The effective personal “adjusted gross income” or AGI is probably the least known among applicants, and even many SBA analysts. The applicant for 8(a) Certification must have an adjusted net worth of less than $250,000 to get 8(a) Certified. Suppose you pay yourself $240K in salary and $5K in owner draws every year. This makes your total compensation $245K per year, which gives you a good chance to the 8(a) AGI limit of $250,000 to get into the program. Now say you forget that in addition to $245K per year from your business, you also get $3K in rental income from an apartment you rent out to other people, plus $3K per year in dividends from your stocks. You now have a 3-year average AGI of $251K, that makes you ineligible to join the 8(a) program because you are not “economically disadvantaged” according to the SBA rule.
If you are worried about the AGI cap, grab three consecutive years of your personal federal tax returns and scour them carefully to take note of all sources of income you possess. AGI is more than just salary–every dollar of income also counts. So in other words, when you calculate your 3-year AGI amount, you need to make sure all of these sources of income taken together amount to less than the 8(a) cap that means it should not be $250 –it must be less than $250K and if you are already 8(a) certified, your 3-year average AGI must be under $350K. Calculating AGI is a very cumbersome process. There are numerous rules and regulations you need to know and follow to get an 8(a) Certificate and preserve it. So it is always advisable to take expert guidance from a reputed and reliable firm like ez8a before approaching for 8a.
If the 8(a) applicant is married, the SBA will consider the spouse’s financial situation also in determining whether the applicant’s access to capital and credit is diminished where the spouse has a role in the business (e.g. an officer, employee or director) or has lent money to, provided credit support to, or guaranteed a loan to the business. If the applicant is married and the asset or liability is jointly held, you split the value 50/50. If the applicant is married and lives in a community property state, you only split assets and liabilities 50/50 if you have a transmutation or pre/post nuptial agreement that states otherwise. Each applicant, and their spouse, must submit a separate SBA Form 413, Personal Financial Statement. Along with the SBA Form 413 you must also submit statements for each asset or liability supporting the amounts reported. These statements cannot be any older than 30 days at the time of 8a Application submission. According to SBA you cannot transfer an asset out of the applicant’s name within two years of the time you apply for 8a Certification for less than fair market value. Doing so will result in the full amount of the asset being reattributed back to the applicant. The SBA will look at your personal federal income tax return for the 3 most recent consecutive years and calculate your 3-year average Adjusted Gross Income (AGI) to determine if you are economically disadvantaged for the 8(a) program.
Ez8a will fully review all assets and liabilities for you and your spouse and perform a detailed analysis to determine if in fact you are below or above the regulatory limit set by SBA. You will receive a detailed analysis that will fully explain and determine your adjusted worth for 8a purpose.
If you need more 8a related assistance consult with ez8a, a market leader in 8a certification over the years.
