Yesterday, California Governor Gavin Newsom signed AB 80 into law, more than three months after it was first passed in the Assembly. This bill gives businesses who have received PPP loan assistance the power to deduct expenses on their taxes. AB 80 also includes deductibility for all Emergency Injury Disaster Loan (EIDL) forgivable loans due to the Consolidated Appropriations Act. To be eligible, businesses must have received at least a 25% reduction in gross receipts since 2019 and cannot be a publicly-traded company.

AB 80 went through several months of negotiations between Democrats and Republicans until lawmakers decided to add selected provisions from a similar bill, SB 265. The two parties compromised on the 25% reduction in gross receipts minimum and the non-publicly traded company eligibility requirements, which makes this bill bipartisan. Many lawmakers are relieved and in favor of the outcome, as well as numerous small business owners who have been frustrated and waiting for solutions. AB 80 will allow small businesses to get back on their feet as the economy recovers.

Policymakers have embraced the spirit of SB 265 and made COVID-19 relief tax-free for small businesses. Many believe that AB 80 is a huge improvement over the $150,000 deductibility cap that legislative leaders agreed upon two months ago, which would have harmed many job creators. Many believe that there is still a lot more work that needs to be done to include those who have been left out of the AB 80 since many who applied for and received pandemic relief funds need every dollar to stay open.

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.

Last week, a judge ruled that former National Football League wide receiver, Keyshawn Johnson, owes at least $905,000 in state income tax, penalties, and interest. Johnson tried overturning a 2017 California administrative ruling that he was a resident of California in 1996, when he graduated from the University of Southern California and was drafted by the New York Jets. In January, Johnson took his dispute to the Los Angeles County Superior Court.

Tax domicile has become a more pressing issue as states seek to generate additional revenue. The standard definition of domicile is “the place which an individual intends to be his or her permanent home and to which such individual intends to return whenever absent.” When domicile is not clear, over 28 states have created tests in order to determine if an individual is a resident, typically a days-in-and-out equation, with 183-day-presence being the most common. Most states often see domicile and residence as the same thing.

But California focuses on facts and circumstances. While an individual’s intent is considered when determining domicile, the FTB also looks at the individual’s acts and declarations.

Knowing these definitions is important in Johnson’s case. Judge Mark V. Mooney decided to back the Franchise Tax Board in last Wednesday’s ruling. This decision was based on many reasons. One of them was Johnson owning a house in the suburbs of Los Angeles, and filing a New York nonresident return in his 1996 federal return. At the time, Johnson was only able to claim a mortgage deductible by being a primary resident. This means that Johnson’s claim is inconsistent with the original filing. Mooney said that proving that Johnson rented a place in New York for four months is not enough evidence to be considered a New York residence. On the same note, Johnson previously claimed that he was a Nevada resident since he rented a room for $300 a month while also renting an apartment for his girlfriend and baby back in California. Where your spouse and children are located is one of many key factors the CA FTB considers when determining residency in California.

While fighting this battle, Johnson was also trying to abate the interest and penalties accrued. He owes about $905,000 in tax, penalties, and interest; $219,000 of which is the initial Income Tax. This was denied since Judge Mooney did not have the authority to overrule these fees. Judge Mooney also stated that he would not have felt inclined to wave these fees since Johnson could have been paying them while continuing with his dispute.

Talley’s 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.

Several of former President Trump’s corporate tax cuts may be coming to an end if President Biden proves that he can roll back the 2017 proposal on domestic income-tax reductions as well as radically overhaul levies on profits that are earned abroad. His $2.25 trillion plan, based on infrastructure, relies on high corporate levies to pay for it. This proposal will change the tax benefits that were the core of the 2017 Tax Cuts and Jobs Act, which passed solely with Republican votes. Biden plans to increase the corporate income tax rate from 21% to 28% as well as have businesses pay more on global earnings. The administration proposes to eliminate fossil-fuel tax breaks and repeal incentives to move assets and jobs offshore.

Biden’s plan will update the matrix of carrot-and-stick incentives that were put in place in 2018. These incentives determine how many U.S. companies currently pay taxes on their foreign profits. Biden proposes a 21% global minimum tax on foreign profits to help keep income and assets local. This would be an estimated increase of 13% from what corporations currently owe on offshore earnings.

While Trump’s tax law was supposed to allow American companies to compete with other foreign companies in countries where taxes were lower and international tax regimes were permissive, it has only disappointed those who put it in place. Instead, companies only repatriated a fraction of foreign profits which were envisioned by the reform. Uncertainty about the longevity of this law had led companies to adopt a wait-and-see approach.

Many Republicans have defended Trump’s tax law, saying that by raising the federal corporate tax not only will the US rate be the highest among G-7 countries, but this would also increase the cost of investing in the country, harming the economy.

The National Economic Council Director Brian Deese predicts that Biden’s plan will stop the “race to the bottom” on corporate taxes. He also argues that Biden’s plan will be beneficial to private sector companies.

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.

Thanks to a hotly debated pandemic tax break, the Internal Revenue Service is approving corporations to receive $14 billion in tax refunds. So far the IRS has received over 41,000 applications from businesses who are taking advantage of the provision in the March 2020 pandemic relief bill; which allowed companies to apply business losses to years in which they were not profitable. The Government Accountability Office (GAO) estimates that 1,200 companies that took advantage of the provision received a refund of more than $1 million.

This tax break, which was included in the bipartisan CARES Act, has recently come under fire from Democrats; calling for it to be repealed due to it largely aiding corporations and wealthy investors. Republicans argue that this was done so that companies can easily liquidate during the pandemic.

This is one of many updates to be rolled out of the economic relief bill that was passed more than a year ago. In its regular report to Congress, the GAO says that programs, such as the Paycheck Protection Program and Economic Injury Disaster Loan, are still suffering from fraud. The GAO also says that these programs need additional protection to help prevent improper disbursal of funds. They also say that states should provide more data to help with recouping billions in fraudulent unemployment compensations that were paid.

Although the IRS has just started issuing refunds to companies claiming the pandemic relief, there are still many more applications. Some were filed on paper, getting caught up in a mail backlog, or are tied to revised tax returns that have not been processed yet. The congressional Joint Committee on Taxation predicts that the corporate tax break will cost the government about $25.5 billion total. The committee also predicts that the tax break for non-corporate entities will total about $169.6 billion over the decade. Although the GAO’s data does not go over other business types, the GAO said it will be monitoring the refund claims for those taxpayers as well.

In 2020, Congress expanded the provisions of the Tax Code which allowed companies to carry losses back as far as 5 years. This allowed previously profitable businesses to mitigate losses as the economy faltered. Normally, the Tax Code allows business owners to tabulate net operating losses for the years they were non-profitable and use those to offset tax bills in the future when they do make money.

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.

Initially set up a year ago, the Paycheck Protection Program was a source of relief as the pandemic paralyzed the American economy. This program has since been expanded and extended due to the ongoing situation. Last week, U.S Senate approved an extension of the small-business relief program, which has about $79 billion left to distribute. The bill passed with a 92-7 vote and was signed into law by President Biden on Tuesday this week. This is a two-month extension that will give small business owners until the end of May to apply for forgivable loans.

According to the Small Business Administration, there is still $79 billion left to be lent, even after the approval of about 3.1 million loans, starting from the beginning of this year to March 21st. Owners that spend forgiveness money on approved costs, such as worker salaries, are eligible to convert their PPP loans into grants. Many business groups and leaders urged Congress to extend the deadline so that small businesses have enough time to apply for the money.

The new round of PPP lending that opened in January was available since Congress had approved of more funds in December. Additionally, lawmakers approved an extra $7.25 billion in the latest $1.9 trillion stimulus bill. This bill also expanded eligibility to some nonprofits and online publishers. This month’s package includes a $28.6 billion grant program for restaurants. Restaurants that have received PPP money can tap the fund if they can demonstrate enough revenue loss. It has not been announced as to how the SBA will be distributing those grants.

With the latest PPP round, some businesses were able to apply for a second loan, if they had already used their first one and met the requirements regarding the number of employees as well as being able to demonstrate a decline in revenue. Unfortunately, these new forms and exclusive access periods for some small businesses meant that the roll-out of additional funding was slow and many applicants waited weeks for their financing to be processed.

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.

To help pay for the long-term economic program that is designed as a follow-up to the recent pandemic-relief bill, President Biden is planning the first major tax hike since 1993. This next initiative, which is expected to be bigger than the $1.9 trillion Covid-19 stimulus act, won’t rely just on government debt as a funding source. Key advisers are now making preparations for a package of measures that could include an increase in both the corporate tax rate and the individual rate for high earners since it’s clear that tax hikes will be a component of funding.

Tinkering with rates is fraught with political risk since each tax break and credit has its own lobbying constituency to back it. This helps to explain why the tax hikes in Bill Clinton’s 1993 overhaul stood out from the modest modifications done since. For the Biden administration, the changes are an opportunity not just to fund key initiatives, but also to address what Democrats argue are inequities in the tax system itself. The plan will test both Biden’s capacity to woo Republicans, and Democrats’ ability to remain unified.

Biden’s outlook has always been that Americans believe tax policy needs to be fair. He has viewed all of his policy options through that lens, which is why the focus is on addressing the unequal treatment between work and wealth. To even out the wealth, The White House expects to propose a suite of tax increases. Portions of President Donald Trump’s 2017 tax law will likely be repealed under taxes that were included in any broader infrastructure and jobs packages that benefit corporations and wealthy individuals.

The following are proposals currently planned or under consideration, in no particular order:

  • Raising the corporate tax rate to 28% from 21%
  • Paring back tax preferences for so-called pass-through businesses; like limited-liability companies (LLCs) or partnerships
  • Raising the income tax rate on individuals who are earning more than $400,000
  • Expanding the estate tax’s reach
  • A higher capital gains tax rate for individuals earning at least $1million annually

According to an independent analysis done by the Tax Policy Center, about $2.1 trillion would be raised by Biden’s campaign tax plan. Although the overall program has not been released yet, analysts are penciling roughly $2 to $4 trillion raised.

While debates over whether infrastructure will ultimately pay for itself, there have been efforts to make the expanded child tax credit in the pandemic-aid bill permanent. This could be proven difficult to sell if pitched as entirely debt financed. Experts say that investing in infrastructure may provide durable economic gains that support higher pay and promote the diffusion of gains across demographic lines and political persuasions. Democrats would need at least 10 Republicans to back the bill to move it under regular Senate rules.

Although the 1993 bill marks the last comprehensive set of increased taxes, Biden’s bill is much bigger. While Bush’s 1993 bill passed on a two-vote margin in the House, it required the vice president to break a tie in the Senate. This means that Biden’s bill might be in a similar position. Some argue that due to some proposals, Republicans may support the bill.
These proposals include:

  • A shift from a gasoline tax to a vehicle-miles-traveled fee to help fund highway projects
  • More money for the Internal Revenue Service

If passed, tax measures would likely take effect in 2022, although this may change depending on the unemployment rate in the next year or so.

Talley’s experienced team of tax professionals provides 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.

UPDATE: Federal and California April 15th tax deadline for individuals extended to May 17th

Earlier this month, President Biden signed the American Rescue Plan Act into law, which triggered the release of $1,400 economic impact payments along with tax breaks to stimulate the economy. Included in this $1.9 trillion legislation is a one-year expansion of child tax credit, up to $3,600 per child, extension of the employee retention credit, and the addition of more money to the Paycheck Protection Program. It promises to boost the economy substantially as it slowly recovers from the pandemic, which has left millions unemployed.

Employee retention credit. With the Employee Retention Credit that was introduced in the 2020 CARES Act, the goal was to keep workers on the payroll by providing tax credits to employers when the pandemic first started. This act was extended in December 2020 in the $900 billion Consolidated Appropriations Act. The main goal of Biden’s legislation is to extend the employee retention credit as well as the changes made due to the Consolidation Appropriations Act. The changes allow employers to claim a credit against 70% of qualified wages paid. Eligible wages went from $10,000 per year to $10,000 per quarter, and the recent legislation extends it until the end of the year. This means that businesses can get $28,000 per employee instead of the 2020 maximum of $7,000 per employee. This will allow businesses to put non-paycheck expenses towards PPP loan forgiveness since the required attributable wages went from 75% to 60%, giving businesses more potential employee retention tax credits.

Talley LLP is now submitting ERC claims on behalf of our clients. For more information, please Contact Us

Child Tax Credit. Huge benefits to taxpayers with small children, especially big families, are expected to be a result of the expansion of the child tax credit. Although it was used to reduce child poverty for a year, Democrats want to extend it further. The expansion of the child tax credit raised the amount for qualifying children from the 2020 $2,000 to $3,600 for children five and under, and $3,000 for children between six and seventeen. Many families will start to see payments this July. Families are also eligible for daycare expenses up to $4,000 after filing 2021 taxes.

Talley’s experienced team of tax professionals provides 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 pressure to transform its operations digitally, GameStop Corp announced that they hired former Inc. executive Matt Francis as their first chief technology officer. GameStop’s change of focus from its 5,000 stores to e-commerce is due to activist investor Ryan Cohen. Mr. Francis will be overseeing GameStop’s e-commerce and technology functions.

Experts say that for a technology executive to be a successful digital transformation leader, they must have a special set of business and technology skills. These skills include, but are not limited to:

Map Data’s Role Across the Business
Starting with a digital transformation mission will put the focus on technology without understanding the business context. It is important to start with business transformation first to understand how data plays a role in customer engagement and business operations over time. Next, map technology against those strategies and understand where technology transformation is needed. By doing these things, focus changes from bottom-up to top-down, which creates a clear context for change.

Communicate in Language the C-Suite Understands
Understanding technical requirements as well as being able to put them into non-technical business language is important. Although fellow businesspeople may understand your viewpoints, it is best to keep it simple so that people can buy into your plan and are more willing to help out. The best digital transformation leader is one that communicates well, is seen as a colleague, and is seen to be an expert in IT.

Be a Talent Magnet
Being a really strong people leader is something that sets a lot of technology executives apart. No one is going to be able to solve all of the problems that may occur in a digital transformation. They need to set themselves apart in the competition for talent.

Connect Tech Investments to New Lines of Business
Many chief technology officers have to communicate with chief executives, boards, and other C-suite stakeholders to help construct and deliver technology that will be the right fit for the process. It is the digital transformation leader’s job to be in charge of the change when it comes to conversations about how the change will affect costs and revenue. Although many see technology as a way to cut costs, many are coming to realize that with technology, you can create new productivity, products, and lines of business.

Proper business planning is a complex and ongoing effort, requiring expert counsel—a professional with knowledge and experience, familiar with the challenges that characterize an entrepreneur’s business ventures. Talley LLP shares the same entrepreneurial spirit that has helped propel our clients to their current level of success. With over 25 years’ experience in helping high net worth individuals and business owners, Talley has the expertise necessary to assist entrepreneurs throughout their entire journey, from formation through succession.

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.

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