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.

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.

There is little disagreement that effective decision-making is one of the most important skills we must hone to achieve success in almost every aspect of our lives. People tend to believe that their feelings don’t bias their “logical” decisions but studies have shown that emotions are critical to decision making. Estate planning is no different. No matter how you look at it, when people are involved, emotions are always going to be part of the equation. Let’s take a look at how emotions can affect your goals in estate planning.

Estate planning can be a morbid topic for many.  One of the most common emotions in estate planning is fear. Speaking about death or incapacitation and what’s going to happen once you’re gone is an unpleasant topic that people tend to avoid. Most would agree that estate planning is important, yet all too often many fail to act. Case in point, 55% of Americans don’t have a last will. Being uncomfortable or afraid of the subject can lead to two of the biggest mistakes one can make when it comes to estate planning: avoiding it all together, or not reviewing your plan often enough to account for life events that can have an effect on your estate.

While estate planning can be a stressful and emotionally-charged topic, it can also be a lengthy and overwhelming process for many. Establishing a detailed plan can take anywhere from six months to two years. The lesson being that it’s never too soon to get started. Not all estate plans for business owners or high net worth individuals are the same, and each should be customized to fit your ever-evolving individual circumstances and needs. The key is to not become overwhelmed by the process and focus on your family’s goals and desires. Some even get creative with their estate planning!

It’s not just about transferring the largest amount of money possible to heirs free of estate tax and shielding money from creditors, it is about defining and executing your legacy as well as clearly communicating it to all those involved. The most well-intentioned, technically sound plans can reap negative unintended consequences if they are not communicated clearly to the beneficiaries, and disputes can and will arise.  See our article on Robin William’s estate troubles as an example of this.

Though your options are virtually limitless, proper estate planning -deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees and court costs possible can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today.

At the beginning of the pandemic, many workers were sent home armed with a laptop and other remote equipment so they could work remotely until it was safe to reopen public spaces again. But if you’re doing your job in a state different from your usual one, beware: You may need to file returns and perhaps pay taxes there.

Each state tax system is a unique combination of rules that consider how long a worker is there, what income is earned, and where the worker’s true home, known as domicile, is. But nearly all states that have income taxes impose them on workers who are passing through. In two dozen states, that can be for just one day.

So far, 13 states and the District of Columbia have agreed not to enforce their tax rules for remote workers who are present due to the coronavirus, according to American Institute of CPAs spokeswoman Eileen Sherr. Some states don’t have an income tax, but more than two dozen others, including New York and California, which are famously aggressive, are still set to levy taxes on these remote workers for 2020.

Most states offer tax credits to offset income earned in other states avoid double taxation. But these credits might not make the worker whole if the remote work is in a state with higher taxes than the home state. For example, a Seattle employee who works remotely from Oregon during the pandemic and owes Oregon income tax won’t get a credit from Washington, because it doesn’t have an income tax.

Businesses with employees or owners working remotely face further tax headaches. Simply having a worker present in a state can trigger so-called nexus rules that raise state taxes on business as well as personal income.

Out of state or telecommuting employees should talk to their employers about where state taxes are being withheld while they’re working remotely. As arrangements that at first seemed provisional take root, taxpayers should also track days spent working in different states, because auditors often use cell-phone or credit-card records to track movement.

Congress has come up with several possible solutions to this issue, however they seem to have limited traction at the moment. The proposed Multi-State Worker Tax Fairness Act, which has been introduced repeatedly since 2016, limits the ability of states to tax nonresident telecommuters. Alternatively, Senate Republicans’ HEALS Act includes a temporary provision which partially restricts such double taxation through 2024.

With these complex issues in play, we urge you to act soon to see how you may be affected when filing your taxes for 2020.

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.

The Treasury Department released guidance related to President Trump’s payroll tax deferral, which is scheduled to begin next week on September 1 through December 30. The guidance allows employers to defer payroll tax withholdings for employees with incomes below $4,000 during a bi-weekly pay period, calculated on a pre-tax basis, or the equivalent.

Employers can opt to not withhold Social Security payroll taxes from their employees’ paychecks from September through December. To pay the amounts that were deferred, the amount of Social Security payroll taxes withheld from employees’ paychecks would increase from Jan. 1 through April 30.

Trump, however, has said he will forgive those deferrals, rendering the measure a true payroll tax holiday. If he does not, employees could be on the hook for a sizable tax bill next year. In the event that deferrals are not forgiven, interest and penalties would begin accruing on May 1.

Trump’s top economic adviser, Larry Kudlow, said last week that the administration is “exploring ways” to forgive the tax payment completely. The taxes “essentially can be forgiven if you stretch it out five years, eight years,” he said.

A number of business groups have raised concerns about the order, arguing that there are some uncertainties about how it would apply and that a deferral could be challenging for employees who could face more taxes next year. Many businesses are not expected to implement a deferral, and are expected to continue to withhold payroll taxes from their employees’ paychecks.

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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