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BizBoost NewsVolume 10, Issue 24For distribution 5/17/21; publication 5/20/21
Business Meal Deduction Changes from the Consolidated Appropriations Act
The Consolidated Appropriations Act that was signed into law December 27, 2020 includes a temporary provision allowing a 100 percent write-off for business meals from January 1, 2021 through December 31, 2022. The food and beverages must be provided by a restaurant, although they do not need to be consumed on a restaurant’s premises. The deduction also includes any delivery fees, tips and sales tax. This is an increase from the 50 percent deduction that applied for 2020 and earlier years.
It is important to note that other than lifting the 50 percent limitation on deductions for meal expenses, this legislation doesn’t amend any of the other rules related to business meal deductions. Therefore, to be deductible:
Although meals are 100 percent deductible, entertainment expenses are still disallowed. So, while taking a client out for a dinner is tax deductible, the cost of the baseball game after dinner is not. Furthermore, if an entertainment event includes food and beverages, they must either be purchased separately from the entertainment or broken out on a separate invoice or receipt. Be sure to update your chart of accounts to make an account for meals and another for entertainment.
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Our latest blog: “Business Meal Deduction Changes from the Consolidated Appropriations Act” is available now! Subscribe here: [link]
The Consolidated Appropriations Act that was signed into law December 27, 2020 includes a temporary provision allowing a 100% write-off for business meals from January 1, 2021 through December 31, 2022. Learn more in our latest blog article: [link]
Business Tip: Although meals are 100% deductible under the CAA, entertainment expenses are still disallowed. So, while taking a client out for dinner is tax deductible, the cost of the baseball game after dinner is not. Learn more here: [link]
DID YOU KNOW… Business meals written off, under the CAA, must be provided by a restaurant, although they do not need to be consumed on a restaurant’s premises. Learn more in our latest blog article: [link]
The Consolidated Appropriations Act includes a temporary provision allowing for 100% deduction of business meals. This is an increase from the 50% deduction that applied for 2020 and earlier years. Learn all about them in our latest blog article: [link]
To be deductible under the Consolidated Appropriations Act, business meals should not be lavish or extravagant under the circumstances. Find out more here: [link]
DID YOU KNOW… To deduct a business meal, you or one of your employees must be present when the food or beverages are served. Learn more here: [link]
It is important to note that other than lifting the 50% limitation on deductions for meal expenses, the new Consolidated Appropriations Act doesn’t amend any of the other rules related to business meal deductions. Sign up for our newsletter to learn more: [link]
BizBoost NewsVolume 10, Issue 23For distribution 5/03/21; publication 5/06/21
IRS Penalty Abatement – How Does It Work?
It is never fun to receive a letter from IRS, especially one that says you are being assessed penalties due to filing late, paying your taxes late, or understating income on your tax return! In many cases taxpayers are fearful of additional consequences so they just pay what is owed, but it is important to be aware that sometimes IRS is willing to waive certain penalties, depending on the circumstances. With that said, there are some important items to be aware of as far as how to qualify and what to do if you find yourself in such a situation.
How Do I Qualify?
Generally, to qualify for penalty abatement, you will need to demonstrate to IRS that you have “reasonable cause” for whatever triggered the penalty assessment. There are some standard reasons within the IRS guidelines that will, in most cases, qualify you for penalty abatement. These include:
You will need to present the appropriate facts and circumstances to IRS in order to prove reasonable cause. This includes the following:
What is First-Time IRS Penalty Abatement?
For first-time noncompliant taxpayers, in some cases there may not be any need to provide reasonable cause, because IRS offers a one-time penalty abatement for taxpayers who have stayed compliant and have a clean filing and payment history with IRS. The idea is that everyone is entitled to one mistake! This generally applies to failure-to-file, failure-to-pay, or failure-to-deposit penalties, but not to other types like accuracy-related penalties.
Since this is a one-time waiver, if you are requesting penalty abatement for more than one tax year/period, the abatement will generally only apply to the earliest period you are requesting abatement for. If there is other administrative relief you can request from IRS to get penalties abated, you may want to explore that option instead of using up this one-time waiver, which could be more beneficial in a future situation.
How Do I Request Penalty Abatement?
In some cases, particularly with the First-Time Penalty Abatement, you may be able to request a penalty waiver simply by calling and speaking with an IRS representative. If the penalty is too high or there are other circumstances that prevent a representative from providing relief over the phone, however, you will need to write a letter explaining the facts/circumstances, and you will want to attach the appropriate documentation as proof. Be sure to include all relevant information in the request, including name, identification number, tax year/period, tax form, and penalty type/amount.
You will want to mail the letter to the address provided on the IRS notice (or, if no notice, the address where you would usually file your tax returns). You may also want to consider requesting assistance from a tax professional, to make sure you qualify and are able to communicate a convincing argument to IRS.
Our latest blog: “IRS Penalty Abatement – How Does It Work” is available now! Subscribe here: [link]
It is never fun to receive a letter from the IRS, especially one that says you are being assessed penalties due to filing or paying your taxes late, or understating income on your tax return! Learn more about this process in our latest blog article: [link]
For first-time noncompliant taxpayers, in some cases there may not be any need to provide reasonable cause, because IRS offers a one-time penalty abatement for taxpayers who have stayed compliant and have a clean filing and payment history with the IRS. Learn more here:[link]
DID YOU KNOW… It is important to be aware that sometimes IRS is willing to waive certain penalties, depending on the circumstances. Learn more in our latest blog article:[link]
There are some standard reasons within the IRS guidelines that will, in most cases, qualify you for penalty abatement. Learn what these reasons are in our latest blog article: [link]
Generally, to qualify for penalty abatement, you will need to demonstrate to the IRS that you have “reasonable cause” for whatever triggered the penalty assessment. Find out more here: [link]
In some cases, particularly with the First-Time Penalty Abatement, you may be able to request a penalty waiver simply by calling and speaking with an IRS representative. Learn more about requesting a penalty abatement here: [link]
Standard reasons within IRS guidelines that may qualify you for penalty abatement include:
Sign up for our newsletter to learn more: [link]
BizBoost NewsVolume 10, Issue 22For distribution 4/19/21; publication 4/22/21
Partner Capital Accounts Required to be Reported on Tax Basis for 2020
In response to the Tax Cuts and Jobs Acts of 2017, there were a number of changes to the disclosure requirements for partnerships and LLCs filing as partnerships – specifically, on the K-1s of Form 1065 returns, some of which became effective for the 2019 tax year.
For the current (2020) tax year, however, the most significant change relates to the reporting associated with partner capital accounts. Beginning with the 2020 year, partnerships are required to report capital accounts for partners using the tax basis method. The prior rules allowed the capital accounts to be reported in accordance with Generally Accepted Accounting Principles or Section 704(b). This will no longer be permitted.
According to IRS, most partnerships/LLCs taxed as partnerships have already been reporting capital accounts on a tax basis. For those taxpayers, no change is required.
For partnerships that were not using tax basis, the “transactional approach” must be used to switch to tax basis for capital reporting purposes. Under that approach, partnerships use partner contributions, the partner’s share of partnership net income or loss, withdrawals and distributions, and other increases or decreases using tax basis principles, instead of reporting using other methods such as GAAP.
For those partnerships that have never used tax basis, since many partnerships would have difficulty reconstructing tax basis, the IRS is allowing them to re-figure beginning basis using one of a number of options including the modified outside basis, modified previously taxed capital, or Section 704(b) methods. These options are all described on page 32 of the Form 1065 instructions.
The same basis method should be used for each partner. IRS is not assessing penalties as long as the calculation is done with “ordinary and prudent business care.”
“Small partnerships,” which are defined as having less than $250,000 in total receipts under $1 million in total assets, are exempt from reporting capital accounts on the tax basis.
The IRS is hoping this new disclosure will assist in assessing compliance risk and result in fewer audits for compliant taxpayers.
Our latest blog: “Partner Capital Accounts Required to be Reported on Tax Basis for 2020” is available now! Subscribe here: [link]
In response to the Tax Cuts and Jobs Act of 2017, there were a number of changes to the disclosure requirements for partnerships and LLCs filing as partnerships. Learn more in our latest blog article: [link]
DID YOU KNOW…“Small partnerships,” which are defined as having less than $250,000 in total receipts under $1 million in total assets, are exempt from reporting capital accounts on the tax basis. Learn more here: [link]
DID YOU KNOW…In response to the Tax Cuts and Jobs Act of 2017, for the current (2020) tax year, the most significant change relates to the reporting associated with partner capital accounts. Learn more in our latest blog article: [link]
Beginning with the 2020 form year, partnerships are required to report capital accounts for partners using the tax basis method. The prior rules allowed the capital accounts to be reported in accordance with Generally Accepted Accounting Principles or Section 704(b). Learn all about this change in our latest blog article: [link]
For partnerships that were not using tax basis, the “transactional approach” must be used to switch to tax basis for capital reporting purposes. Find out more about these changes here: [link]
For partnerships that have never used tax basis, since many partnerships would have difficulty reconstructing tax basis, the IRS is allowing them to re-figure beginning basis using one of a number of options including the modified outside basis, modified previously taxed capital, or Section 704(b) methods. Learn more here: [link]
The IRS is hoping that by requiring partner capital accounts to be reported on tax basis, this will assist in assessing compliance risk and result in less audits for compliant taxpayers. Sign up for our newsletter to learn more about these new changes: [link]
BizBoost NewsVolume 10, Issue 21For distribution 4/05/21; publication 4/08/21
Employee Retention Credit Expanded for 2021
If your business was impacted by either a disaster or COVID-19, you may be eligible to receive the Employee Retention Credit (ERC). It is a refundable credit against payroll taxes that was originally introduced in the CARES Act, expanded by the Consolidated Appropriations Act (CAA) signed into law on December 27, 2020, and broadened even further with the March 2021 American Rescue Plan Act (ARPA).
In essence, the ERC is a tax credit on a percentage of qualifying wages paid to employees for a specified period of time. While we can’t cover every detail of this complex tax break, we hope to raise awareness of this topic so that businesses that qualify can benefit.
To qualify, your business operations must have been either fully or partially suspended by a COVID-19 governmental order or have experienced a drop in gross receipts.
From the CARES Act, qualified wages must have been paid between March 13, 2020 and December 31, 2020. The CAA provides for wages paid from January 1, 2021 through June 30, 2021 and covers gross wages plus the employer cost of health insurance. The ARPA extends the dates to include the third and fourth quarters of 2021 and adds Medicare.
If a business has received a PPP loan, the same wages used to apply for PPP loan forgiveness cannot be used to qualify for the ERC, but the business can get both tax breaks. This requires a great deal of strategy to maximize the payouts for each tax break.
To claim the credit, you may reduce your employment tax deposits and reflect the reduced deposits on Form 941, file an amended 941X to retroactively get the credit, or (for small employers with less than 500 employees) apply for an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
There is no double-dipping of credits allowed; employers who take this credit cannot also take a credit for Paid Family Medical Leave on the same qualified wages. Furthermore, if an employee is included for the Work Opportunity Tax Credit, he/she may not also be included for the Employee Retention Credit. It is important for employers to evaluate which credit is more financially beneficial to their businesses.
The Employer Retention Credit can be a windfall for some businesses. Some tax professionals may overlook this credit since it is connected with payroll taxes, an area they do not normally get into. Do not let them! Be sure to ask your tax professional to help you claim all of the credit you deserve by law.
Our latest blog: “Employee Retention Credit Expanded for 2021” is available now! Subscribe here: [link]
The Employee Retention Credit is a refundable credit that was expanded with the Consolidated Appropriations Act signed into law on December 27, 2020. Learn more in our latest blog article: [link]
Business Tip: To claim the Employee Retention Credit, you may reduce your employment tax deposits and reflect the reduced deposits on Form 941, or (for small employers with less than 500 employees) apply for an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. Learn more here: [link]
DID YOU KNOW... If your business was impacted by COVID-19, you may be eligible to receive the Employee Retention Credit. Learn more in our latest blog article: [link]
To qualify for the Employee Retention Credit, your business operations must have been either fully or partially suspended by a COVID-19 governmental order or experienced a drop in gross receipts. Learn all about it in our latest blog article: [link]
Employers who take the Employee Retention Credit cannot also take a credit for Paid Family Medical Leave on the same qualified wages. Find out more here: [link]
To get the Employee Retention Credit, qualified wages must have been paid between March 13, 2020 and December 31, 2021. Find out whether your business qualifies here: [link]
It is important for employers to evaluate which tax credits available may be more financially beneficial to their businesses. Sign up for our newsletter to learn more: [link]
BizBoost NewsVolume 10, Issue 20For distribution 3/22/21; publication 3/25/21
What is the Difference Between Your Marginal Tax Rate and Your Effective Tax Rate?
Have you heard the phrases “marginal tax rate” (or tax bracket) and “effective tax rate” and wondered what the distinction is between them? In order to explain the difference, it is first important to note that in the United States, we do not pay a flat tax – we are on a graduated system and therefore pay taxes in tiers.
Let’s say that you are a Single filer, and you have taxable income of $60,000 for the 2020 tax year. According to the IRS tax tables, that puts you in the 22 percent tax bracket – in other words, that is your marginal tax rate. Twenty-two percent of $60,000 is $13,200, but luckily, you don’t have to pay that much. If you calculate the tax based on the 2020 IRS Tax Tables, the amount of tax is $8,990, which is less than the $13,200 based on the 22 percent marginal rate.
This scenario illustrates the difference between your marginal tax rate (tax bracket) and your actual effective tax rate. Even though you would be in the 22% bracket based on $60,000 of income, you do not pay 22 percent flat tax. You would pay less than that since there is one bracket below your tax bracket: the 12 precent bracket. (There are really two for you math geeks: 12 percent and 0 percent.)
The rate that you actually pay in taxes is your effective tax rate. This rate is unique to you individually and is simple to calculate. Just take your total tax liability and divide it by your taxable income. In our example, that would be $8,990 / $60,000 = just about 15 percent. Compare that to the 22 percent marginal rate and it sounds pretty good!
The effective rate is often more useful because it gives you an average rate you pay on all the money you make during the year. It is much more accurate in terms of gauging what you might owe based on your projected taxable income. In most cases, the effective tax rate is less than the marginal rate.
The marginal tax rate is still helpful to know for tax planning. For example, you can get a feel for how much potential benefit you could receive from an additional deduction. For example, how much would you benefit from making a $6,000 IRA contribution? Your taxes would be reduced by $1,320, or 22 percent of $6,000. Looking it up in the tax tables is another way to double-check the math and yields the same savings.
Understanding the difference between your effective and marginal tax rates makes you a smarter taxpayer!
Our latest blog article: “What is the Difference Between Your Marginal Tax Rate and Your Effective Tax Rate?” is available now! Subscribe here: [link]
Have you heard the phrases “marginal tax rate” (or tax bracket) and “effective tax rate” and wondered what the distinction is between them? Find out in our latest blog article![link]
Business Tip: While the marginal tax rate is often what you hear about/reference when reviewing your tax situation for the year, the effective rate is really a much more useful indicator. Learn more about the difference here! [link]
Marginal and effective tax rates are both useful, but serve different purposes when trying to understand your tax situation. Find out how these two differ and which one is best to use in our latest blog article here.: [link]
DID YOU KNOW… While the marginal tax rate helps you to get a feel for where your tax situation might land (and how certain deductions might help your overall situation), the effective tax rate will be more accurate in terms of nailing down what your overall tax liability might look like for the year. Learn how these calculations differ here: [link]
DID YOU KNOW… The tax brackets used for marginal tax rates cover a range of income and you pay tax on a graduated system based on where your income falls within the range applicable to you. Therefore, the effective tax rate is much more useful in understanding your specific tax situation, as you can calculate based on your unique position. Learn how to calculate these tax rates here: [link]
You can determine your effective tax rate by taking your total tax liability and dividing it by your taxable income. Click here to learn why your effective tax rate is more useful than the more common marginal tax rate. [link]
Sign up for our newsletter to learn how the marginal tax rate and effective tax rate differ, and how you can gain a better understanding of your unique tax situation.: [link]
BizBoost News Volume 10, Issue 19 For distribution 3/8/21; publication 3/11/21
What is Nexus and How Does It Affect Your Business?
The dictionary defines the word “nexus” as a connection between two or more things. In taxes, it’s a key word that has a potentially big impact and state and local taxes. It’s easier to think of nexus as meaning “presence.”
Nexus, or a business’s presence, in a state, is created by a variety of factors:
A company can have nexus in many states at once. For example, a business operating in California that sells books that are stored in a warehouse in Indiana has nexus in both states. The warehouse generates physical nexus.
There is also economic nexus. This is when enough customers in a state purchase a company’s goods. A 2018 Supreme Court case, South Dakota vs. Wayfair, opened the floodgates for states to impose economic nexus on businesses. As of this writing, 43 states have enacted laws to create economic nexus for certain businesses. It is usually required after a business has reached a threshold of sales in dollars or number of customers. Economic nexus requires businesses to collect and remit state sales tax on sales of taxable items, which helps the states to raise revenue.
The locations of a business’s employees and contractors could also trigger nexus. Not only is a business impacted with this type of nexus, the employee’s tax liabilities may be affected as well. With so many working remotely due to the pandemic, these workers are probably not aware of how state tax laws could potentially impact them.
For example, an employee working from home in Michigan for an employer based in Pennsylvania could potentially be subject to Pennsylvania income tax as well as Michigan. The laws for permanent and temporary relocations are different and complex; it’s best to check with a tax professional to help you determine which states you might have nexus in.
If you operate a business with employees, property, or sales in more than one state and are not sure about your responsibilities with regard to nexus, please feel free to reach out so we can help.
Our latest blog article: “What is Nexus and How Might It Impact You?” is available now! Subscribe here: [link]
Nexus is defined as a connection between two or more things. As it relates to state income taxation, nexus is created when an entity derives income from sources within a state, owns or leases property or has employees that are engaged in activities that exceed mere solicitation.
Learn more about nexus and how it may impact you in our latest blog article: [link]
A 2018 Supreme Court case, South Dakota vs. Wayfair, opened the floodgates for states to impose economic nexus on businesses. Find out more: [link]
DID YOU KNOW… As of this writing, 43 states have enacted laws to create economic nexus for certain businesses. Find out about nexus here: [link]
With so many working remotely due to the pandemic, workers and employees alike may not be aware of how state tax laws could potentially impact them. Learn more in our latest blog article here: [link]
When you operate a business or work in multiple states, be aware that there may be multi-state income tax ramifications. Find out more in our latest blog article here: [link]
DID YOU KNOW… If your residence is in one state and you choose to ride out the pandemic in another location, you could owe state income tax to both the home state and the temporary state. Learn more here: [link]
Nexus, as it relates to state income taxes, can cause unpleasant tax surprises for both employees and employers. Sign up for our newsletter to learn more about nexus and how it may impact you!: [link]
BizBoost News Volume 10, Issue 18 For distribution 2/22/21; publication 2/25/21
Do Nonprofits Ever Pay Taxes?
When you think about a nonprofit, the first thing that often comes to mind is that it is tax-exempt. Most nonprofits are not subject to federal, state, and local income tax.
Does that mean nonprofits are completely free of ANY tax liability? The answer to this is likely no – there are still some taxes that a nonprofit might be liable for. If you are considering starting a nonprofit organization, you won’t want to be surprised, so we’ll break it down for you.
Taxes That Do NOT Apply to Nonprofits
Generally a nonprofit is not subject to income tax at the federal, state, or local level on funds raised in direct association with the organization’s mission. The reasoning behind this exemption is that it allows more resources to be put toward its cause(s).
A nonprofit that qualifies for federal tax-exempt status is also exempt from paying property tax in all 50 states, by law. Sales tax is also often waived for certain transactions related to the organization’s mission, but not always. It depends on the nature and amount of sales activities of the nonprofit.
Taxes That Do Apply to Nonprofits
If a nonprofit organization hires employees, it will be subject to payroll taxes. Just like employees of for-profit entities, these individuals are required to pay tax on their earnings, and the organization is liable for the employer’s share of the payroll taxes.
Sales and use tax may also need to be paid. With sales tax, there is a distinction between paying sales tax on purchases, and collecting and remitting sales tax on sales. A nonprofit may need to pay sales tax on purchases from a vendor depending on the rules of its state and other considerations.
On the flip side, if a nonprofit is engaged in a business activity unrelated to its charitable mission and/or involved in sales of taxable items or services to customers, it may be obligated to collect and remit sales tax.
It is important to distinguish between these two areas and keep in mind that even if a nonprofit is exempted from paying sales tax on purchases, that exemption does not necessarily extend to collecting and remitting sales tax on outside sales.
Another area where a nonprofit might be liable to pay tax would be on what is called Unrelated Business Taxable Income (UBTI). This is income that is unrelated to the nonprofit’s core mission. As an example, a fundraising event to sell merchandise to raise money for equipment that will directly help carry out the entity’s cause would NOT be considered an unrelated activity, despite the sale of items to customers, because the money is going directly towards helping to advance the charitable mission.
On the other hand, if that merchandise is sold as part of a trade or business that is regularly carried on by the nonprofit and the proceeds are used to fund general operating costs like payroll or office expenses and not specific program expenses, that income could be considered UBTI because it is not substantially related to the organization’s charitable purpose.
If a nonprofit has over $1,000 of UBTI it must file Form 990-T and pay tax on that income. If the nonprofit is structured as a corporation, it will pay the flat 21 percent rate on that income, like the 21 percent tax paid by for-profit corporations. If it’s set up as a trust it will be taxed at trust rates, the highest of which is 37 percent. Because this is a gray area of the law and subject to some interpretation, it is highly recommended that a nonprofit seeks the advice of a tax professional in navigating the rules and determining if it is subject to UBTI reporting and taxation.
So, as you can see, taxes are not completely off the table just because an organization is exempt from federal income tax. Several different types of tax could come into play for a nonprofit, depending on whether it has employees, the nature of its activities, and other considerations.
If you need help with taxes in your nonprofit, please contact us.
Our latest blog article: “Do Nonprofits Ever Pay Taxes?” is available now! Subscribe here: [link]
When you think about a nonprofit, the first thing that often comes to mind is that it is tax-exempt – most nonprofits are not subject to federal and state/local income tax. However, does that mean nonprofits are completely free of ANY tax liability? Find out in our latest blog article here! [link]
A nonprofit that qualifies for Federal tax-exempt status is also exempt from paying property tax in all 50 states, by law. However, there may still be other taxes that do apply to nonprofits! Find out more here: [link]
Do you know what taxes do apply and do not apply to nonprofits? Find out in our latest blog article, “Do Nonprofits Ever Pay Taxes?” Available now! [link]
When it comes to nonprofits, be aware that there is a distinction between paying sales tax on purchases and collecting/remitting sales tax on sales. A nonprofit may need to pay sales tax on purchases from a vendor depending on the rules of its state and other considerations. Learn more here: [link]
Taxes are not completely off the table just because an organization is exempt from federal income tax. Several different types of tax could come into play for a nonprofit, depending on whether it has employees, the nature of its activities, and other considerations. Find out more in our latest blog article here: [link]
DID YOU KNOW… an area where a nonprofit might be liable to pay tax would be on what is called Unrelated Business Taxable Income (UBTI). Click here to learn more! [link]
Many believe that nonprofits are completely tax-exempt, but that’s not always the case! Sign up for our newsletter to learn about what taxes nonprofits may actually have to pay: [link]
BizBoost News Volume 10, Issue 17 For distribution 2/8/21; publication 2/11/21
Tax Filing Requirements for Closing a Business
You’re not alone if you have considered shuttering your business recently, The pandemic has placed a huge strain on businesses in certain industries, and many business owners who were just holding on before the crisis are having to face life-changing decisions.
If you do decide to close your business, there are many considerations. Here are a few steps for you to consider from a tax standpoint.
If you have employees, the first step is to pay them any final wages and compensation. You will need to file the proper employment tax forms (both federal and state) and also provide the employees with a W-2 by the due date of your final Form 941. Any forms you file (i.e., Form 940, 941) should be marked as final.
If you paid any contract workers over $600 you will also need to provide Form 1099-NEC to them and file Form 1096 and transmit the 1099 forms to the Internal Revenue Service.
A tax return for the year the business closed must also be filed. For businesses taxed as a partnership (Form 1065), S corporation (Form 1120S) or corporation (Form 1120), a tax return marked final will need to be completed. The corresponding state versions of these returns should also be filed and marked final. There is no box to mark Schedule C final for a sole proprietorship, but a return must still be filed for the year of closure. Additional forms may be necessary depending on whether or not the business was sold.
After filing the final tax returns, the next step is to cancel your employer identification number (EIN) and business account with the IRS. Send the IRS a letter with the complete legal name of the business, employer identification number and reason the account is being closed to the address below:
Internal Revenue Service Cincinnati, OH 45999
This will prevent Internal Revenue Service from requesting returns that are no longer required.
Don’t forget the state(s) you are registered to do business in. You may need to dissolve your company with the state depending on the state your business is organized in and how it is structured. For example, if you have a California LLC you’ll want to make sure it is properly dissolved with the state since you will be responsible for the $800 fee until this is completed.
The Internal Revenue Service has recently released Publication 5447 summarizing the steps to take in closing a business. Making sure you wind up business affairs properly will eliminate any unpleasant tax surprises in the future.
Our latest blog article: “Tax Filing Requirements for Closing a Business” is available now. Subscribe here: [link]
If you have decided it is time to close your business, it entails more than shutting off the lights and closing your bank account. Learn more in our latest blog article: [link]
Business Tip: When closing a business, don’t forget the state(s) you are registered to do business in. You may need to dissolve your company with the state depending on the state your business is organized in and how it is structured. Learn more here! [link]
DID YOU KNOW…. When closing a business, if you paid any contract workers over $600 you will need to provide Form 1099-NEC to them and file Form 1096 and transmit the 1099 forms to the Internal Revenue Service. Learn more here: [link]
The Internal Revenue Service has recently released Publication 5447 addressing the steps to take in closing a business. Making sure you wind up business affairs properly will eliminate any unpleasant tax surprises in the future. Learn more in our latest blog article: [link]
Do you know the tax filing requirements to close a business and avoid penalties? Learn what steps to take to close a business in our latest blog article, available now: [link]
The first step to closing a business, if you have employees, is to pay them any final wages and compensation. You will need to file the proper employment tax forms (both federal and state) and also provide the employees with a W-2 by the due date of your final Form 941. Find out more here: [link]
Tax filing requirements for closing a business require many steps. Make sure to check out our latest blog article so that you can avoid any unpleasant tax surprises! Sign up for our newsletter here: [link]
Deductibility of PPP-Related Expenses
One of the biggest tax issues of 2020 has been clarified with the signing of the Consolidated Appropriations Act, 2021, (CAA 2021), and that was whether expenses that are normally deductible and that were paid with the proceeds of a Paycheck Protection Program (PPP) loan that is forgiven are truly deductible.
The CARES Act, which became law on March 27, 2020, was drafted so quickly that the question of deductibility was left out, but several members of Congress made it clear that deductibility was the intent all along. The IRS went the other way, publishing a notice (2020-32), a revenue ruling (2020-27), and a revenue procedure (2020-51), that took the opposite stance: PPP-related expenses that were forgiven were not deductible, therefore potentially causing business’s taxes to become much higher.
Congress has now reversed the IRS’s position with CAA 2021 in Section 276 (PPP) and 278 (EIDL). Gross income does not include forgiveness of PPP loans and emergency EIDL grants. Deductions are allowed for normally deductible expenses paid with PPP loan proceeds that were forgiven. It also provides deductibility for Second Draw PPP loans. This is all good news for taxpayers with PPP loans.
However, there could be timing issues that could reduce the deductibility of the full amount of the PPP expenses. There could also be amounts “at risk,” which is a tax term that limits your deductions in certain cases.
All of these issues need to be carefully considered on a case-by-case basis. Your tax professional is your best source to help you review all of these factors so that both your PPP loan forgiveness and allowable deductions are timed to reduce your tax bill.
Tax Tips Bonus
A New Round of Stimulus Checks
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 which included measures for both COVID-19 relief and sweeping funding provisions for the government through September 2021. While there are many sections of this law to explore, this article will focus on the stimulus checks.
Qualifying individuals will receive these economic impact payments, and the Washington Post reports that more than 85 percent of US households will receive a check. To qualify:
Here are some examples: A family of four – mom, dad, and two children under 17 – that earns a total of $100,000 per year will receive $2,400. A single man earning $80,000 per year that lives with his disabled father will get $350 (80,000 – 75,000 = 5,000 / 100 = 50 * $5 = $250. $600 - $250 = $350). A woman with 2 small children earning $87,000 will not get anything.
Taxpayers do not have to do anything to receive their stimulus checks. Many taxpayers will receive their stimulus checks via direct deposit, if that information was included on your 2019 return. If the IRS does not have your bank account information, you will likely get a check or a pre-paid debit card. If you’ve moved, you can update your address by completing an IRS change-of-address form (allow six weeks).
The checks are supposed to start hitting bank accounts early in January. You do not have to pay tax on this income.
If you never got the first stimulus check, you can claim it on your 2020 tax return. Details are here on the IRS site. https://www.irs.gov/newsroom/recovery-rebate-credit
