Tax Updates

COVID Legislation Quick Updates 12.28.2020

 

On December 21, 2020 the House & Senate passed a new round of COVID-relief legislation, which was signed into law on December 27, 2020.  Below are the primary updates that apply to many of our clients.  Please note that this is not comprehensive (the bill is over 5,000 pages long!) and we are waiting for a lot more information on procedures for many of these provisions.

PPP Loans – new forgiveness rules

Originally forgiven loan amounts were not taxable income, but expenses paid with those proceeds were not deductible, in effect making the forgiven amount taxable.  Under the new law, the forgiven amount is not taxable AND the expenses paid with those proceeds ARE deductible.

There will be a new forgiveness application for loans under $150,000 that will not require backup documentation to the bank/lender.  However, the SBA can still review your loan so you must have the backup documentation ready if requested by the SBA.

This streamlined forgiveness application will require:

  • The number of employees you were able to retain because of the loan
  • The estimated amount of the loan spent on payroll costs
  • The total loan amount
  • Your attestation to the accuracy and compliance with the loan rules

Finally, under the original law, if you also received an EIDL Grant, this reduced the amount of the PPP loan that was forgivable.  Under the new law, your full PPP loan amount can be forgiven, even if you received an EIDL Grant.

PPP Loans – new round of funding

The new law funds a new round of PPP loan funding.  This new funding is limited to businesses who had at least a 25% decrease in revenue in any quarter in 2020 as compared to the same quarter in 2019.  If you qualify because of reduced revenue, then you can apply – even if you previously received a PPP loan in the original program.  This loan application will be made through your bank, similar to the first rounds of the program.

PPP Loans – Employee Retention Tax Credit

The original law did not allow PPP loan recipients to also receive the employee retention tax credit.  The new law does allow both, although not for the same wages, expands the tax credit, and extends the tax credit through June 30, 2021.  There are several updates including:

  • The credit is increased from 50% to 70% of qualifying wages
  • The wage limit per employee is increased from $10,000 per year to $10,000 per quarter
  • The required reduction in gross receipts has is reduced from 50% decline to 20% decline
  • New employers can now qualify to receive the tax credit

Unemployment Benefits

Federal unemployment benefits and Pandemic Unemployment Assistance have been extended into March 2021.

Economic Impact (“Stimulus”) payment

There will be another round of economic impact (“stimulus”) payments.  These will be $600 per adult and $600 per dependent child. Similar to the first payment, this is limited to individuals making up to $75,000 per year and married couples making $150,000 per year (based on your 2019 tax filing).

Similar to the first payment, this is an advanced payment on a tax credit on your 2020 tax return, so if your income was over the threshold in 2019 but below it in 2020, you will receive the payment as a credit on your 2020 tax return.

Charitable Contributions  

[This paragraph updated 1/5/2021]

The original law allowed for a new charitable contribution deduction for cash donations up to $300 for individuals who do not itemize deductions.  For 2020, this is $300 per tax return, whether it was a single individual or married couple.  The new law expands this for 2021 and future years to mean $300 per adult on the tax return, so single filers have a $300 deduction and married couples filing jointly $600.

Business meals deduction for restaurant meals in 2021-2022

Historically business meals expenses have been deducted at 50% of the cost.  The new law allows 100% deduction for business meals purchased from restaurants in 2021-2022.  Note that this does not apply to 2020.

Applying for PPP loan forgiveness – is it time?

 

Applying for PPP loan forgiveness – is it time?

This is a question we are receiving almost daily and the answer is, “it depends.”

When you apply for PPP loan forgiveness, your bank has up to 60 days to review and approve your forgiveness.  Then they send it to the SBA.  The SBA has up to 90 days to review and approve your forgiveness and make the final determination.  Combined, this is potentially a 5 month process (assuming no delays with the SBA, which is not necessarily a safe assumption).

Over the last several months, Congress has been on and off in negotiations to pass another COVID relief bill.  In those negotiations, there has been some bipartisan support for including new legislation that would provide automatic forgiveness for all PPP loans under $150,000.

If this legislation is passed, it will likely make the paperwork requirements simpler and potentially the approval process faster. There are no guarantees of this legislation being enacted, nor a guarantee that it will speed up the approval process, but these changes still seem reasonably possible.

As a result, many PPP loan recipients are waiting to apply for loan forgiveness in case an easier, faster way is introduced, while others prefer to apply now.

If your PPP loan is over $150,000 and you have used all of the funds, then yes, go ahead and start your PPP loan forgiveness application. There has been no discussion of a simpler, faster process for these loans.

If your PPP loan is under $50,000 and you were taxed as a sole proprietor with no employees at the time of receiving the loan, then there is a very simple application available for you that requires very little back up documentation. I do not expect that a simpler form will be introduced for these loans, however there is still a possibility that a faster approval process could result from new legislation.

If your PPP loan is under $50,000 and you had employees at the time of receiving the loan, then there is a very simple forgiveness application available for you, but it does require full back up documentation including bank statements, payroll tax returns, proof of eligible payments, lease agreement, and utility bills.  If new legislation is passed, these documentation requirements may be simplified, and the approval process may be faster.

If your PPP loan is between $50,000 and $150,000, your loan is the most likely to benefit from potential new legislation as there is no simplified application at this time, and full back up documentation is required, including bank statements, payroll tax returns, proof of eligible payments, lease agreement, and utility bills. New legislation could simplify and speed up the loan forgiveness process.

Ultimately, this is an individual choice. If your bank is accepting loan forgiveness applications, you can use the existing forms & procedures to submit your application now.  If you prefer to wait for possible new legislation that might make the process easier & faster, this legislation is most likely to be passed either in December or soon after January 20th.

 

Changes for the 2015 Tax Year

In an effort to help you make the best personal finance and business decisions in the coming year, here are the 2015 tax numbers recently published by the IRS and SSA (and their 2014 counterparts):

2015 Tax Changes

2015 Tax Changes

 

 

 

 

 

 

 

 

 

 

 

 

If you have any questions, concerns, or are looking for advice on how to put this information to the best use, contact us!

 

 

The Affordable Care Act and Your Taxes

Love it or hate it, the Affordable Care Act (aka “Obamacare”) will likely affect your taxes for 2014.

Through Obamacare the government offers a premium tax credit to help subsidize individual health care coverage. If you have insurance through the Health Insurance Marketplace (aka the Exchange) then your insurance company may already be receiving this subsidy on your behalf. (If you are paying the full monthly premium then you are not receiving this credit in advance.)

It’s important to report changes in your circumstances to the Exchange to help you avoid getting too much or too little advance payment of the premium tax credit. Getting too much means you may owe additional money or it may eat just eat into your tax refund. Getting too little could mean missing out on premium assistance to reduce your monthly premiums. (Worst case scenario: your income is too high to qualify for the credit, in which case every penny will have to be paid back come April 15.)

Having just passed the middle of the year, now is a great time to review your circumstances and see if there are any changes worth reporting. Such changes include:

  • A change in income,
  • A change in filing status (e.g. marriage),
  • Increase in family size (e.g. having a baby),
  • Getting health insurance through your employer,
  • Or even moving.

Changes in circumstances also may qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period you will have sixty days to enroll following the change in circumstances.

Changes can be made through the Washington-specific Exchange, found at www.wahealthplanfinder.org.

If you have any questions regarding the premium tax credit or how the Affordable Care Act may affect your tax situation, please feel free to email me, John Rosenbaum (john “at” thrivebusinessgroup.com), or check out www.HealthCare.gov.