 5. Rarely or never
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 39
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 14
© 2013 Fiserv, Inc. or its affiliates.
Questions on deciding between actual and available cashflow for owner/guarantor analysis?
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 40
© 2013 Fiserv, Inc. or its affiliates.
Contact Information & Additional Resources
Resources + 20 Video Series on Pass-Through Entities + Recordings of and resources from this and
previous Sageworks Webinars + Global Tax Return Analysis Quick
Reference Guide + Red Flags and Green Lights in Tax
Returns: Extended Handouts
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 41
Owner Cashflow Actually Paid What happened in the checkbook?
© Linda Keith CPA Inc Mar 2015 | 42
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 15
Source +/-‐ Item Amount
1065 Box L or 19 (Code A) PLUS Withdrawals
1065 Line 4 PLUS Guaranteed Payments
1065 Box L MINUS Capital Contributed
1120S 16 (Code D) PLUS DistribuUons
1120S 16 (Code E) PLUS Repayments on Loans
Equals Cash Paid to Owner
Owner Actual Cashflow from a pass-through
K-‐1
When you use this: • You are lending to the owner of a pass-through • You are calculating cashflow to a guarantor from another pass-through entity
© Linda Keith CPA Inc Mar 2015 | 43
Poll Question 9 What cashflow from the business will you use for personal cashflow?(Choose all that apply) 1. Rents paid to the owner 2. Loans made to the owner 3. Repayment of a loan from the owner 4. Payment on a note payable to the spouse 5. Distributions and guaranteed payments
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 44
Assume all have been recurring sources.
Guideline Question
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 45
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 16
Actual Personal Cashflow
Source +/-‐ Item Amount
1065 Box L or 19 (Code A) PLUS Withdrawals $25,910
1065 Line 4 PLUS Guaranteed Payments 30,000
1065 Box L MINUS Capital Contributed -‐0-‐
1120S 16 (Code D) PLUS DistribuUons
1120S 16 (Code E) PLUS Repayments on Loans
Equals Cash Paid to Owner $55,910
© Linda Keith CPA Inc Mar 2015 | 46
Handout Page 3
1120S K-1 5|31
CORPORATION PARTNERSHIP & LLC RETURNS¤ Linda Keith, CPA, Inc. January 2014
SECTION 5:Case Study 1
B&J Floors 1120S, Schedule K-1See Page 4-22 For Help
1120S© Linda Keith CPA Inc Mar 2015 | 47
5|31
CORPORATION PARTNERSHIP & LLC RETURNS¤ Linda Keith, CPA, Inc. January 2014
SECTION 5:Case Study 1
B&J Floors 1120S, Schedule K-1See Page 4-22 For Help
1120S
1120S K-1
Source +/-‐ Item Amount
1065 Box L or 19 (Code A) PLUS Withdrawals
1065 Line 4 PLUS Guaranteed Payments
1065 Box L MINUS Capital Contributed
1120S 16 (Code D) PLUS DistribuUons 13,914
1120S 16 (Code E) PLUS Repayments on Loans
Equals Cash Paid to Owner $13,914
© Linda Keith CPA Inc Mar 2015 | 48
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 17
© 2013 Fiserv, Inc. or its affiliates.
Questions on what the owner got paid?
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 49
What can the company afford? To cover debt or pay the owners
© Linda Keith CPA Inc Mar 2015 | 50
$40,000 is the guaranteed payments to ALL partners. Form 1065 Page One
40,000
51
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 18
Form 1065 Page One Owners pay taxes on both guaranteed payments and ordinary business income.
65,961 52
Form 1065 Page One
65,961
Bo=oms Up Analysis +/-‐ Item Amount
1065 Line 22 PLUS Taxable Income $65,961
1065 Line 15 Add Interest Expense 1,451
1065 16a Add DepreciaUon 1,174
K (various lines) PLUS or Minus
Interest, Rentals etc 150
M-‐1 (various lines) PLUS or Minus
Disallowed meals, etc -‐135
Equals Cash Available to Pay Debt and distribuUons to owners
$68,601
53
Form 1065 Page One Top Down Analysis +/-‐ Item Amount
1065 Line 1 -‐ 8 PLUS Revenue $207,139
1065 Line 21 Minus Expenses -‐141,178
K (various lines) PLUS or Minus
Interest, Rentals etc 150
M-‐1 (various lines) PLUS or Minus
Disallowed meals, etc -‐135
Net Profit $65,976
1065 15 Add Interest Expense 1,451
1065 16a Add DepreciaUon 1,174
Cash Available to Pay Debt and distribuUons to owners
$68,601
54
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 19
Form 1065 Page One
Top Down Analysis +/-‐ Item Amount
1065 Line 1 -‐ 8 PLUS Revenue $207,139
1065 Line 21 Minus Expenses -‐141,178
K (various lines) PLUS or Minus
Interest, Rentals etc 150
M-‐1 (various lines) PLUS or Minus
Disallowed meals, etc -‐135
Net Profit $65,976
1065 15 Add Interest Expense 1,451
1065 16a Add DepreciaUon 1,174
Cash Available to Pay Debt and distribuUons to owners
$68,601
Cashflow Available to pay Debt Cashflow Available to Pay Debt
68,601 Available $68,601
DistribuUons
Available for Debt
Debt
Margin
DCR
51,820 51,820
16,781 16,781
14,451 14,451 $2,330
1.17
© L
inda
Kei
th C
PA
Inc
Mar
201
5 | 5
5
Poll Question 11 If you calculate DCR, what are you looking for? (Choose all that apply) 1. 1.25 or less 2. More than 1.25 3. It depends on why it is low 4. It depends on loan-to-value 5. It depends on liquidity
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/sageworks | 56
Guideline Question
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 57
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 20
5|23
CORPORATION PARTNERSHIP & LLC RETURNS¤ Linda Keith, CPA, Inc. January 2014
SECTION 5:Case Study 1
B&J Floors 1120S, Page oneSee Page 4-12 For Help
1120S
© L
inda
Kei
th C
PA
Inc
Mar
201
5 | 5
8
Bo=oms Up Analysis
+/-‐ Item Amount
1120S Line 21 PLUS Taxable Income -‐22,870
1120S Line 13 Add Interest Expense 26,907
1120S 20 Add DepreciaUon 6,911
K (various lines) PLUS or Minus
Interest, Rentals etc
M-‐1 (various lines) PLUS or Minus
Disallowed meals, etc -‐623
Equals Cash Available to Pay Debt and distribuUons to owners
$10,325
5|23
CORPORATION PARTNERSHIP & LLC RETURNS¤ Linda Keith, CPA, Inc. January 2014
SECTION 5:Case Study 1
B&J Floors 1120S, Page oneSee Page 4-12 For Help
1120SBad Debts
© L
inda
Kei
th C
PA
Inc
Mar
201
5 | 5
9
Global Analysis Let’s put it all together…
© Linda Keith CPA Inc Mar 2015 | 60
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 21
B&J Floors: Borrower
Ben 67%
Jan 25%
100% Odds N Ends Medical
Dan: 90% Valley Vineyards
Dan: 10% Donut Shop
Zac 8%
1040 1065 1065 K-‐1
1120S K-‐1
1040
1120S
1040
1120S 1120S K-‐1
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 61
Bo=oms Up Analysis
+/-‐ Item Amount
1120S Line 21 PLUS Taxable Income -‐22,870
1120S Line 13 Add Interest Expense 26,907
1120S 20 Add DepreciaUon 6,911
K (various lines) PLUS or Minus
Interest, Rentals etc
M-‐1 (various lines) PLUS or Minus
Disallowed meals, etc -‐623
Equals Cash Available to Pay Debt and distribuUons to owners
$10,325
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 62
Debt List Amount
B&J Floors Debt Payments
$26,000
.
.
Total Debt Service
Personal Amount
Wages (including Scorp) $100,000
Capital Gains -‐0-‐
Schedule E Gtd Pmnts -‐0-‐
CF other than School Tools $100,000
Ben Personal Debt payments
26,604
52,604
Global Amount
B&J Floors $10,325
Ben 100,000
Available from income 110,325
Less Family Living
Less Income Taxes
Available for Debt
Combined Debt
Global Margin
Global DCR
-‐40,000
-‐26,000
$44,325
52,604
-‐8,279
.84
Bo=oms Up Analysis Item Amount
Cash Available to Pay Debt and distribuUons to owners $10,325
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 63
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 22
5|27
CORPORATION PARTNERSHIP & LLC RETURNS¤ Linda Keith, CPA, Inc. January 2014
SECTION 5:Case Study 1
B&J Floors 1120S, Page FiveSee Page 4-20 For Help
1120S
5|31
CORPORATION PARTNERSHIP & LLC RETURNS¤ Linda Keith, CPA, Inc. January 2014
SECTION 5:Case Study 1
B&J Floors 1120S, Schedule K-1See Page 4-22 For Help
1120S
The company paid out $20,892 in distributions
The company paid Ben $13,914 in distributions
If you are not requiring Jan or Zac to guarantee you need to subtract the extra $6,978 from company cashflow somewhere! I would do it in ‘other expense’ on my worksheet. © Linda Keith CPA Inc Mar 2015 | 64
Jan and Dan Borrower
Jan: 25% School Tools
Jan: 100% Odds N Ends Medical
Dan: 90% Valley Vineyards
Dan: 10% Donut Shop
1040
1065 1065 K-‐1
1120S K-‐1
1120S
1120S
1120S K-‐1
1120S K-‐1
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 65
Bo=oms Up Analysis
+/-‐ Item Amount
1120S Line 21 PLUS Taxable Income -‐22,870
1120S Line 13 Add Interest Expense 26,907
1120S 20 Add DepreciaUon 6,911
K (various lines) PLUS or Minus
Interest, Rentals etc
M-‐1 (various lines) PLUS or Minus
Disallowed meals, etc -‐623
Equals Cash Available to Pay Debt and distribuUons to owners
$10,325
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 66
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 23
Bo=oms Up Analysis Item Amount
Cash Available to Pay Debt and distribuUons to owners $10,325
Global Amount
B&J Floors X 25% $2,581
Odds N Ends X 100%
Jan
Available from income
Less Family Living
Less Income Taxes
Available for Debt
Combined Debt
Global Margin
Global DCR
-‐36,000
-‐26,000
$115,490
47,500
67,990
2.43
Personal Amount
Wages (including Scorp) $80,000
Alimony 30,000
Other -‐0-‐
CF other than Pass-‐Throughs $110,000
Debt List Amount
B&J Floors Debt Payments X 25%
$6,500
Odds N Ends
Jan Personal
Total Debt Service 47,500
14,400
26,600
64,909
110,000
177,490
Odds N Ends 64,909
-14,400 $50,509
Debt to Income Ratio 47,500/177,450 = 27% © Linda Keith CPA Inc Mar 2015 | 67
© 2013 Fiserv, Inc. or its affiliates.
Guideline Question
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 68
© 2013 Fiserv, Inc. or its affiliates.
Guideline Question
© Linda Keith CPA Inc Mar 2015| Resources at www.LindaKeithCPA.com/Sageworks | 69
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 24
Owner Cashflow Taxable Income Actual Cashflow
Cashflow Available
© Linda Keith CPA Inc Mar 2015 | 70
We’ll find this on 1040, Page one.
© Linda Keith CPA Inc Mar 2015 | 71
1040 Line 17
Taxable inc
ome from Pass-‐
Through En
UUes
© Linda Keith CPA Inc Mar 2015 | 72
Global Cashflow w/ Linda Keith CPA 19-Mar-15
Copyright © 22015 Linda Keith CPA Inc. All rights reserved. | Resources at www.LindaKeithCPA.com/Sageworks 25
Actual Personal Cashflow
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$38,594
$24,999
Actual AddiUonal Cashflow to owner
50,509
Available Personal Cashflow to owner
Paid taxes on her share of taxable income.
Guidelines based on: • Pattern • % Ownership
Lenders consider: • Guidelines • Common Sense • Judgment
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© 2013 Fiserv, Inc. or its affiliates.
Steps for multiple pass-through entities:
1. Diagram the relationships 1. Who is your borrower 2. Who must guarantee 3. Which returns do you need when
the owner/guarantor owns an unrelated pass-through business
2. Obtain all required returns 3. Decide for each pass-through entity
other than the borrower which to use: 1. Actual cashflow from the K-1 2. Cashflow available to the owner
calculated from the full return times the ownership %
4. When calculating 1040 cashflow, use K-1 cashflow or entity share of cashflow instead of any K-1 pass-through items (Schedule E Page Two, Schedule B, Schedule D, etc.)
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© 2013 Fiserv, Inc. or its affiliates.
Done but not done!
Managers: • Modify and communicate
guidelines to give clear but flexible guidance.
• Check that your worksheet or software counts, but does not double-count, pass-through entity cashflow in your global calculations.
• Provide the recording of this webinar and other resources to your team.
• Work to help your lenders and analysts move beyond formulaic number-crunching to insights and understanding
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© 2013 Fiserv, Inc. or its affiliates.
Lenders and Analysts 1. Understand your guidelines 2. Review the webinar or other
resources 3. Request the 20-Video
Series and other resources
Done but not done!
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Contact Information & Resources
Linda Keith CPA Info@LindaKeithCPA.com 360.455.1569
Websites + www.LindaKeithCPA.com
+ Resources, blog, articles, training + www.LendersOnlineTraining.com
+ Self-Study eLearning + www.TaxReturnAnalysis.com
+ Four-week Virtual Training + www.TheLendersAcademy.com
+ Become a BETA Partner
Resources + 20 Video Series on Pass-Through Entities + Recordings of and resources from this and previous Sageworks Webinars
+ Global Tax Return Analysis Quick Reference Guide + Red Flags and Green Lights in Tax Returns: Extended Handouts
+ Sign-up for ‘Lenders Q&A’ email with answers to real questions each month
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