The American Rescue Plan Act of 2021 was signed into law just in time for tax season to reach its peak. While there does not seem to be any rescue from workload coming for the tax accountants, there may be some financial benefits for you or your business. In this newsletter are a few quick notes and links to help you find which benefits from the Act, or other recent law changes or alerts, might apply for you. Keep in mind that changes can happen at any moment, and much remains up in the air.
TAX RETURN DUE DATE
The IRS is moving the April 15 deadline to May 17 to allow more time to implement required changes. At this time, the date move applies for 2020 INDIVIDUAL RETURNS and payments only. California has announced it will conform. First quarter 2021 estimated taxes, trusts, and corporate returns are still due April 15.
The Act expanded dependent care credits for 2021, and increased child tax credits starting with the 2021 tax year. The Act includes a directive for the IRS to make advanced payments of the new child tax credit to certain taxpayers, but no further guidance or links are yet available.
DID YOU PAY NIIT TAX ON YOUR 2017 TAX RETURN?
You paid net investment income tax (NIIT) if there is a number on line 62, page 2, of your 2017 form 1040. Due to a case pending at the Supreme Court, there is an extremely remote chance you could be entitled to a refund of this tax IF you file a claim before the statute of limitations expires (April or October 15, 2021). A sample fill in claim form, with instructions, is available at our website:
There is a special enrollment period for ACA health insurance THROUGH MAY 15, 2021. As of January 1, 2020 California began enforcing a healthcare mandate with a tax return penalty for noncompliance. The Act expanded the federal premium tax credit and advance payments towards the credit to help qualified taxpayers afford their insurance.
Unemployment benefits have been extended and expanded. The Act also makes the first $10,200 in unemployment benefits tax-free in 2020 for taxpayers making less than $150,000 per year.
California has issued a statement on the expanded benefits:
Sole proprietors can now choose to use gross income to calculate PPP loans, opening up access to businesses that had losses. Remember that while these are officially loans, they can be FORGIVEN if spent appropriately. THE PROGRAM CLOSES MARCH 31, so qualified businesses need to act quickly. A new application form is available for Schedule C Filers choosing to apply using gross receipts:
If you have not applied for a first or second draw PPP loan, there is still time, but not much. Remember that while these are officially loans, they can be FORGIVEN if spent appropriately:
The American Rescue Plan Act creates a NEW, $28.6 billion, Restaurant Revitalization Fund for industry-focused grants. No information has been made available yet; watch the SBA webpage for updates.
So many questions, yet virtually no answers, especially when it comes to reporting PPP loans and their forgiveness on 2020 California tax returns. Stay tuned.
Lawrence S. Smith, CPA 1527 5th Avenue, San Rafael, CA 94901 82 West Portal Avenue, San Francisco, CA 94127 Tel 415-458-5100 Fax 415-458-5105 smith@smithcpas.com
DISCLAIMER
While we hope the contents of these alerts are helpful to our clients, these alerts are not intended to be advice upon which you should rely. Tax advice contained in these alerts is not intended to be used for, and cannot be used for, the purpose of avoiding penalties under the US federal tax laws. Inclusion of topics outside the scope of our normal service areas is intended to serve solely as a general starting point and should not replace consultation with experts in the related fields.
The IRS and SBA have been implementing the COVID-19 relief and tax law changes enacted December 27, 2020. The legislation was extensive, and the changes numerous. This newsletter highlights funding and credit options that require attention in the short term. Additional items in the new law will be addressed at later dates.
NEW LIFE FOR A POPULAR PROGRAM
The Paycheck Protection Program (“PPP”) has been rebooted and is open for applications until March 31, 2021 (or when funds run out, if earlier). The primary appeal of accessing PPP funds continues to be that the loans, if spent properly, can be forgiven.
Interaction with Employee Retention Credit
If a business did not participate in the PPP program because it elected to use the Employee Retention Credit, it can now apply for PPP funds in ADDITION to taking the credit, provided the same payroll dollars are not used in both programs. Additional information on the Employee Retention Credit follows.
Spending the money
The requirements for how the money can be spent while remaining eligible for forgiveness have loosened up, but the objective of the program continues to be encouraging employers to retain their employees.
– Self-employed individuals and partners can be treated as employee equivalents under the program.
– Workers who are paid as independent contractors are not your employees and should file separately for their own loans.
The SBA has updated the relevant rules, links and dates on its main PPP webpage:
Reminder: Payroll Protection Program loans are provided through your bank. It is important to apply directly through an SBA approved lender. Be prepared to contact multiple lenders and remember to be persistent.
To qualify for second draw funding, businesses must have:
spent all of their first draw on authorized uses (documentation will be required),
have no more than 300 employees (this is lower than allowed for first draws), and
be able to demonstrate an actual reduction in gross receipts. The reduction must be at least 25% when comparing one chosen quarter in 2020 to the same quarter in 2019.
Loan forgiveness under the PPP program is not automatic; you must apply. To be timely, your PPP loan forgiveness application must be submitted within ten months from the end of your 8 or 24 week covered period. For those who received funds in the first offering and choose an 8-week covered period, that deadline can be as early as April, 2021. If you don’t remember when you received your funds, look up the date and mark your calendars for just shy of the same date in 2021.
FAQs released jointly by the SBA and Treasury Department:
Taxpayers who received $1,000 – $10,000 Economic Impact Disaster Loan (“EIDL”) advances from the SBA no longer have to reduce their PPP loan forgiveness by these amounts. If your loan forgiveness was completed before the change, contact your lender for possible adjustment.
SHUTTERED VENUE GRANTS
Performing arts venues, theaters, operators and representatives that have either been unable to operate due to COVID-19, or have suffered extreme losses in gross receipts, will be able to apply for Shuttered Venue Operator (“SVO”) grants through the Small Business Administration. Program implementation details are still under development, but SVO grants could prove to be higher than PPP loans for the same fact situations.
Watch the SBA SVO program webpage for more information:
CALIFORNIA SMALL BUSINESS GRANTS 2nd & FINAL ROUND FEBRUARY 2 – 8th
Active California small businesses and non-profits that missed round 1 are encouraged to apply for the California Small Business COVID-19 Relief Grant Program. Applications under the second and final round open February 2 and close February 8, 2021.
Eligible businesses must have been negatively impacted by the pandemic and have annual gross revenues below $2.5 million. Applicants will need to submit financial, tax return and ID information. If approved, the size of the award will be set by the annual revenue of the business. The maximum award is $25,000.
Complete program details, eligibility information, and application portal are available at: https://careliefgrant.com/
EMPLOYEE RETENTION CREDITS EXPANDED AND EXTENDED
Businesses who received loans under the Payroll Protection Program can now also receive Employee Retention Credits, although not on the same wage dollars used to calculate PPP loan forgiveness.
The Employee Retention Credit program has been extended to June 30, 2021.
Eligible business include:
those whose operations were either fully or partially suspended by a COVID-19 government order, and/or
those which experienced more than a 20% drop in gross receipts (previously 50%).
As of this print, the IRS webpages have not yet been updated to reflect the changes.
PayChex has an article describing the program and recent changes:
The coronavirus-related paid sick and family leave program has been extended through March 31, 2021. Businesses with fewer than 500 employees are required to offer paid leave under the program. Dollar for dollar federal payroll tax credits are available to offset the cost to employers (up to the stated maximums).
For self-employed individuals, an income tax credit is provided with similar maximums, but the refund won’t occur until filing annual personal income tax returns.
As of this print, the DOL and IRS web pages have not been updated for the date extension but otherwise continue to provide useful program details.
Under theDecember law changes, expenses equal to the amount of PPP loan forgiven will no longer have to be disallowed for federal tax purposes. It is important to note, however, that California has NOT conformed to the correction and has not yet given any indication that they intend to. As a result, taxpayers still need to plan for their California taxable income to go up by the amount of their PPP loan forgiveness.
Lawrence S. Smith, CPA 1527 5th Avenue, San Rafael, CA 94901 82 West Portal Avenue, San Francisco, CA 94127 Tel 415-458-5100 Fax 415-458-5105 smith@smithcpas.com
DISCLAIMER
While we hope the contents of these alerts are helpful to our clients, these alerts are not intended to be advice upon which you should rely. Tax advice contained in these alerts is not intended to be used for, and cannot be used for, the purpose of avoiding penalties under the US federal tax laws. Inclusion of topics outside the scope of our normal service areas is intended to serve solely as a general starting point and should not replace consultation with experts in the related fields.
It has been a challenging year, but smart actions in December can mitigate pain in April. Taxpayers with PPP loans will want to work on their loan forgiveness applications, and businesses with losses in either 2018 or 2019 should consider taking advantage of new opportunities to carry those losses back. Severely hit qualified businesses should reserve a piece of a new California credit, and individuals should look at potential new planning opportunities.
THE HOLIDAY THAT GUARANTEES A HANGOVER
In August, the President signed an executive order allowing a payroll tax holiday. Employers who chose to participate in the program were able to increase their employees’ take home pay by postponing the withholding of the employees’ share of social security and Medicare taxes. Even though the taxes were not withheld, they are still owed and will come due in 2021. Make sure you know whether or not your employer chose to participate in the program and, if so, be prepared for double withholding or similar adjustment starting January 1, 2021.
BE PREPARED TO PAY FEDERAL TAXES ON UNEMPLOYMENT
Unemployment insurance benefits, including the extra $600 pandemic payment, are taxable income on your federal return. Note that even if you elected to have tax withheld on your payments, no tax was withheld on the extra $600, and withholding that did occur may not have been at your marginal tax rate. As a result, if you received unemployment, you may owe additional federal tax in April.
California unemployment benefits are not taxable on your California return.
BEWARE OF THE NANNY TAX WHEN HIRING A TUTOR
Some families are forming education pods and hiring full or part time tutors. Note that these tutors may qualify as employees subject to nanny tax reporting.
THE STATE OF CALIFORNIA WANTS TO GIVE YOUR BUSINESS CREDIT
California has enacted a tentative small business hiring credit for small California business that have suffered a large (50% +) decrease in gross receipts. In order to receive the credit, the business must make a reservation through the state’s online system between December 1 and January 15. Credits are first come, first serve, so if your business meets the criteria, you should act quickly.
Get details, information to decide if you qualify, and a link to reserve credits at the CA.gov website:
CALIFORNIA WANTS TO GRANT RELIEF TO UNDERSERVED MICRO & SMALL BUSINESSES
Grants of up to $25,000 will be available to underserved micro and small businesses. While the program is being created, interested businesses are encouraged to sign up for updates:
A variety of recently added state relief measures, including extensions for sales tax payments, are highlighted in a recent news release from the state. The news release also discusses the Small Business Relief Grants and the hiring credit:
TAX COMPLICATIONS WHEN REMOTE WORK MOVES OUT OF STATE OR COUNTRY
For many, the switch to working from home opened up the opportunity to live, at least temporarily, in a new location. Unfortunately, when employees set up even a temporary base in a new state or country, the change can create new tax filing obligations for either or both the employee or employer. The rules vary substantially state by state, as well as by dollars or industry. Employers need to know who is working where and for how long in order to make informed decisions.
SOME LOSSES CAN NOW BE CARRIED BACK FOR REFUNDS
2020 law changes allow net operating losses created in 2018, 2019 or 2020 to be carried back for 5 years. If the combined business activities on your return generated a net operating loss in 2018 or 2019 and you paid tax in any of the five previous years, you may be able to use a carryback return to receive a refund.
ENDING SOON: USE YOUR RETIREMENT ACCOUNT TO EASE CASH FLOW STRAIN
If you have experienced specifically defined coronavirus hardships, you have until December 31 to take taxable withdraws of up to $100,000 from your IRA or retirement account without incurring a penalty. You will still be taxed on the income, but can divide the income (and, thus, the tax) among 3 years. You will also have 3 years to change your mind, recontribute the funds, and file amended returns to get back the tax you paid.
If you have experienced specifically defined coronavirus hardships, another option might be to borrow from your non-IRA retirement account. The maximum amount is increased from $50,000 to $100,000 – but only until December 31. In addition, loan repayments may be delayed for up to one year.
IRS FAQs (including definition of coronavirus related hardships):
NOTE: If your retirement account holds stock in your employer’s corporation, there may be additional planning opportunities available.
ENDING SOON: REQUIRED MINIMUM DISTRIBUTION (RMD) SUSPENSION
Retirees were not required to take out required minimum distributions (RMDs) from their retirement plans in 2020. This suspension is currently scheduled to end December 31, 2020. Taxpayers should be prepared to resume making RMDs from their retirement plans in 2021.
LOW INCOME YEARS PROVIDE A RETIREMENT PLANNING OPPORTUNITY
If your income this year was extremely low, it may be a good opportunity to convert retirement funds into ROTH plans. You would pick up the balance as taxable income this year so that future retirement draws will be tax free.
CHARITABLE DONATIONS MADE IN 2020 TAX YEARS HAVE INCREASED BENEFITS
If you do not itemize deductions, you will still be able to deduct up to $300 of charitable donations on your 2020 tax return.
If you do itemize deductions, the amount of charitable cash donations you can deduct on your 2020 return will generally not be limited to a percentage of your adjusted gross income.
For corporations, the limitation increase is to 25% of taxable income.
IRS News Release on the enhanced donation benefits:
Taxpayers aged 70 ½ or older also have the option of making charitable donations directly from their IRA accounts and reducing the amount of taxable distribution. NOTE, however, that the donations will NOT show on the retirement plan distribution reporting form (1099-R). You will have to tell us about the donations so we can properly claim the benefit.
CALIFORNIA VOTERS PASS PROPOSITION 19
Effective April 1, 2021, it will be easier for seniors and disaster victims to transfer their property tax base to a replacement property. Effective February 16, 2021, it will be more difficult for heirs to keep the property tax base of property they have inherited or have received from parents or grandparents.
A summary of the changes is available on the Board of Equalization website:
Proposition 22 impacts a narrow base of businesses and the labor they use, classifying the workers as independent contractors instead of as employees under California law. The language of the law is specific to app-based drivers for rideshare and delivery network companies such as Uber, Lyft, and Door Dash. The passage of the proposition does not change the status of workers in other businesses, which are still subject to AB 5’s expansion of who must be treated as an employee.
A copy of the new law is available at the CA.gov website:
While congress intended that no taxable income would be created when PPP loans were forgiven, a pre-existing code section disallows the expenses used to qualify for the loan forgiveness. The net effect is that businesses can expect their taxable income to go up by the amount of their loan forgiveness. Year-end planning and estimated tax payments should be adjusted accordingly.
While it remains possible congress will cure this defect, no such action has been taken to date.
The rules work a little differently for schedule C owners and partners whose loans were based on their allocated share of profits (for partners, K-1 lines 1-3 but not line 4). Since those profits are not deducted by the business, there is no expense to adjust.
ASKING FOR FORGIVENESS
Lenders are in charge of processing and making decisions with respect to PPP loan forgiveness applications. Be sure to check your lender’s website and your loan documents for information on how to get your forgiveness application started. Be prepared to provide extensive documentation to back up the qualified expenses you claim.
Your application can be submitted any time after the end of your 8 or 24 week covered period.
To be timely, your application must be submitted within ten months from the end of your 8 or 24 week covered period.
Forgiveness application forms are available from the SBA (3 Versions)
While your lender may have their own variation of the form(s) or require on-line submission, reviewing the SBA forms will help you prepare for the process.
While the hope is that a new relief package will become available, and rumors abound about potential tax law changes, the reality is that law change proposals undergo numerous negotiations, revisions, and approval steps before becoming law. When it comes to taxes, the best prediction anyone can make is that yes, you will have to pay them.
Lawrence S. Smith, CPA 1527 5th Avenue, San Rafael, CA 94901 82 West Portal Avenue, San Francisco, CA 94127 Tel 415-458-5100 Fax 415-458-5105 smith@smithcpas.com
DISCLAIMER
While we hope the contents of these alerts are helpful to our clients, these alerts are not intended to be advice upon which you should rely. Tax advice contained in these alerts is not intended to be used for, and cannot be used for, the purpose of avoiding penalties under the US federal tax laws. Inclusion of topics outside the scope of our normal service areas is intended to serve solely as a general starting point and should not replace consultation with experts in the related fields.
Smith and Company, CPA’s. is growing fast and we are seeking self-motivated, detail-oriented team players with 5+ years of recent public accounting tax experience to lead tax engagements. We are a progressive, full-service CPA firm (founded in 1989) located in San Rafael, Petaluma, San Francisco, CA, proud to provide our customers with prompt, professional, courteous, and result-oriented services.
We are committed to the highest levels of professionalism by continually learning and providing our clients with the best possible advice available in order to increase their wealth and quality of life.
This position offers exposure to all aspects of public accounting, from the preparation and review of complex small business tax returns to tax research and planning and assistance with financial statements. There is opportunity to quickly advance within the company for the right individual.
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This position requires a Bachelor’s degree in Accounting or related field along with strong analytical, organizational, client service, communication, and PC skills including MS Excel & QuickBooks proficiency (Lacerte proficiency is a plus). The work is fast-paced and well suited to professionals that are able to work both independently and as part of a team. CPA license or MBA and prior supervisory/managerial experience are a plus.
If you are looking for an excellent opportunity to join a growing firm, get paid well, and are eager to be a key component of our team-oriented approach, please use the form below to submit your resume and a brief note about why you are interested. We are an equal opportunity employer.
The Paycheck Protection Program Flexibly Act of 2020 (“Flexibility Act”) was signed into law last Friday, June 5th, 2020. Revisions to the program address issues taxpayers encountered while trying to take advantage of the promised loan forgiveness. Before outlining the changes, however, we’ll make quick note of one other item.
DON’T THROW AWAY YOUR STIMULUS REBATE!
Some stimulus rebates (officially known as economic impact payments) are being sent as debit cards. Some taxpayers, however, have mistaken them for junk mail and thrown them out. According the IRS website, debit card payments come in a plain envelope from “Money Network Cardholder Services.” No wonder taxpayers are confused.
KEY CHANGES TO THE PAYCHECK PROTECTION PROGRAM (PPP)
Maximizing loan forgiveness is now much easier.
Borrowers now have 24 weeks to spend loan proceeds, up from 8 weeks.
The amount that must be spent on payroll costs is reduced to 60%.
The date by which your workforce must be restored to avoid reductions in the amount forgiven has been extended to December 31, 2020.
New exemptions to the re-hire requirement have been added.
Restrictions on taking advantage of the CARES Act deferral of employer social security payments have been removed.
Of course, the devil is often in the details. We do not yet know how these changes will be interpreted and implemented by the SBA.
IF YOU HAVE STILL HAVEN’T BEEN ABLE TO GET A PPP LOAN, DO NOT GIVE UP!
PPP funds are still out there, but you will need to be persistent. Some clients have had success with lesser known lenders such as Funding Circle and Kabbage. Paychex and Gusto have lender information you can access through their websites. QuickBooks payroll clients can apply for loans through QuickBooks capital.
For self-employed individuals and partners, the lenders will base your loan on your 2019 schedule C or 2019 schedule K-1 income. Current SBA rules are that the amount forgiven for the income related to your schedule C or K-1 earnings will be exactly 8/52 times the amount of 2019 income shown, but not more than $15,384. We do not know if the SBA will modify the rule in light of the changes for other borrowers in the Flexibility Act.
PPP LOAN FORGIVENESS APPLICATIONS & WORKBOOKS
Remember that you must separately apply for your PPP loan to be forgiven. The SBA has released a loan forgiveness application, but it has not yet been updated for changes made by the Flexibility Act. Watch for updates at the SBA website.
The AICPA offers MS Excel based loan forgiveness workbooks on its website. These currently are dated June 3 and have not yet been updated to reflect the changes in the Flexibility Act. We do not know if updates are planned.
Two East Coast regional accounting firms collaborated to create an extensive MS Excel based PPP loan forgiveness workbook that was available to the public. They have temporarily pulled the workbooks from their website to allow for the revisions necessitated by the Flexibility Act. If you are interested in the workbook, you can watch their website for the update.
Lawrence S. Smith, CPA 1527 5th Avenue, San Rafael, CA 94901 82 West Portal Avenue, San Francisco, CA 94127 Tel 415-458-5100 Fax 415-458-5105 smith@smithcpas.com
DISCLAIMER
While we hope the contents of these alerts are helpful to our clients, these alerts are not intended to be advice upon which you should rely. Tax advice contained in these alerts is not intended to be used for, and cannot be used for, the purpose of avoiding penalties under the US federal tax laws. Inclusion of topics outside the scope of our normal service areas is intended to serve solely as a general starting point and should not replace consultation with experts in the related fields.
Despite the stated intentions of the laws, it has taken a long time for relief targeted at independent contractors and sole proprietors to become viable. While many of the programs are finally working, some complicated decisions and open questions remain. We highlight some of these in this edition of the newsletter, as well as address rising issues related to Paycheck Protection Program (“PPP”) loans. Finally, we highlight additional benefits that have either been added or may have been overlooked.
LESSONS FROM THE FRONT LINES
Sustain a working relationship with your banker.
Be persistent.
SOLE PROPRIETORS & INDEPENDENT CONTRACTORS (SCH C FILERS)
Sole proprietors and independent contractors are finally having success obtaining benefits under the Paycheck Protection Program (PPP) option, as well as under the new unemployment benefit expansion that finally went live on April 28th. If you tried to apply in early April but were not successful, try again.
Schedule C filers who haven’t checked out the new, expanded unemployment benefit (known as “Pandemic Unemployment Assistance” (PUA)), or who had tried applying under the traditional program and were turned down, should review the information at these links:
Q. As a schedule C filer, can I receive benefits under both the PPP and the PUA?
A. While guidance is limited, agencies have indicated that receiving a PPP loan (discussed further below) can disqualify you from receiving Pandemic Unemployment Assistance (PUA). It is unclear if the prohibition applies across the board, or just for the period covered by the PPP.
Q. As a schedule C filer, how do I decide which program (PPP or PUA) is best for me?
A. While there are several differences between the programs, one consideration is whether or not you are still working part time. Neither the PPP loan nor the related forgiveness amount are impacted by part time earnings. PUA benefits, however, may be reduced. Our staff has located an article which provides a good summary of the issues:
INDIVIDUALS WITH INSUFFICIENT WORK HISTORY OR WHO HAVE EXHAUSTED BENEFITS
California’s Pandemic Unemployment Assistance (PUA) benefits (discussed above), while primarily advertised for Schedule C filers, are also available to individuals without sufficient work history and to individuals who have exhausted their regular and extended unemployment benefits.
WORK SHARE PROGRAM
The state of California allows employers to apply for the Unemployment Insurance (UI) Work Sharing Program if reduced production, services or other conditions cause them to seek an alternative to layoffs. Under this program employees whose hours and wages have been reduced can receive UI benefits while keeping their current job.
MORE PAYCHECK PROTECTION PROGRAM (PPP) GUIDANCE & OPTIONS TO EVALUATE
The SBA and US Treasury have been regularly updating their FAQs for the PPP. When looking up FAQs, be careful to find the latest version. Meanwhile, it is important to note that there still are many more questions than answers.
Recent FAQ updates have addressed
the importance and meaning of the borrower certification (FAQ #31; note the apparent emphasis on the term “necessary”),
extension of the date to return funds without penalty to May 14 (FAQ #43),
plans for the SBA to review selected loan forgiveness applications (FAQ #39), and
how to count employees who turn down your offer to rehire (FAQ #40; note the importance of having the offer in writing).
To obtain the loan forgiveness offered by the program, you will have to complete a second application with your bank. Your bank will be in charge of determining your loan forgiveness. Be prepared to provide detailed documentation.
Remember the SBA has determined that no more than 25% of the forgiven amount can come from non-payroll costs.
Many open questions remain as to how the amounts to be forgiven will be calculated. One question still not resolved relates to the interaction of wages earned v. actually paid (cash basis) during the 8-week period. The phrase in the law, “costs incurred and payments made,” remains open to debate. If your business would normally issue checks for services within the 8-week period on a date that falls outside of it, you should strongly consider moving the pay date up so it falls within the 8-week period.
In general, the safest bet is to make sure all qualified expenses related to the 8-week period are actually paid in the 8-week period. We recommend that you project out your payments to make sure that you will be able to maximize the amount of loan forgiveness.
Schedule C filers substitute wages with “owner compensation replacement” based on 8 base weeks. The process for those who also pay wages to employees is more uncertain.
Reminder: the 8-week period for determining how much of the loan can be forgiven started on the origination date of your loan.
Intuit has a loan relief eligibility calculator you may find helpful, although it is important to remember that different lenders may interpret rules differently due to lack of guidance:
Please feel free to discuss your situation with us so we can help you identify potential pitfalls and planning opportunities.
Decreased Payroll in the 8 Week Forgiveness Period / Option to Return Funds
While businesses have until June 30, 2020 to restore their workforce without incurring mandatory reductions in the amount of loan forgiven, they may still have trouble generating enough payroll in the 8-week calculation period to maximize their loan forgiveness. Such businesses have begun to consider whether or not the Employee Retention Credit might create a larger overall financial benefit. Taxpayers who wish to switch to using the Employee Retention Credit can do so if they return their PPP loans by the safe harbor deadline of May 14th, 2020 (FAQ #45). Additional information on the Employee Retention Credit follows.
Deductibility of Expenses used to Support Loan Forgiveness
The IRS has clarified that the expenses traced to your non-taxable loan forgiveness will not be deductible. A bill has been introduced in the Senate that would change this.
REMINDER: EMPLOYEE RETENTION CREDITS
Employers impacted by COVID-19 who do not participate in the PPP loan program may be able to claim employee retention credits on their payroll tax returns.
Caution: the credit is only available for payroll paid in quarters that meet strict criteria.
Employee retention credits allow an employer to claim a refundable 50% payroll tax credit of up to $5,000 per employee for wages and qualified health care paid between March 12, and December 31, 2020 provided the wages are paid during a calendar quarter in which the business is either (1) shut down by government order, or (2) experiencing a large drop (at least 50%) in gross receipts.
NOTE: Links to resources are evolving and often get moved or updated. While we have attempted to link to the most recent pages, we cannot guarantee how long any link will remain active.
Lawrence S. Smith, CPA 1527 5th Avenue, San Rafael, CA 94901 82 West Portal Avenue, San Francisco, CA 94127 Tel 415-458-5100 Fax 415-458-5105 smith@smithcpas.com
DISCLAIMER
While we hope the contents of these alerts are helpful to our clients, these alerts are not intended to be advice upon which you should rely. Tax advice contained in these alerts is not intended to be used for, and cannot be used for, the purpose of avoiding penalties under the US federal tax laws. Inclusion of topics outside the scope of our normal service areas is intended to serve solely as a general starting point and should not replace consultation with experts in the related fields.
In this newsletter: new funding is in the works for popular loan programs that have run dry, the IRS tool for inputting your direct deposit information has gone live, and new details on the various law changes and economic programs have continued to emerge. Finally, we talk a little bit about home offices.
Please remember to keep
us up-to-date on your unique situation as there may be planning
opportunities we can help you evaluate. We hope to address these more in
future newsletters.
STIMULUS REBATES/ECONOMIC IMPACT PAYMENTS – IRS TOOL NOW AVAILABLE
Many taxpayers have already
received their Economic Impact Payments (the $1200 stimulus checks) via direct deposit. If
the IRS did not have your direct deposit information, you can now click on the
“Get My Payment” button at https://www.irs.gov/coronavirus/get-my-payment to check
the status of your payment and/or provide direct deposit information
so you don’t have to wait for a paper check. Many
taxpayers, however, are getting a “Status Not Available” response, which may be
due to information not being fully updated yet in the IRS system. We recommend
waiting a week and trying again.
Don’t fall for scams: the IRS
will NOT call, email or write you to get your direct deposit information.
SMALL BUSINESSES SHOULD ACT FAST TO GET PPP FUNDING
Paycheck Protection Program (PPP)
loans proved to be so popular the initial allocation of funds quickly ran
dry. Congress just passed a new bill and we expect more funds
to become available, but you must submit your application
quickly. Funding is approved first come, first serve so we recommend you
act NOW if you have not already done so.
Important Notes:
Independent contractors can apply for themselves. Even if your business is just you and files on a Schedule C, it is eligible for this program. Your Schedule C earnings will be treated as payroll. Be prepared to provide your lender with copies of your Schedule C, 1099s received from clients, and payroll tax filings you have made
Partners can be treated as employees. If you work for your own partnership, many lenders will treat your share of partnership earnings as payroll. Be prepared to provide K-1s, payroll tax filings you have made, and draw information.
The maximum payroll used in the calculations for any individual is $100,000/year.
Do not include paid leave payments made under the Family First Coronavirus Response Act.
Funding will be calculated as two and a half months of specified historic payroll, but the portion of the loan that can be forgiven (the loan amount your business will never have to repay) will be based on 8 weeks of current payroll and overhead expenses. No more than 25% of the forgiven amount can be attributed to non-payroll costs.
The 8-week period for determining how much of the loan can be forgiven starts on the origination date of your loan, so plan the timing of your actual funding carefully.
There are open questions about calculating the 8 weeks of payroll if a pay date for work within the 8-week period falls after the end of the 8-week period. Please keep in contact with us for updates and planning.
Keep good records to document your expenses.
Businesses are getting this money so they will keep their employees on payroll through the crisis. If you reduce your staff the amount of the loan that can be forgiven will also get reduced. You have until June 30, 2020 to restore full-time employment and salary levels for changes made between February 15, 2020 and April 26, 2020.
Like the PPP, funding for the Economic Injury
Disaster Loan (EIDL) quickly ran dry. Additional
funding is in the works. At the time of this writing, the SBA website says it
is not accepting new applications but that should change once the funds
become available.
The EIDL program was meant to get fast cash to businesses, providing
them with a $10,000 advance.
If you are
interested in applying, we recommend you monitor the SBA website and apply as
soon as they begin accepting new applications:
REMINDER: EMPLOYEES OF SMALL BUSINESSES ARE ENTITLED TO PAID LEAVE
Coronavirus related paid leave rules took
effect April 1st. These rules apply to certain public employers, and
private employers with fewer than 500 employees. The Department of Labor has
moved its fact sheet with crucial information on this program:
Dollar for dollar federal payroll tax credits
are available to offset the cost to employers (up to the stated maximums). The
IRS has moved its FAQ page with information on these important credits:
Employers impacted by COVID-19 who do not
participate in the PPP loan program may be able to claim employee retention
credits on their payroll tax returns:
Now that so many of us are working from
home, there is an increased interest in claiming home office
deductions. However, the 2017 tax act effectively wiped
out federal tax home office deductions for employees. For most
employees, the best thing to do is find out if your employer will reimburse all
or part of your costs under an accountable plan. The employer can then
deduct the reimbursements it pays you. If your home office costs are
unusually high, contact us to see if there is potential for more
complicated planning opportunities. Remember that to receive any home
office benefit, the area must be used exclusively for the qualified
business.
KEY RESOURCES
All our past newsletters have been uploaded to our webpage:
NOTE: Links to resources are evolving and
often get moved or updated. While we have attempted to link to the most recent
pages, we cannot guarantee how long any link will remain active.
Lawrence S. Smith, CPA 1527 5th Avenue, San Rafael, CA 94901 82 West Portal Avenue, San Francisco, CA 94127 Tel 415-458-5100 Fax 415-458-5105 smith@smithcpas.com
DISCLAIMER
While we hope the contents of these alerts
are helpful to our clients, these alerts are not intended to be advice upon
which you should rely. Tax advice contained in these alerts is not intended to
be used for, and cannot be used for, the purpose of avoiding penalties under
the US federal tax laws. Inclusion of topics outside the scope of our normal
service areas is intended to serve solely as a general starting point and
should not replace consultation with experts in the related fields.
We are sharing brief updates and resources that may be
helpful as you navigate through the current health and economic crisis. If you
prefer not to hear from us on these matters, simply reply to this message
with unsubscribe in the subject line.
Since our last newsletter the IRS
individual rebate page has been moved and enhanced, more due dates have been
extended, PPP loans have emerged as the hot item, FAQs have been issued on
payroll tax credits, additional state and local resources and programs have
been added, and scam artists have gotten active. Our emphasis continues to be
on helping you get the cash flow you need now.
We have sorted links and
information below by national, California, and local (select cities).
NATIONAL
The latest on economic impact
payments for individuals
The IRS expects to start direct depositing rebates, now
referred to as economic impact payments, this month (April). Payments will be
$1,200 per individual and $500 per child (under 17) for taxpayers with AGI
under $75,000/$150,000 (single/married filing joint).
The IRS has a new webpage for getting the latest information
on the payment. The page linked in our last newsletter has been removed. This
new page also includes a button (still under construction) for inputting or
updating your direct deposit and/or mailing information, and a button (active)
for non-filers to use.
The IRS will NOT be calling, emailing or otherwise contacting you for your bank account information. For those who did not provide direct deposit information on a recent tax return, the IRS will soon have a secure process. Do not trust anyone trying to get personal or bank information from you.
What about dependent full-time
students 17 and older?
It appears that neither the parent nor the student will
receive this benefit.
As of April 10, Treasury and the IRS have extended hundreds of tax filing, payment and administrative due dates; including Q2 estimated taxes and 1031 exchange deadlines
IRS Notice 2020-23 attempts to cover all federal obligations
due to be performed April 1, 2020 through July 15, 2020 that had not yet
received an extension to July 15.
Second quarter estimated taxes normally due June 15 are
now due July 15.
Any estate, gift or fiscal year tax filing due within
the range is now due July 15.
Any 45 and 180 deadlines
for 1031 exchanges that would otherwise expire in the April 1 through July
15 time frame should now be extended to July 15.
Periods that expire
March 31 or before, or July 16 and later, are NOT extended.
The period of April 1 –
July 15 will generally be disregarded in calculating interest or
penalties.
The government is working to remove barriers to testing
for and treatment of COVID-19
Testing should be available at no cost to you.
The IRS has loosened restrictions so that no-deductible
cost coverage may be available even if you are enrolled in an H S A
compatible High Deductible Health Plan. You will have to check with your
plan for the precise rules that apply to you.
Businesses should be applying for
Paycheck Protection Program (PPP) loans
As noted in our last newsletter, the
PPP is basically a really sweet working capital loan that will be mostly
forgivable if you jump through the right hoops. Applications for most
businesses have already started; applying early should increase your chances of
getting in on the program.
Sole proprietors and independent
contractors
Applications for sole
proprietors and independent contractors start April 10th.
Partnerships
Lenders have been allowing businesses with working partners to treat their share of earnings as additional salary. Be sure to ask your lender.
Finding a lender
In general, you will have the best chance of obtaining a loan by using a bank with which you already have a working relationship. Some banks, however, are either severely limited in how many applications they are allowed to process, or struggling to get the program implemented. The SBA provides a search tool for finding approved lenders on their website.
Businesses not receiving specified benefits (below) may
defer their social security matching employment taxes (the 6.2% piece) for the
period March 27, 2020- Dec 31, 2020, as follows:
a. 50% due on Dec 31, 2021
and
b. 50% due on Dec 31,
2022.
What businesses are not eligible?
Businesses are not eligible for the deferment if they
receive loan forgiveness under the Paycheck Protection Program (above). If
you have a PPP application in process, you should not take advantage of
this postponement.
IRS
provides FAQs: Employee Retention Credit under the CARES Act
Reminder: required minimum
distribution (RMD) rules have been suspended
No RMDs are required for 2020.
Exclusion for employer-paid student
loans
Employer paid student loans after
March 27,2020 and before January 1, 2021 may be excluded from the employee’s
gross income. The maximum for employer educational assistance payment
exclusions is $5,250 per individual per year.
Statewide extensions and payment plan for sales & use
taxes + fees
Most small
businesses now have until July 31st to file
first quarter sales and use tax returns, as well as to make various other fee
program payments and filings. 12-month payment plans also are also available
for certain small businesses.
Lawrence S. Smith, CPA 1527 5th Avenue, San Rafael, CA 94901 82 West Portal Avenue, San Francisco, CA 94127 Tel 415-458-5100 Fax 415-458-5105 smith@smithcpas.com
DISCLAIMER
While we hope the contents of these
alerts are helpful to our clients, these alerts are not intended to be advice
upon which you should rely. Tax advice contained in these alerts is not
intended to be used for, and cannot be used for, the purpose of avoiding
penalties under the US federal tax laws. Inclusion of topics outside the scope
of our normal service areas is intended to serve solely as a general starting
point and should not replace consultation with experts in the related fields.
NOTE: Links to resources are evolving and often get moved or
updated. While we have attempted to link to the most recent pages, we cannot
guarantee how long any link will remain active.
We are sharing
brief updates and resources that may be helpful as you navigate through the
current health and economic crisis. If you prefer not to hear from us on these
matters, simply reply to this message with unsubscribe in the subject
line.
The few past weeks have seen the passage of two bills with important tax related benefits. While many open questions remain on the mechanics for applying the changes, we are highlighting some items that might be of immediate interest.
Take up to $100,000 out of Retirement Accounts
During 2020 you can take a penalty-free withdrawal from your
retirement account, to a maximum of $100,000, to aid with coronavirus related
hardships. You will still be taxable on the income, but can divide the income (and,
thus, the tax) among 3 years. You are also allowed to recontribute the funds to
your retirement account within 3 years.
Another option is to borrow from your retirement account. The maximum
amount for loans taken between March 27, 2020 and December 31, 2020 is
increased from $50,000 to $100,000.
NOTE: these provisions are only available for coronavirus related hardships as defined in the law. For additional details, please consult with your plan administrator.
Required Minimum Distribution Rules Suspended
The rules for required minimum distributions (RMDs) from retirement
plans are suspended for 2020.
Rebates to Individuals
Tax rebates of up to $1,200 per individual and $500 per child have
been authorized. The rebates are phased out for taxpayers with AGI over $75,000
single, $150,000 married filing joint, and $112,500 for head of household. The
government is planning to make near term electronic deposits to your bank
account using electronic deposit information from your previously filed tax
returns, if provided.
NOTE: Payroll Protection Loans are provided through your bank. It will
be important to apply directly through an SBA approved lender.
Small Business Administration Disaster Loans
The Small Business Administration separately offers disaster area
loans related to the coronavirus. These loans are issued directly from the SBA
and do NOT include the option to have part of the loan forgiven.
There is an employee retention credit for employers that are forced to
fully or partially close due to the coronavirus pandemic. Eligible employers
are allowed a credit against employment taxes for 50% of qualified wages.
NOTE: This credit is not available to employers who participate in the
Paycheck Protection Program, above (no double dipping!). Additional guidance on
the credit is pending.
Depreciation on Qualified Improvement Property
When the 2017 Tax Cuts and Jobs Act was passed, it was advertised that
you would be able to take an immediate write off for most improvements to your
business property. However, a technical
error in the law prevented taxpayers from receiving this intended benefit. This
technical error has now been fixed retroactively to the date of passage of the
2017 act. As a result, some previously filed returns may be worth amending for
refund.
Paid Leave
Employers and self-employed individuals need to
take note of the new paid leave rules going into effect April 1st.
The Department of Labor has provided resources
for employers to help them understand their obligations and to aid in
implementation:
For
self-employed individuals, an income tax credit is provided with similar
maximums, but the refund won’t occur until filing personal returns in 2021.
Some law
changes can be oddly specific, and this item is one of those. The law expanded
the definition of qualified medical expenses to include certain
over-the-counter products. Specifically, monthly menstrual supplies. As a
result, such purchases can now be made using HSA or FSA funds, should you wish
to do so.
We are sharing brief updates and resources that may be helpful as you navigate through this current health and economic crisis. If you prefer not to hear from us on these matters, simply hit the unsubscribe link.
The IRS is starting to provide guidance. We are monitoring closely and learning as we go.
What we know:
The April 15 filing and tax due date has been extended to July 15. If you choose, you can file now and pay later (July 15). Partnerships and S-Corporations can file an extension until September 15 and Individuals and C-Corporations until October 15.
As the original due date for filing has been moved, so have the deadlines for contributions to your Roth, IRA and HSA accounts.
What we don’t know:
The IRS has not provided clarification on whether Q2 quarterly payments can be deferred.
Additional Relief (Business Loans, Payroll and Other Resources):
Potential payroll tax credits related to required paid sick and family leave, and a separate credit for individuals who are self-employed (more to come on this)
We appreciate your business and wish you well and that you and your loved ones remain safe.
Disclaimer: While we hope the contents of these alerts are helpful to our clients, these alerts are not intended to be advice upon which you should rely. Tax advice contained in these alerts is not intended to be used for, and cannot be used for, the purpose of avoiding penalties under the US federal tax laws. Inclusion of topics outside the scope of our normal service areas is intended to serve solely as a general starting point and should not replace consultation with experts in the related fields.
