April 8, 2020 Dear Clients and Friends, The IRS and the Tax Foundation have released some facts, and Q&A regarding the CARES Act and Employee Retention Credits. Please note, we have provided some write ups about application of the CARES Act specific to our client base, but some of you may have additional questions. Please feel free to contact us at [email protected] and consider reviewing these sites. IRS FAQ: Employee Retention Credit under the CARES Act: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act Tax Foundation FAQ: The CARES Act: https://taxfoundation.org/federal-coronavirus-relief-bill-cares-act/ Warmest Regards, Peter DeGregori Managing Partner
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Tax rule changes for improvements to interior parts of nonresidential buildings
Dear Clients & Friends, This letter is to alert you to a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings (”qualified improvement property” or ”QIP”). You may recall that following the 2017 Tax Cuts and Jobs Act (”TCJA”), any QIP placed in service after Dec. 31, 2017 was not considered to be eligible for 100% bonus depreciation. Therefore, the cost of QIP had to be deducted over a 39-year period instead of entirely in the year the QIP was placed in service. That result was due to an inadvertent drafting error by Congress. The 2020 Coronavirus Aid, Relief, and Economic Security Act (”CARES Act”) was signed into law on March 27, 2020. The CARES Act corrects the TCJA drafting error for QIP. Thus, most businesses are now allowed to claim 100% bonus depreciation for QIP, if certain other requirements are met. What also is helpful is that the correction is retroactive, and it reaches back to apply to any QIP placed in service after Dec. 31, 2017. Unfortunately, improvements related to the enlargement of a building, any elevator or escalator, or the internal structural framework continue to be outside of the definition of QIP. In the current business climate, you may not be in a position to undertake new capital expenditures, even if needed as a practical matter and even if the substitution of 100% bonus depreciation for a 39-year depreciation period significantly lowers the true cost of QIP. But it’s good to know that when you are ready to undertake qualifying improvements, the generous subsidy of 100% bonus depreciation will be available. And, the retroactive effect of the CARES Act presents favorable opportunities for qualifying expenditures you’ve already made. We can revisit and add to documentation that you’ve already provided me to identify QIP expenditures. For not-yet-filed returns, we can simply reflect the favorable treatment for QIP on the return. If you’ve filed returns that didn’t claim 100% bonus depreciation for what may prove to be QIP, we can investigate based on available documentation as discussed above. If there is QIP that was in fact eligible for 100% bonus depreciation, note that IRS has, for past retroactive favorable depreciation changes, provided taxpayers with detailed guidance for how the benefit is claimed. That is, IRS clarified how much flexibility taxpayers have in choosing between a one-time downward adjustment to income on their current returns or an amendment to the return for the year the QIP was placed in service. If you had QIP in 2018, and you wish to amend the tax return to take the accelerated depreciation, we are waiting for guidance from the IRS to determine the method for the amendment. Typically bonus deprecation was required unless a taxpayer elected out. On the tax returns we prepared, we typically would have depreciated the QIP based on the law, which didn’t allow bonus deprecation and thus we typically wouldn’t have elected out of bonus depreciation. In addition, if you desire to amend, […]
Read moreUpdate 5: Tax and Financial Updates due to the Coronavirus
The novel coronavirus (COVID-19) crisis has touched so many lives, with both illnesses and hardships. In response to this crisis, our office is working remotely on all accounting and tax projects. The best method to contact us is to email us at [email protected]. We are focused on staying up to date on the tax, accounting and finance updates to assist everyone with these challenges. The final Coronavirus bill that was signed by President Trump on March 27, 2020 is H.R. 748 called the CARES Act. This passed bill was different than the Senate bill I wrote about on March 25, 2020. Some provisions are the same or similar. Remember this CARES Act bill was written quickly and all explanations of various scenarios has not been provided yet. Not to mention, various groups, professionals, and industries have asked many questions of the Treasury and SBA for additional guidance. Based on new information reviewed and the discussions with our clients, I’m providing an update. Section 1102 Paycheck Protection Program Loans (PPP): This is a section 7(a) SBA loan VA Comment: Supposed to be a streamline process. When I speak with bankers, they advise that they are still waiting for guidance from SBA. See attached the U.S. Chamber of Commerce Coronavirus Emergency Loan Checklist. VA Update: look at https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf for information about the PPP loans. Apparently, small businesses can apply starting April 3, 2020. However, banks need to be prepared. Most banks have sent out emails to their customer to begin compiling information regarding payroll, and health care costs. Starting April 10, 2020, independent contractors and self-employed individuals can apply. We are assuming the banks will want to look at and/or have the net self-employed income from your 2019 tax return or financial statements, and they may ask for 1099’s. The Paycheck Protection Program application form can be viewed at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf. VA Update: Based on additional information received from tax discussions, it seems as if a taxpayer can apply for BOTH a PPL and an EIDL, however, if they apply for both, the EIDL can’t be used for payroll, and the PPL is supposed to be used for payroll. Some businesses may need more money than just the PPL, so the EIDL will be required. Loans under $250,000 seems to require less information and no personal guarantee. Government guarantees 100% of the loan through December 31, 2020 Guarantee drops to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000. VA Comments: The Federal loan guarantee reduces at 12/31/2020, as I would expect that large portions of loans will be forgiven for payroll before 12/31/2020. Eligible businesses are small business (500 or less of employees), nonprofit, veteran’s organization or tribal businesses. Includes sole-proprietors, independent contractors, and self-employed individuals. VA Comment: Seems like most every business has been negatively affected from COVID-19 and if a business has payroll, they will apply for the PPL. How to Calculate the Loan Amount / Maximum Loan Amount: In Summary, average […]
Read moreUpdate 4: Tax and Financial Update due to Coronavirus
The novel coronavirus (COVID-19) crisis has touched so many lives, with both illnesses and hardships. In response to this crisis, our office is working remotely on all accounting and tax projects. The best method to contact us is to email us at [email protected]. We are focused on staying up to date on the tax, accounting and finance updates to assist everyone with these challenges. The final Coronavirus bill that was signed by President Trump on March 27, 2020 is H.R. 748 called the CARES Act. This passed bill was different than the Senate bill I wrote about on March 25, 2020. Some provisions are the same or similar. Based on new information reviewed and the discussions with our clients, I’m providing an update. Section 1102 Paycheck Protection Program Loans (PPL): This is a section 7(a) SBA loan VA Comment: Supposed to be a streamline process. When I speak with bankers, they advise that they are still waiting for guidance from SBA. See attached the U.S. Chamber of Commerce Coronavirus Emergency Loan Checklist. VA Update: look at https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf for information about the PPP loans. Apparently, small business can apply starting April 3, 2020. However, banks need to be prepared. Most banks have sent out emails to their customer to begin compiling information regarding payroll, and health care costs. Starting April 10, 2020, independent contractors and self-employed individuals can apply. We are assuming the banks will want to look at and / or have the net self-employed income from your 2019 tax return or financial statements, and they may ask for 1099’s. The Paycheck Protection Program application form can be viewed at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf. VA Update: Based on additional information received from tax discussions, it seems as if a taxpayer can apply for BOTH a PPL and an EIDL, however, if they apply for both, the EIDL can’t be used for payroll, and the PPL is supposed to be used for payroll. Some businesses may need more money than just the PPL, so the EIDL will be required. Loans under $250,000 seems to require less information and no personal guarantee. Government guarantees 100% of the loan through December 31, 2020 Guarantee drops to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000. VA Comments: The Federal loan guarantee reduces at 12/31/2020, as I would expect that large portions of loans will be forgiven for payroll before 12/31/2020. Eligible businesses are small business (500 or less of employees), nonprofit, veteran’s organization or tribal businesses. Includes sole-proprietors, independent contractors, and self-employed individuals. VA Comment: Seems like most every business has been negatively affected from COVID-19 and if a business has payroll, they will apply for the PPL. How to Calculate the Loan Amount / Maximum Loan Amount: In summary, average monthly payroll from 2019 multiplied by 2.5. Sum of average total monthly payment by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made. VA Comment: The current PPL […]
Read moreSBA offering loans to small businesses hit hard by COVID-19
Every company has faced unprecedented challenges in adjusting to life following the widespread outbreak of the coronavirus (COVID-19). Small businesses face particular difficulties in that, by definition, their resources — human, capital and otherwise — are limited. If this describes your company, one place you can look to for some assistance is the Small Business Administration (SBA). New loan, relaxed criteria The agency has announced that it’s offering Economic Injury Disaster Loans under the Coronavirus Preparedness and Response Supplemental Appropriations Act, which was recently signed into law. Here’s how it works: The governor of a state or territory must first submit a request for Economic Injury Disaster Loan assistance to the SBA. The agency’s Office of Disaster Assistance then works with the governor to approve the request. Upon completion of this process, affected small businesses within the state gain access to information on how to apply for loan assistance. To speed the process, the SBA has relaxed its usual disaster-loan criteria. A state or territory now needs to certify that at least five small businesses have suffered substantial economic injury anywhere in the state. Previously, at least one of the companies had to be in each of the disaster-declared counties or parishes. Along similar lines, once the submission process is completed, Economic Injury Disaster Loans will be available across the state. Under previous criteria, only businesses in counties identified as disaster areas could obtain financial assistance. Given the expected widespread and economically drastic effect of the coronavirus, most states will have likely garnered approval by the time you read this. Amount, interest and terms Economic Injury Disaster Loans offer up to $2 million in financial assistance to help small businesses mitigate their revenue losses. You could use the money to pay overhead costs such as utilities and rent, keep up with accounts payable and cover payroll. For qualifying small businesses, the interest rate is 3.75%. Some nonprofits may also be eligible for this assistance. For them, the interest rate is 2.75%. The specific loan terms will vary according to each borrower’s ability to pay. The agency does say that it “offers loans with long-term repayments in order to keep payments affordable.” Mitigate and manage Bear in mind that these loans are just one form of assistance offered by the SBA. Your small business may qualify for other loans, and there might be training programs that benefit your company. Our firm can help you assess your financial situation in light of the coronavirus crisis and formulate a strategy for mitigating and managing your risks going forward. © 2020
Read moreUpdate 3: Tax and Financial Update Due to Coronavirus
The novel coronavirus (COVID-19) crisis has touched so many lives, with both illnesses and hardships. In response to this crisis, our office is working remotely on all accounting and tax projects. The best method to contact us is to email us at [email protected]. We are focused on staying up to date on the tax, accounting and finance updates to assist everyone with these challenges. The final Coronavirus bill that was signed by President Trump on March 27, 2020 is H.R. 748 called the CARES Act. This passed bill was different than the Senate bill I wrote about on March 25, 2020. Some provision is the same or similar. The Senate bill S. 3548 turned into H.R. 748, and this bill was passed by Congress and signed by President Trump on March 27, 2020. There have been some minor changes from the S.3548 bill, so I’ll discuss the highlights of the changes below. Section 1102 Paycheck Protection Program Loans (PPP): This is a section 7(a) SBA loan VA Comment: Supposed to be a streamline process. When I speak with bankers, they advise that they are still waiting for guidance from SBA. See attached the U.S. Chamber of Commerce Coronavirus Emergency Loan Checklist. Government guarantees 100% of the loan through December 31, 2020 Guarantee drops to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000. VA Comments: The Federal loan guarantee reduces at 12/31/2020, as I would expect that large portions of loans will be forgiven for payroll before 12/31/2020. Eligible businesses are small business (500 or less of employees), nonprofit, veteran’s organization or tribal businesses. Includes sole-proprietors, independent contractors, and self-employed individuals. How to Calculate the Loan Amount / Maximum Loan Amount: In Summary, average monthly payroll from 2019 multiplied by 2.5. Sum of average total monthly payment by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made. Payroll Costs as defined in the bill. Payroll Costs Included: Salary, wage, commission, or similar compensation Payment of cash tip or equivalent Payment for vacation, parental family, medical or sick leave Allowance for dismissal or separation Payment required for the provision of group health care benefits including insurance premiums. Payment of any retirement benefits; or Payment of State or local tax assessed on the compensation of employees and Payroll can’t exceed more than $100,000 a year. Self-employed , Sole Proprietor. The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is wage, commission, income, net earnings from self-employment that isn’t more then $100,000. VA Comments: If you’re self-employed and you pay yourself with draws, then the banks will probably want to see 2019 1099-MISC and various expenses from your business. If you have employees, then you would calculate as discussed above. Excluded Payroll Costs: An annual salary over $100,000 / year. Payroll taxes If a seasonal employer, there is an alternative calculation for an average 12-week period […]
Read moreUpdate 2: Tax and Financial Updates due to Coronavirus
The novel coronavirus (COVID-19) crisis has touched so many lives, with both illnesses and hardships. In response to this crisis, our office is working remotely on all accounting and tax projects. The best method to contact us is to email us at [email protected]. We are focused on staying up to date on the tax, accounting and finance updates to assist everyone with these challenges. Things are changing hourly, and discussions on the news don’t completely explain the law as written. So, we are explaining in as much detail as we can for the moment. Our focus on this memo are certain provisions we feel are important to our clients. I read on the Wall Street Journal app this morning at 8:00 a.m. PST today, March 26, 2020, that the Senate passed Senate bill S.3548, the CARES Act. However, when I looked for the formal acknowledgement on www.congress.gov at 3:30 p.m. PST on March 26, 2020, the status doesn’t say it was passed. So, my discussions are based on the actual bill text that is assumed to be passed by the Senate. Most of the financial assistance offered through the first bill called, HR 6201, FAMILIES FIRST CORONRAVIRUS RESPONSE ACT (discussed on our previous memo), and the CARES Act S. 3548 which is expected to pass the senate, the house and be signed by the president have financial and accounting information requirements necessary for the financial assistance. Accordingly, we are available to assist any client in the SBA application process for financial assistance. The tax and financial laws are changing daily, therefore I marked this memo with “V2” (version 2) on my memo above. There are various other social service updates, but our memos will focus mainly on finance, business and tax updates. Highlights of the PROPOSED SENATE BILL S 3548, CORONAVIRUS AID, RELIEF AND ECONOMIC SECURITY ACT OR THE CARES ACT. March 19, 2020. This bill has NOT been passed in the Senate at this time, so it can change, and then the bill would need to go to the House and to the President. You can view the introduced bill at https://www.congress.gov/bill/116th-congress/senate-bill/3548 Businesses & Other Employers: Retention tax credit for eligible employers that continue to pay employee wages while their operations are fully or partially suspended as a result of certain COVID-19 related government orders. Deferral of employer portion of payments for certain payroll taxes. Modification of net operating loss (NOL) and limitation rules. Will allow some NOL’s incurred in 2018, 2019, and 20120 to carry them back for refunds to 5 years. This carry back law was exempt for tax years beginning 2018 under the new tax laws that Trump and Congress enacted. Due to this financial crisis they are not allowing NOL carry backs for these periods to be carried back. Modification of the deduction limitation on business interest rules of IRC section 163(j). Qualified improvement property technical correction, allowing qualifying interior improvements of buildings to be immediately expenses rather than depreciated over 15 years. Payroll tax […]
Read moreTax Return Due Date and Extension Changes
U.S Treasury Department Secretary Steven Mnuchin announced that the 2019 income tax filings deadline will be moved to July 15, 2020 from April 15, 2020, because of the coronavirus (COVID-19) outbreak. Previously, the Secretary extended the April 15, 2020 payment date to July 15, 2020. Now the tax return deadline has been extended. So, extensions due April 15, 2020 are not due at April 15, 2020, they would be due July 15, 2020. We are working remotely on all tax returns, as we need to complete returns and projects to get all tax returns and projects done before all the revised due dates and extended due dates. So, please continue to send in your tax information. Also, some bank covenants require tax returns to be sent to the banks by a certain date unless the bank provides a revision.
Read moreTax and Financial Updates Related to COVID-19
The novel coronavirus (COVID-19) crisis has touched so many lives, both with illness and hardship. In response to this crisis, our office is working remotely on all accounting, and tax projects. The best method to contact us is to email us at [email protected]. We are focused on staying up to date on tax, accounting and finance updates to assist everyone with these challenges. The tax and financial laws are changing daily, therefore I marked “V1” (version 1) on my memo above. There are various other social service updates, but our memos will focus mainly on finance, business and tax updates. CONGRESS PASSED HR 6201, FAMILIES FIRST COONRAVIRUS RESPONSE ACT, which is highlighted below. However, this bill hasn’t passed the Senate as of March 17, 2020 at 7 p.m. PST. Employer tax credits: The Act provides tax credits to employers to cover wages paid to employees while they are taking time of under the bill’s sick leave and family leave programs. The sick leave credit for each employee would be equal to his wages, limited to $511 per day while the employee is receiving paid sick leave to care for themselves, or $200 if the sick leave is to care for a family member or child whose school is closed. An additional limit applies to the number of days per employee: the excess of 10 days over the aggregate number of days considered for all preceding calendar quarters. The family leave credit for each employee is limited to $200 per day with a maximum of $10,000. The credits are refundable to the extent they exceed the employer’s payroll tax. Employers don’t receive the credit if they’re also receiving the credit for paid family and medical leave in IRC Sec. 45S. These rules apply only to wages paid with respect to the period beginning on a date selected by the Secretary of the Treasury which is during the 15-day period beginning on the date of the enactment of the Act and ending on December 31, 2020. (Act Sec. 7001; Act Sec. 7003) Comparable credits for self-employed: The Act provides for similar refundable credits against the self-employment tax. It covers 100% of self-employed individual’s sick leave equivalent amount, or 67% of the individual’s sick-leave equivalent amount if they are taking care of sick family member or taking care of a child following the child’s school closing. The sick leave equivalent amount is the lesser of average daily self-employment income, or $51/ day to care for the self-employed individual, or $200 / day to care for a sick family member or child following a school closing. Self-employed individuals could receive family leave credit for as many as 50 days multiplied by the lesser of $200 or their average self-employment income. These rules apply only to days occurring during the period beginning on a date selected by the Secretary of the Treasury, which is during the 15-day period beginning on the date of the enactment of this Act and ending on December 31, 2020. […]
Read moreGive your 401(k) plan a checkup at least once a year
In many industries, offering a 401(k) plan is a competitive necessity. If you don’t offer one and a competitor does, it could mean the difference in a job candidate’s decision to accept their offer over yours. It could even send employees heading for the door. Assuming you do offer a 401(k), the challenge then becomes plan maintenance and compliance. Just as you presumably visit your doctor annually for a checkup, you should review the administrative processes and fiduciary procedures associated with your plan at least once a year. Let’s look at some important areas of consideration as advised by top business consultant: Investments. Study your plan’s investment choices to determine whether the selections available to participants are appropriate. Does the lineup offer options along the risk-and-return spectrum for all ages of participants? Are any pre-mixed funds, which are based on age or expected retirement date, appropriate for your employee population? If the plan includes a default investment for participants who have failed to direct investment contributions, check the option to ensure that it continues to be appropriate. If your company plan doesn’t have a written investment policy in place or doesn’t use an independent outside consultant to assist in selecting and monitoring investments, consider incorporating these into your investment procedures. Fees. 401(k) plan fees often come under criticism in the media and can aggravate employees who follow their accounts closely. Calculate the amount of current participant fees associated with your plan’s investments and benchmark them against industry standards. Investment managers. Have you documented in writing the processes your plan has in place for the selection and monitoring of investment managers? If not, doing so in consultation with an attorney is highly advisable. If you have, reread the documents to ensure they’re still accurate and comprehensive. Administrator. Solicit and monitor participant feedback on the administrator so that you know about grumblings before they grow into heated complaints. Further, put criteria in place to assess the plan administrator’s performance on an ongoing basis and to benchmark performance against industry standards. Compliance. Are your plan’s administrative procedures in compliance with current regulations? If you intend your plan to be a participant-directed individual account plan, are all the provisions of ERISA Section 404(c) being followed? Have there been any major changes to 401(k) regulations over the last year? These are just a few critical questions to ask and answer. A 401(k) is usually among the most valued benefits a business can offer its employees, but you’ve got to keep a close and constant eye on its details. We’d be happy to help you assess the costs and other financial details of your company’s plan. © 2020
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