As January came to a close, The U.S. Small Business Administration pledged to improve the loan review process for the Paycheck Protection Program loans, even with the growing number of fraud complaints. The SBA is attempting to allow small businesses as much time a possible to access needed PPP funds by taking steps to smooth the path for reviews of “first draw” loans.

In December 2020, Congress renewed the business lending program with an additional $284 billion in funding. Due to the introduction of the PPP loans included in the CARES Act last March, accountants were able to help small business clients procure loans and apply for forgiveness of the debt. However, there are obstacles that many businesses faced while trying to access the loans and navigating their ever-changing rules and procedures. These struggles were especially evident within the first round of funding when Congress had to renew the program allowing for more funding.

The SBA is committed to addressing issues more efficiently and ensure that there is fair and equitable access to the PPP loans for small businesses in every community. The program is intended for small businesses to provide loans that will be forgiven if they retained their employees for up to 8 weeks, but many larger companies and organizations ended up claiming the majority of the money. Another group that many small businesses had to compete with were those making fraudulent claims about being a small business. For instance, there was an individual who claimed he had a small business and 50 employees. It was discovered he  used PPP loan funds to buy a Lamborghini Huracan.

In response to those false claims, the SBA set up safeguards to avoid fraudulent claims; but this has proven to be a huge obstacle for small businesses. The SBA and Biden administration are working together to identify immediate solutions to promote transparency and to address eligibility, compliance and integrity.

The SBA will be hosting a nationwide call with a group of leaders to explain additional details they will need to provide to help resolve any first draw PPP loan reviews and potential holds that are affecting second draw approvals. Meanwhile, the SBA is also working on easing the review process for second draw loans so that can be processed in a more efficient way. They are equipping their field team of lender relation specialists with the information needed for appropriate responses to resolve problems and the SBA is going to provide extra guidance to PPP lenders on the review and resolution process.

Talley’s professionals have spent hundreds of hours reviewing the law, regulations, and SBA PPP FAQs issued on an almost daily basis and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or forgiveness audit process.

Under the Consolidated Appropriations Act (CAA), 2021, the Employee Retention Credit (ERC) received an update and is now available through June 30, 2021 to eligible employers who retained employees during the COVID-19 pandemic. Its main target is to help ventures and businesses offset the financial turmoil caused by the pandemic. Along with this update, a change to the Paycheck Protection Program (PPP) was also rolled out, allowing businesses that took a loan under it, to now be eligible for the ERC as well.

The CAA includes the following retroactive changes to the ERC. These changes apply to the period from March 13 through Dec. 31, 2020.

  • If you received a PPP loan, you may still qualify for the ERC for any wages not paid with proceeds from the forgiven portion of your PPP loan.
  • The Consolidated Appropriations Act clarifies how qualifying tax-exempt organizations determine “gross receipts.”
  • Group healthcare expenses are considered “qualified wages.” This is true even if no other wages are paid to that employee.

This update means that for employers who qualify, including borrowers who took a loan under the initial PPP, the credit can be claimed against 50% of qualified wages paid, up to $10,000 per employee annually, for wages paid between March 13 and Dec. 31, 2020.

For those who qualify in 2021, including PPP recipients, the new law expands the credit and allows them to claim a credit against 70% of qualified wages paid. In addition, the amount of wages that qualifies for the credit is now $10,000 per employee per quarter for the first two quarters of 2021. So, an employer could claim $7,000 per quarter per employee or $14,000 for 2021.

Who qualifies for the ERC?

Most employers can qualify for the credit, largely determined by two main factors, and at least one of these factors must apply in the calendar quarter the employer intends to use the credit:

  • A trade or business that was fully or partially suspended or had to reduce business hours due to a government order. The credit applies only for the portion of the quarter the business is suspended, not the entire quarter.
  • An employer that has seen considerable decline in gross receipts. With the updated law, beginning in 2021, businesses must be affected by forced closures or quarantines and have seen more than 20% drop in gross receipts in the quarter compared to the same quarter in 2019.

Note: New ventures are allowed by the IRS to use gross receipts for the quarter in which they began business as a reference for any quarter in which they do not have 2019 figures since they were not yet in business.

What wages qualify for the calculation?

For 2020, if you averaged more than 100 full-time employees, only wages for those you retained who are not working can be claimed. If you employed 100 or fewer workers, you can claim wages for all employees whether or not they are working.

For 2021, the threshold is raised to 500 full-time employees, meaning if you employ more than 500 people, you can only claim the ERC for those who are not providing services. If you have 500 or fewer employees, you can claim the ERC for all of them, working or not.

How do the credits work?
The Employee Retention Credit is taken off the employer’s share of Social Security taxes. However, the credit is fully refundable. So, if the credit were to exceed the employer’s total amount owed of Social Security in any calendar quarter, the excess is refunded to the employer.

At the end of the quarter, the amounts of these credits will be reconciled on the employer’s Form 941.

Talley’s professionals have spent literally hundreds of hours reviewing the law, regulations, and FAQs issued on an almost daily basis regarding the ERC and PPP, and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or refund process.

 

Over the past month, there have been large rumblings in the stock market after a group of Reddit users manipulated the price of stocks such as GameStop, AMC, and Blackberry, achieving huge gains overnight. Google searches for “What is short selling?” and “Purchase GameStop stock” likewise exploded, as more and more wanted to jump into the fracas in hopes of a quick payday. While most investors may have already notched tens of thousands, with some saying they’ve scored millions, many of those who want to cash in on their gains this year may be caught off guard by the amount of money they owe the government.

Those cashing in on their GameStop stock held for less than a year do not qualify for long term capital gains treatment and any gains will be taxed as ordinary income. Even if these non-day traders end up booking losses in the stock market in 2021, there is a limit to how far their losses can offset ordinary income. Although rates vary depending on what tax bracket the taxpayer is in, rates start at 10% and can be as high as 37%. There is also an additional 3.8% “Net Investment Income Tax” that applies to high earners, single filers making more than $200,000, or couples filing jointly who make more than $250,000, for a final rate of 40.8%. Those who have claimed that they have had GameStop Stock since 2019 are eligible for more favorable long-term capital gain tax rates if they recognize gain upon selling. The highest rate would be at 20%, but high earners would still have to pay the additional 3.8% making the rate 23.8%.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

 

Under Biden’s proposed tax plan, the modifications to the estate tax code could affect everyone who has valuables that will be left behind to heirs. Although tax policy used to be fairly predictable, it has become quite a dynamic environment given recent changes in control of the Senate. Now that Democrats have control of the Senate, Biden now has a much clearer path to set forth his administration’s agenda. The looming question on many taxpayers’ minds: What happens once President Biden can begin to enact changes to tax policy?

Many political and tax commentators believe that it will be easier for Biden to get the tax cuts he has proposed, rather than increasing taxes. With the current focus on the pandemic and vaccination rollout, as well as the shaky economy and job recovery, there may not be any major changes to taxes until COVID-19 is in the rear-view mirror.

One of the most impactful long-term changes of Biden’s proposed tax agenda involves the estate tax., In contrast to previous changes to the estate tax targeting the high net worth individuals and their families, the tax code may be modified in a way that affects anyone who has something of value to leave to heirs.

For many years, assets were valued at the time of the owner’s death, even if the value had risen. With the established step-up in basis rule, when assets are passed on to heirs, any embedded gain is erased since the base value is higher, leading to no capital gains tax being owed. This applies to any asset, from liquid securities and private investment partnerships to a family home. Furthermore, if the total value of the estate is less than $11.7 million, or 23.4 million for a couple in 2021, no estate tax needs to be paid.

Biden’s proposed tax plan may change all that in dramatic fashion, with the elimination of the step-up. High net worth individuals should be concerned -and not just if you’re on the same level as Jeff Bezos or Elon Musk. For those who have inherited a home or stock portfolio that has appreciated in value, the potential loss of step-up would be very significant.

If this change were to happen, many may reconsider which assets they put into a trust. For example, putting assets with greater embedded capital gains into a trust and leaving cash directly to heirs.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

 

Earlier this month, the U.S Small Business Association (SBA) and the Treasury Department decided to relaunch the Paycheck Protection Program to new borrowers and to prioritize loans from lenders in the community. As a result of the latest stimulus package passed by Congress, the program now has $284.5 billion for “first draw” PPP loans as well as “second draw” PPP loans. First-draw loans are for the small businesses that did not take advantage of the program last year, while the second draw is for those who used the PPP loans in 2020. Initially, community financial institutions were able to make first-draw and second-draw loans, but the SBA and Treasury have now opened the program to lenders as well.

In response to last year’s shaky launch, the SBA is making a concerted effort to increasing the availability of loans to small businesses. One complication from the PPP being launched with the CARES Act is that money was exhausted by large companies that already had ties with large banks. This left little money for small businesses until Congress appropriated more money. The PPP will be open through March 31st

Main updates to the program:

  • PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to meet their business needs
  • PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures
  • PPP eligibility has expanded to include 501(c)(6)s, housing cooperative, destination marketing organizations, and other organizations
  • The PPP now offers more flexibility for seasonal employees
  • Qualified existing PPP borrowers can request to modify their first-draw PPP loan amount
  • Qualified existing PPP borrowers are eligible to apply for second-draw PPP loans

Borrowers are generally eligible for second draw PPP loan if:

  • Previously received at first-draw PPP loan and will or has used the full amount only for authorized uses
  • Has no more than 300 employees
  • Can demonstrate at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020

Talley’s professionals have spent hundreds of hours reviewing the law, regulations, and SBA PPP FAQs issued on an almost daily basis and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or forgiveness audit process.

Back in December of 2020, musical icon, Bob Dylan sold his entire songwriting catalog to Universal Music Publishing Group for an estimated $300 million. Bob Dylan’s catalog represents a sizeable asset,  containing more than 600 spanning over six decades. Besides his substantial windfall, Dylan also enjoyed an additional bonus on the sale of his catalog: a smaller tax bill. Musicians and artists are privy to a special tax rate on the sale of their self-created works and do not have to pay ordinary tax rates.

How did Dylan save on taxes? Although code section 1221 defines capital assets in broad terms, it does explain what does not qualify as a capital asset. One of the important exclusions is a literary, musical, or artistic composition, meaning the entirety of Bob Dylan’s catalog. However, Code 1221 (b)(3) states that if there was a sale or exchange for self-created works, then those works will be counted as capital assets, meaning that Bob Dylan’s sale of his songwriting catalog was an exception to the exemption.

If Dylan’s catalog indeed sold for $300 million, the 20 percent capital gains tax rate would result in a $60 million tax bill for Dylan. If the sale fell under the ordinary tax rate of 37 percent, Dylan would owe $111 million in taxes, or $51 million more. 

How were Dylan’s works excepted? Many songwriters in the early 2000s argued that it was unfair to make them pay a higher tax rate for selling their copyrights than the publishers who bought and sold said intellectual property commercially did, so the Nashville Songwriters Association International (NSAI) lobbied Tennessee and Kentucky delegates for a change. Due in part to NSAI’s lobbying, Congress eventually enacted the Songwriters Capital Gains Tax Equity Act in the Tax Increase Prevention of Reconciliation Act of 2005. Thanks to the NSAI, Bob Dylan was able to achieve a higher windfall when selling his copyrights.

Talley’s experienced team of tax consulting professionals provide comprehensive tax planning and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

In late December, President Trump combined a long-awaited stimulus bill with an omnibus spending bill called The Consolidated Appropriations Act of 2021. The bill’s main focus is on individual stimulus payments as well as the expansion of the Paycheck Protection Program.

With respect to expenses that have be paid for with forgiven PPP Funds, the bill confirms that no amount is to be included in the gross income of eligible recipients by reason of forgiveness and that no deductions will be denied; tax attributes will not be reduced, and basis increase will not be denied for the reason of exclusion from gross income. This means that forgiven amounts from PPP loans will not have an effect on income or tax credits in regard to wages paid.

Besides the stimulus, The Consolidated Appropriations Act of 2021 includes extensions to expiring tax positions including, but not limited to the 179D Energy-Efficient Commercial Buildings Deduction. In its creation in 2005, the 179D deduction incentivized the construction of energy-efficient buildings. Section 179D allowed up to $1.80 per square foot of deduction for the construction of energy-efficient buildings. Originally this was seen as temporary but has been regularly extended every few years. With the bill, the 179D deduction has now been permanently extended; but Congress has required the properties to meet a stricter set of criteria to be able to claim the deduction. This means that business owners can rely on the deduction long term, but few properties will qualify.

The new law also includes an extension for one-year extensions to the 45L Energy-efficient Home Credit. While 45L was supposed to expire at the end of 2020, the bill extended the end date to the end of 2021, meaning the $2,000 per unit credit will still be applicable for building energy-efficient homes. This will assist home builders and apartment developers this year as they recover from COVID-19 and the economic crisis.

It is important to note that The Consolidated Appropriations Act of 2021 does not change the current laws regarding meal and entertainment deductibles. Currently, the CAA has temporarily increased the deduction percentage on business-related meals and entertainment to 100 percent until the end of 2022.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Sixteen years ago, The Oprah Winfrey Show made TV history with the iconic “You get a car!” giveaway episode. Oprah surprised her studio audience with 276 brand new Pontiac G6 sedans worth over $7 million. While the surprise went down as one of the show’s most memorable moments, the aftermath of the giveaway left recipients faced with a hefty tax bill.

The segment began with Oprah calling eleven random audience members on stage and announcing that they had each won a car. After their excitement had died down, she told the entire audience to retrieve gift boxes from under their seats and announced that one of the boxes also contained car keys. Upon opening the boxes, every audience member found a set of keys causing pandemonium throughout the studio.

The giveaway was sponsored by Pontiac, a General Motors brand, as a promotional marketing campaign. While General Motors covered the price tag of $28,500 and the sales tax of $1,800, the gift tax was left for the prize winners to handle. The cars were not classified as gifts and instead were considered promotional prizes, similar to the way game show giveaways and lottery wins are treated. The value of the cars was going to be taxed accordingly, at a total of about $6,000 to $7,000. This is in accordance with the tax code which states that “Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.”

Although receiving a car at a $6,000 price tag is a significant discount, audience members had been chosen by the Oprah staff based on their need for a car. Most individuals had to scramble to come up with the funds to be able to receive any benefit from the prize. The alternate options were selling the car and paying the taxes or turning the prize down altogether.

While unfortunate, the experience of Oprah’s audience members provides a valuable lesson about dealing with windfall events you may experience in your own life. Winning the lottery, receiving an unexpected inheritance, and cashing out a retirement plan are all financial events that can be a welcome occurrence, but can raise serious financial questions that you must deal with quickly.

Talley offers a broad spectrum of services to fulfill the needs of high net worth individuals, entrepreneurially driven companies, and their owners. Whether you are considering an M&A transaction or experiencing a financial windfall event, the professionals at Talley can help you to make the most of both your earnings and winnings.

Due to the economic fallout caused by COVID-19, the IRS is making changes to its tax collection program. This change will allow taxpayers with outstanding tax debts more room to relax as they are coping with financial burdens. Some changes that the IRS has implemented are making the set-up process for payment agreements easier; and allowing compromises as a part of a new Taxpayer Relief Initiative. In addition to easier payment agreements, the IRS has also implemented a new system called SafeSend Returns. This program allows the IRS to assemble, securely deliver, and collect e-signatures from taxpayers from anywhere.

Other forms of relief that the IRS is offering consist of:

  • Taxpayers that qualify for a short-term payment plan option have 180 days to resolve their tax liabilities rather than 120 days.
  • Flexibility for taxpayers who are temporarily unable to meet the payment terms of an accepted offer in compromise.
  • Automatically adding new tax balances to existing installment agreements, for individuals and out-of-business taxpayers, instead of defaulting the agreement.
  • Qualified individual taxpayers that owe less than $250,000 can set up installment agreements with the IRS without a financial statement or substantiation, as long as their monthly payment proposal is enough.
  • Individual taxpayers who only owe outstanding taxes for 2019 and owe less than $250,000 can qualify to set up an installment agreement without a tax lien noticed filled by the IRS.
  • Qualified taxpayers who have an existing direct debit installment agreement with the IRS can use the Online Payment Agreement system for a lower monthly payment amount and alter payment due dates

The IRS offers options for short- and long-term payment plans, which include installment agreements via the Online Payment Agreement system. This service is available to people who owe $50,000 or less in income tax, penalties and interest; or to businesses that owe $25,000 or less combined, who have filed all tax returns as well. In addition to these payment plans and installment agreements, taxpayers can also contact the IRS for a temporary delay of the collection process.

The IRS is also highlighting reasonable cause assistance for taxpayers who fail to file, pay and deposit penalties, as a way to provide relief from these penalties. For first-time relief of these tax penalties, the IRS offers taxpayers penalty abetment relief. Taxpayers may apply for forms of relief without talking to a representative through the IRS website

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome opportunity to discuss current options available for you. For more information, contact us today.

Georgia’s two runoff elections, scheduled for January 5th, will influence the power balance within the U.S. Senate. This may impact which kind of planning opportunities taxpayers should take into consideration.

How is this possible? In order for newly elected President Joe Biden to be able to pass his tax proposals, he will need Democratic control in the Senate. If Democratic candidates Jon Ossoff and Raphael Warnock manage to win the elections against Republican candidates David Perdue and Kelly Loeffler, then the House of Senate will be at a 50/50 split. This will allow newly elected Vice President Kamala Harris to be the tie-breaking vote over tax legislation; if the Democrats used a budget reconciliations maneuver to overcome a Republican filibuster.

What can you expect? Since the House of Senate is still uncertain, that makes helping clients on tax planning, and tax strategies more difficult in the future. Experts suggest for clients to take advantage of the low tax rates now; assuming that they may increase for high-income taxpayers under the Biden administration. With Biden’s tax plans in mind, we can expect to see an increase of 17%, from 20% to 37%, on capital gain rates for taxpayers making over a million dollars from one proposal. Biden has also proposed to increase the highest marginal tax rate to 37% to 39.6%; which would be the highest marginal rate; and the capital gain rates would reflect that.

How will the Affordable Care Act affect next year’s tax planning? The Supreme Court’s decision on its current case, which challenges the constitutionality of the Affordable Care Act, may add another wrinkle into tax planning for next year. The potential outcome of this case could add a 3.8% surcharge; meaning capital gains and qualified dividends may be 43.3% at the highest, causing your tax rate on capital gains and qualified dividends to be more than your effective rate on wages.

Why should most people not worry? Although it is scary to think that your taxes may increase, there is one major prerequisite that you have to meet in order for the possible tax legislation to apply. Taxpayers must be at or above the taxable threshold of 1 million dollars. Experts do advise that if you are moving into a different tax bracket, you may want to claim any additional income from stock options and bonuses this year rather than next.

Why get a Roth individual retirement account? This retirement account may help with tax planning. Roth retirement accounts allow individuals to fill up the 24% tax bucket and it takes deferred retirements plan income that would otherwise be recognized elsewhere in the future, and report that income this year. Experts want taxpayers to consider rolling over their 401ks into a Roth because of the lower tax bracket now; rather than waiting and taking money out at a higher rate.

Although many people may not be able to take advantage of these strategies this year, especially because of losing jobs or businesses, those who have been collecting unemployment benefits are able to make those benefits taxable.

Talley’s experienced team of tax professionals provides comprehensive tax compliance and consulting services so you can preserve, enhance and pass on to the next generation the assets and wealth that you’ve worked hard to build. We welcome the opportunity to discuss with you the current opportunities available to you. For more information, contact us today.


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