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.

 

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.

Entrepreneurs who took a PPP loan this year cannot write off certain expenses on their taxes if they expect the debt will be forgiven, according to the IRS and Treasury Department. The two agencies have issued guidance to clear up the tax treatment of expenses when a loan from the Small Business Administration’s Paycheck Protection Program hasn’t been forgiven by the end of the year.

The IRS and the Treasury issued both a revenue ruling and a revenue procedure, essentially saying that since businesses aren’t taxed on the proceeds of a forgiven PPP loan, the expenses aren’t deductible. The IRS notes that this results in neither a tax benefit nor harm since the taxpayer has not paid anything out of pocket.

“This results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket,” said the Treasury in a news release. “If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Therefore, we encourage businesses to file for forgiveness as soon as possible.”

The IRS also notes that in cases where a PPP loan was expected to be forgiven, but it is not, businesses will be able to deduct those expenses. However, if a “business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not.”

Recently released guidance in IRS Notice 2020-32 further clarifies deducting expenses for PPP loans. The notice make clear that no deduction is allowed under the Tax Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of the loan under the CARES Act, and the income associated with the forgiveness is excluded from gross income.

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.

In an effort to address the growing wage gap between chief executives and their employees, San Francisco voters overwhelmingly approved what is believed to be the nation’s first tax aimed at fighting pay inequity. The “Overpaid Executive Tax,” formally known as Proposition L, will levy additional taxes to any company that does business in San Francisco and has top executives earning over 100 times more than their typical local worker.

Companies with executives who fall into this category face an additional 0.1 percent surcharge on their annual business taxes. The surcharge increases by 0.1 percent per factor of 100, maxing out at 0.6 percent. While Portland, Oregon passed a similar measure in 2018, that tax applies only to publicly held companies. San Francisco’s new measure affects both privately and publicly held companies. A municipal analysis estimates that the tax would bring in roughly $60 million to $140 million, but noted that the amount could vary from year to year.

Opponents to this plan argue that companies could reduce or stop hiring low-level employees altogether as a response to these measures. Such a tax would also dissuade large companies to relocate to San Francisco, ultimately harming the city’s efforts to overcome the unprecedented economic downturn as a result of the current COVID-19 pandemic.

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.

Due to the onslaught of the COVID-19 pandemic, philanthropists have brought new momentum to a less popular style of philanthropy: spend-down, or time-limited, philanthropy; in which charitable foundations spend their assets by a certain date, then close up shop. Foundations and donors alike are realizing that humanitarian and environmental issues won’t be solved by only allocating 5% of their assets to charity every year.

Although this concept is nothing new, it is outside of the norm. About 70% of foundations are designed to exist in perpetuity, while about 30% have established deadlines on their spending, according to a January 2020 report by Rockefeller Philanthropy Advisors and Campden Wealth. Over the past 20 years, spend-down philanthropy has been growing steadily since 2000, and the current crises seem to be accelerating the movement. Comparing Gilded Age philanthropists, like Andrew Carnegie and John D. Rockefeller, to philanthropists today, Gilded Age philanthropists started their foundations when they were in their 70s while today, philanthropists are starting at a much younger age. Philanthropists are also becoming more comfortable throwing money at certain problems because it’s now easier to measure the impact they’re having. People are more and more confident that they can have impact by giving at a much faster rate.

Individuals in favor of perpetuity for foundations say it will take a long time to end problems like poverty, racism and bias against girls and women and contend that doing so will require a slow stream of funding over many years. Although there is clear value in acting with urgency and dealing with pain and suffering in the current moment, there is also a benefit in thinking in terms of generational long-term change.

No matter the amount, your generosity in gifting time and money to worthwhile causes can have a significant impact on your tax liability. While tax considerations should never drive your charitable giving, it makes sense to structure your gifting to maximize the tax benefits. If you have questions regarding your gifting or estate plan, please contact Talley LLP today

Bipartisan Problem Solvers Caucus Unveils COVID-19 Stimulus Framework

Earlier this week, the bipartisan Problem Solvers Caucus (PSC), comprised of 25 Democrats and 25 Republicans from the House, unveiled its “March To Common Ground” framework to help break the gridlock on the latest COVID-19 relief package and encourage negotiators to get back to the table.

The package addresses key areas of need, including COVID-19 testing, unemployment insurance, direct stimulus, worker and liability protection, small business and non-profit support, food security, schools and child care, housing, election support, and state and local aid.

In light of the urgent needs facing millions of Americans, families, and small businesses, the framework is designed for a six month horizon and through the next inauguration, except for state and local funding which extends for a full year.

Depending on the severity of the pandemic and if a successful vaccination program is adopted by March, 2021, a system of automatic “boosters” are designed to incrementally increase the amount of relief to individuals and families. Conversely, a system of “reducers” will decrease the total cost of the package.

A Summary of the Proposed Framework

  • $280 billion in funding for $1,200 stimulus checks plus $500 per child plus dependent adults.
  • The PSC’s framework includes $100 billion of additional health care spending – testing and contact tracing, healthcare provider support, and forgiveness of Medicare loans to providers.
  • $11 billion would go to enhance WIC and SNAP through March and July 2o21 respectively. (WIC is a nutrition program for Women, Infants and Children. SNAP is commonly called “food stamps”).
  • There is $25 billion for rental assistance, rent stabilization and an eviction moratorium through January 2021 and student loan forbearance through December 31, 2020.
  • The unemployment provision is $450 per week for an eight-week transition period. That is followed up by up to $600 per week but not to exceed 100% of previous wage for thirteen weeks through January 2021.
  • Reappropriating $145 billion of PPP money and adding $95 billion in new money with simplified forgiveness and $50 billion for the Employee Retention Credit.
  • $145 billion for schools and child care.
  • Half a trillion in aid to state, local, territorial and tribal governments and
  • $400 million for election security.

The proposed framework would include automatic reducers and boosters depending on how things go based on Covid-19 hospitalization metrics and vaccine progress. If things get better more quickly PPP, state and local aid and renters assistance could be carved back by as much as $200 billion.
Alternatively, if things get worse, the framework’s “boosters” include a 3-month extension on the unemployment benefits starting in February 2021 and another $280 billion for automatic stimulus checks in March 2021.

Meanwhile, Congress is expected to focus in the coming weeks on passing legislation funding the government beyond Sept. 30, the end of the current fiscal year.

Talley LLP shares the same entrepreneurial spirit that has helped propel our clients to their current levels of success. With over 30 years of experience assisting high net worth individuals and business owners, Talley has the expertise necessary to help entrepreneurs throughout their entire journey, from formation to succession.


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