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.

On August 8, 2020, President Trump signed an executive order that defers an employee’s portion of Social Security and Medicare taxes from September 1 through December 31, 2020. While the taxes still have to be paid at a later date, the action directs U.S. Treasury Secretary Steven Mnuchin to “explore avenues, including legislation, to eliminate the obligation to pay the taxes.”

While the CARES Act included payroll tax deferrals for employers, Trump’s executive order is instead intended to defer collection of employee tax from people making up to $104,000 from September until the end of the year, meaning employees would need to repay the government in 2021.

The deferral will be calculated on a pretax basis or the equivalent amount with respect to other pay periods. The amounts will also be deferred without any penalties, interest, or addition to the tax.

While the exact impact on employers and employees isn’t yet known, there are many open questions, including President Trump’s legal ability to implement the deferral. Some experts believe there may be legal challenges to this executive action.

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.

It’s not unusual for entrepreneurs to face a multitude of unique challenges every day that can stretch their ability to stay productive, especially during the current pandemic. When you have employees relying on you and a mountain of deadlines to meet, shutting your door and curling up into a ball in the corner is not an option. Besides money and health, time is the greatest commodity an entrepreneur can have. It makes sense, then, that the most successful business owners have figured out how to work more efficiently with the time they do have. Listed below are some productivity tips that we’ve picked up along the way.

“Eat your frog” first. Wait, what?! Mark Twain said it best: “Eat a live frog first thing in the morning, and nothing worse will happen to you the rest of the day.” In other words, spend your morning working on something that you don’t want to do, which requires a large amount of concentration. By doing so, you’ll get the more tedious task done, freeing yourself up to move on to the other pressing items on your to-do list.

Want to be productive? Don’t multitask. Multitasking in the morning when you have lots to do, tons of energy, and a venti-sized cup of coffee with a double shot of espresso in front of you, is tempting. However, doing so can set your whole day back. Research conducted at Stanford University confirmed that multitasking is less productive than working on one task at a time. Researchers found that people who are regularly bombarded with several streams of electronic information cannot pay attention, recall information, or switch from one job to another, as well as those who complete one task at a time.

Take care of yourself. This is both the most important and the most overlooked tip for any entrepreneur to follow. All the business and productivity advice in the world won’t help you if you’re already stressed out, sleep deprived, and running yourself into the ground before you take that first sip of coffee or tea in the morning.

Whether you’re looking to improve your tax position, build your brand through a business transaction, or guarantee a legacy for your family, Talley is uniquely equipped to provide the technical and managerial expertise to help you plan, negotiate, structure, and execute your goals.

To learn more how Talley can help your business become more productive and profitable, contact us today.

On March 13, President Trump issued an emergency declaration under the Stafford Act and declared a national emergency due to the COVID-19 pandemic. As a result, under Code Sec. 165(i), certain taxpayers may be able to deduct disaster losses that are attributable to COVID-19 on their 2019 return, even though the pandemic is occurring in 2020.

A determination of whether a loss will qualify under Code Sec. 165(i) necessitates a thorough examination of the facts and circumstances, as well as any specific deductibility rules that may apply based on the type of expense. Although the pandemic meets the definition of a federally declared disaster, the IRS has not yet specifically ruled on the applicability of Code Sec. 165(i) to COVID-19.

Examples of losses that may qualify for the accelerated deduction opportunity include, but are not limited to, the following:

  • Inventory impairments
  • Worthless securities (but not bad debts);
  • Closure costs of store and facility locations;
  • Complete abandonment of leasehold improvements;
  • Permanent retirement of fixed assets;
  • Abandonment of pending business deals for costs otherwise capitalized;
  • Termination payments to cancel contracts, leases or licenses;
  • Prepaid events, travel, conference space, hotel rooms, etc. when taxpayer is not provided a refund or credit;
  • Prepaid raw materials or other items to fulfill a contract and the contract has been cancelled;
  • Mark-to-market securities; or
  • Losses from the sale or exchange of property.

Some losses generally would not qualify to be accelerated to 2019 under section 165. Examples include, but are not limited to:

  • Lost revenues
  • Goodwill losses, which are generally difficult to write off under section 165
  • A decline in fair market value of the property due to ’economic obsolescence‘ attributable to buyer resistance which attached to the property;
  • An appraisal reflecting a potential buyer resistance which represents speculative estimates of rental loss;

A taxpayer makes the election on an original federal tax return or an amended federal tax return filed on or before the date that is six months after the original due date for the disaster year (determined without regard to any extension of time to file). This means that for the 2019 calendar tax year a taxpayer could have until the Fall of 2021 to file an original or amended tax return to make this election. 

The taxpayer has the burden of proving the existence of the casualty as the cause of the section 165 loss.

Talley’s experienced team of tax professionals provide 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 gravity of the COVID-19 pandemic has forced a multitude of Americans to confront many issues they had previously put off because the topics are uncomfortable. Mortality has become a central concern due to the rise of the Coronavirus, so estate planning has become a priority for many individuals who currently have no plan in place and face the outlook of their probate estate distributed by the court rather than their own wishes. There are a few important documents you should have in place to handle unexpected situations such as illness, incapacitation, or death that make up a solid, basic estate plan.

One of the most obvious issues is the improper distribution of assets after a loved one’s death. It is not easy to talk or think about, but as they get older, a plan needs to be in place. If not, there is no guarantee that their assets will be handled properly after they die. More importantly, planning ahead can help protect accounts in special circumstances. For example, for those who fall ill and need expensive care and facilities, naming a legal beneficiary in advance can make sure that they can access money to help pay for the necessary treatment. Beneficiaries can also create a barrier from scammers, as with the right documents set up, there is a second source of control over accounts to prevent them from being drained without approval.

While the topic may not be easy to approach, there are a few tips to make starting a conversation easier. The first and most important tip is to be honest and respectful when bringing it up. It seems self-explanatory, but this is often the hardest part of the whole process. Just keep in mind that things will be a lot better when a plan has been created rather than leaving it until it is too late. In cases with multiple beneficiaries, tensions can run especially high. A good way to mediate these tensions while also ensuring things are handled correctly, is to hire a fiduciary. Fiduciaries, unlike other financial advisors, are legally obligated to conduct all business with their clients’ best interest above everything else. The most important tip is to stay dedicated to the process of getting an estate handled and taking the proper steps to make sure it is done correctly.

Even though COVID-19 has created a sense of uncertainty in many areas of our lives, creating or updating an estate plan is a huge step in taking back control and gaining some peace of mind. 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.

Famous reality television judge Judy Sheindlin famously said, “If it doesn’t make sense, it’s not true!” Many longtime fans of her show are likely echoing that sentiment after hearing the news that “Judge Judy” is coming to an end after its 25th season. While her reign on CBS may be coming to an end, it’s unlikely she will relinquish her hold on the Guinness World Record for longest career as a television judge or arbitrator any time soon. Judge Judy, the highest-rated daytime program in the U.S., has made Judy Sheindlin the highest-paid star in television and worth $440 million, according to Forbes. Her longevity and earnings make her a contender for one of the richest self-made women in the U.S. But every founder or entrepreneur must move on at some point.

While the series we know as Judge Judy will be coming to an end, Sheindlin plans on returning with a new show called Judy Justice. It’s incredible to think that Sheindlin sparked all of this from her reputation as a “tough, no-nonsense judge” in Manhattan almost four decades ago. But it is obvious that Sheindlin is a true entrepreneur with incredible ambition and dedication. And of course, it doesn’t hurt that she has been incredibly successful. While we can’t put ourselves in her shoes, Sheindlin has already established that this is not the end. It’s admirable to see that she isn’t letting the end of one thing end her career, citing that “If you’re not tired, you’re not supposed to stop.”

This news has a not-so-hidden message to keep going. Whether you have succeeded or not, entrepreneurship is about the journey and the constant drive to keep going. Judge Judy will always remind us that “I’m the boss, applesauce.” That should be enough to motivate you to work twice as hard for that thing you want to achieve.

If after a long and successful career in your field you’re thinking of going out on your own or creating another business that plays into your passions, Talley & Company has over 25 years of experience helping entrepreneurs successfully start and grow their businesses. From startup to succession, we maintain a proactive, global approach to our clients’ personal, family, and business needs.

California’s groundbreaking Assembly Bill 5 (AB 5) went into effect on Jan. 1st, becoming the standard for determining whether workers should be classified as employees or independent contractors. All companies using independent contractors in California will be put through a three-part test to determine whether they must reclassify their workers. If they don’t pass that test, they’ll have to turn their workers into employees.

The debate that raged around the bill for months focused mainly on its effects on Big Tech and gig economy companies such as Uber, Lyft and Postmates. But by the time the legislation became law last year, its scope broadened to encompass an array of industries, from transportation/trucking to journalism. Proponents of the bill say that it forces companies to replace gigs with jobs that entitle employees to state-mandated protections like paid time off, coverage for job injuries, and unemployment insurance. Critics of AB 5 say despite its good intentions the legislation has boomeranged on contractors, making it harder for tens of thousands of them to make a living in a tight economy.

The three-part AB 5 “ABC classification test” requires businesses to use the following test in determining whether a worker is an employee or an independent contractor:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

If even one of the conditions is not met, then the worker is classified as an employee. As concerns grow over the new law, large companies and third-party organizations like Uber and Airbnb are looking for ways to avoid having to take on a rush of new “employees” under this classification.

Our assessment of AB 5 is that it will have major tax implications across a wide variety of businesses and industries. Talley welcomes the opportunity to discuss what AB 5 may mean for you and your business. For more information, feel free to contact us

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