Partners and Self-Employed – New guidance for PPP Loans

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PPP guidance for self-employed borrowers (04-15-20)

The SBA has issued a second set of Interim Final Rules for the Paycheck Protection Program (PPP), this time focusing on how these loans work for self-employed individuals. The guidance clarifies the following issues:

  • Individuals who are partners in a partnership (or LLC taxed as a partnership) should include their self-employment income from the partnership in the payroll costs of the partnership (up to $100,000) when applying for loans and calculating loan forgiveness. The partners will not qualify for loans individually based on the self-employment earnings from the partnership. The guidance does not provide any further definition of what should be included in self-employment income for the partners. For example, there is no discussion of guaranteed payments, etc. However, under IRC §707(c) guaranteed payments are subject to self-employment tax unless they are payments to limited partners.
  • For Schedule C filers, the guidance is clear that the maximum loan amount (and loan forgiveness) will be based on the taxpayer’s 2019 Schedule C, even if they haven’t filed their 2019 return yet. They will be required to complete a 2019 return to apply for the loan.
  • For determining the loan amount, the Schedule C filers will take the net profit from line 31 of the Schedule C (limited to $100,000), divide it by 12, and multiply it by 2.5 for the loan application. If they have employees, they will add the employees’ wages (limited to $100,000 each) and other payroll costs.
  • Schedule C filers will also be required to provide a 2020 invoice, bank statement, or book of record to prove they were in business on February 15, 2020.
  • Loan forgiveness for Schedule C filers will also be based on their net earnings from 2019 (8/52 of that amount, to reflect eight weeks of earnings), plus amounts paid for employee payroll costs, interest on mortgages (for real and personal property), rent, and utilities. There are no additions for health insurance premiums or retirement contributions of the self-employed individual.
  • Self-employed individuals who take credits for sick time or family leave under the Families First Coronavirus Response Act will reduce their loan forgiveness by those amounts.
  • Self-employed individuals who receive these loans may not qualify for unemployment. 

To view the full text of the interim rules, go to:

http://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf

Eligible Employers can request an advance of the Employee Retention Credit by submitting Form 7200

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IRS UPDATE: The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.

For each employee, wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit. Because this credit can apply to wages already paid after March 12, 2020, many struggling employers can get access to this credit by reducing upcoming deposits or requesting an advance credit onForm 7200, Advance of Employer Credits Due To COVID-19.

Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:

  1. the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
  2. a significant decline in gross receipts. 

A significant decline in gross receipts begins:

  • on the first day of the first calendar quarter of 2020
  • for which an employer’s gross receipts are less than 50% of its gross receipts
  • for the same calendar quarter in 2019.

The significant decline in gross receipts ends:

  • on the first day of the first calendar quarter following the calendar quarter
  • in which gross receipts are more than of 80% of its gross receipts
  • for the same calendar quarter in 2019.

The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations were suspended.

Qualified wages

The definition of qualified wages depends on how many employees an eligible employer has.

If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those wages, including certain health care costs, (up to $10,000 per employee) paid to employees that are not providing services because operations were suspended or due to the decline in gross receipts. These employers can only count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.

If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are those wages, including health care costs, (up to $10,000 per employee) paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether or not its employees are providing services.

Impact of other credit and relief provisions

An eligible employer’s ability to claim the Employee Retention Credit is impacted by other credit and relief provisions as follows:

  • If an employer receives a Small Business Interruption Loan under the Paycheck Protection Program, authorized under the CARES Act, then the employer is not eligible for the Employee Retention Credit.
  • Wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the Families First Coronavirus Response Act.
  • Wages counted for this credit can’t be counted for the credit for paid family and medical leave under section 45S of the Internal Revenue Code.
  • Employees are not counted for this credit if the employer is allowed a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code for the employee.

Claiming the credit

In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning with the second quarter. The credit is taken against the employer’s share of social security tax but the excess is refundable under normal procedures.

In anticipation of claiming the credit, employers can retain a corresponding amount of the employment taxes that otherwise would have been deposited, including federal income tax withholding, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes for all employees, up to the amount of the credit, without penalty, taking into account any reduction for deposits in anticipation of the paid sick and family leave credit provided in the Families First Coronavirus Response Act (PDF). 

Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.

Source https://www.irs.gov/coronavirus/employee-retention-credit

California Franchise Tax Board answers important questions related to Recent Federal COVID-19 Response

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The FTB has posted the following new FAQs about conformity to various portions of the CARES Act:

Q: Are the payments that individuals receive from the federal government (i.e., $1,200 [$2,400 for individuals filing a joint return] and $500 per qualifying child) under the recently enacted federal CARES Act subject to California income tax?

A: No, these payments are not subject to California income tax.

Q: Is the emergency increase in unemployment compensation benefits (in the amount of $600 per week) that individuals receive under the recently enacted federal CARES Act subject to California income tax?

A: No, these payments are not subject to California income tax.

Q: Are the modifications for net operating losses (NOLs) in the recently enacted federal CARES Act applicable for California income and franchise tax purposes?

A: No, these modifications for NOLs do not apply for California income and franchise tax purposes.

Q: Does California conform to the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the recently enacted federal CARES Act?

A: Yes, the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the federal CARES Act also applies for California income tax purposes.

The FTB’s COVID-19 FAQs can be found at:

www.ftb.ca.gov/about-ftb/newsroom/covid-19/help-with-covid-19.html

Non-filers can still get Stimulus Checks

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IRS launches tool for non-filer economic impact payments (04-10-20)

The IRS has created a new website that allows non-filers to request economic impact payments. (IR-2020-69)

Individuals receiving Social Security retirement or disability benefits, or Railroad Retirement benefits, are not required to use this new tool to receive their payments. The IRS will still rely on Form SSA-1099 and Form RRB-1099 for purposes of determining the amount of the impact payment. However, if these individuals have dependents, and have not filed a return for 2018 or 2019, they should visit the website; otherwise, their payment will only be issued for the $1,200 for the recipient and not their spouse or any of their dependents.

Here is a list of who should go to the website and enter their information:

  • Individuals who haven’t filed a 2018 or 2019 return because their income is below the filing requirement threshold;
  • Veterans beneficiaries and SSI recipients; and
  • Social Security, SSDI, and Railroad Retirement beneficiaries with qualifying dependents.

Here is the link to the website:

www.irs.gov/coronavirus/non-filers-enter-payment-info-here

The IRS also announced that the website for other taxpayers to enter bank account information for direct deposit, and a website for everyone to check on the status of their payment, will be available next week.

Updates and New IRS guidance on Tax Deadline Extension

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IRS provides additional extensions and NOL guidance (04-09-20)

The IRS has now expanded its extension relief to most taxpayers who had income tax filing and/or payment obligations due on or after April 1, 2020, and before July 15, 2020, including second-quarter estimated tax payments that fall within this period. (IRS Notice 2020-23)

These taxpayers will now have until July 15, 2020, to file and pay, or to request an additional extension.

Note: Even though calendar-year partnerships and S corporation returns are due March 15, 2020, they are specifically listed in the Notice as having an extension until July 15, 2020.

The expanded extension relief specifically applies to the following payments and filings:

  • Individual income tax payments and return filings (Form 1040 series);
  • Corporate and S corporation fiscal and calendar returns and payments (Form 1120 series, including Form 1120S);
  • Partnership calendar-year and fiscal year returns (Form 1065);
  • REMIC Form 1065 returns;
  • Estate and trust income tax payments and returns (Form 1041 series);
  • Estate and generation-skipping transfer tax payments and return filings (Form 706 series);
  • Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent, and any supplemental Form 8971;
  • Gift and generation-skipping transfer tax payments and return filings (Form 709);
  • Estate tax payments of principal or interest due as a result of extensions of time to pay estate taxes under IRC §§6161, 6163, or 6166, and annual certification requirements under IRC §6166;
  • Exempt organization business income tax and other payments and return filings on Form 990-T; and
  • Excise tax payments on investment income and return filings on Form 990-PF and Form 4720.

Requests to extend filing deadlines beyond July 15 must be filed by July 15, and extension payments must be made by July 15 to avoid interest and penalties. Filing deadlines are not extended beyond the original extended filing deadlines: September 15 or October 15 for calendar-year taxpayers.

The filing extension relief applies to:

  • All corresponding schedules and other forms that are filed as attachments, such as Schedule H, Schedule SE, and Forms 3520, 5471, 5472, 8621, 8858, 8865, and 8938;
  • All elections that must be made on a timely filed form or attachment; and
  • Installments of any repatriation tax.

Notice 2020-23 is available at:

www.irs.gov/pub/irs-drop/n-20-23.pdf

The IRS also released Notice 2020-26 and Rev. Proc. 2020-24, which provide the following guidance regarding NOL carrybacks:

  • For NOLs from a taxable year that began during 2018 (and ended on or before June 30, 2019), taxpayers have until June 30, 2020, to file tentative refund requests using Form 1045 (for individuals, trusts, or estates) or Form 1139 (for corporations), which requires the IRS to process the request within 90 days. Write “Notice 2020-26, Extension of Time to File Application for Tentative Carryback Adjustment” on the top of the form;
  • If the taxpayer is a corporation, the deadline to file a tentative refund claim for a minimum tax credit for 2018 is December 30, 2020, but in order to file one application for a tentative refund for both the NOL carryback and the minimum tax credit at the same time, the taxpayer must do so by the earlier of the two deadlines. Write “Notice 2020-26, Extension of Time to File Application for Tentative Carryback Adjustment” on the top of the form; and
  • Taxpayers who do not want to carry back 2018 or 2019 NOLs must attach a statement to their 2020 return to make this election. They will attach a separate statement for each year’s loss. The attachment must state that the taxpayer is electing to apply §172(b)(3) under Rev. Proc. 2020-24 and the taxable year for which the statement applies. These elections are irrevocable.

To view Notice 2020-26, go to:

www.irs.gov/pub/irs-drop/n-20-26.pdf

For Rev. Proc. 2020-24, go to:

www.irs.gov/pub/irs-drop/rp-20-24.pdf

CARES Act and SBA Disaster Loans

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Corona Virus Aid, Relief and Economic Security ACT (H.R. 748)

Payroll Protection loans

In addition to the tax provisions we previously reported, the CARES Act provides for Payroll Protection loans of up to $10 million to COVID-19 impacted businesses:

  • The loans are guaranteed 100% by the Small Business Administration (no personal guarantees or collateral required);
  • Businesses with 500 or fewer employees can borrow 2.5 times their average monthly payroll, up to a maximum of $10 million;
  • The loans may be forgiven for amounts used to cover basic operating expenses such as payroll costs, rent and mortgage, and utilities for up to eight weeks from the loan origination date;
  • Loan forgiveness will be reduced by reductions in employee compensation or layoffs of employees over the last year;
  • The canceled debt will not generate taxable income;
  • Businesses that take these loans will not qualify for the Employer Retention Credit; 
  • Any loan amount that isn’t forgiven has a maximum term of 10 years and a maximum interest rate of 4%; and
  • At press time, the SBA had not provided information to banks on the loan process, but we expect that to happen soon.

Read full CARES Act (H.R. 748) https://www.congress.gov/bill/116th-congress/house-bill/748/text

PLANNING OPPORTUNITY: Section 1106 of CARES Act allows for loan forgiveness in an amount equal to approximately 8-weeks of payroll, rent, utilities and certain interest. Contact your SBA advisor for more information.

Employer Retention Credit

The CARES Act also contains a refundable employer retention credit against quarterly employment taxes for employers impacted by COVID-19:

  • Impacted employers are those who fully or partially suspended operations due to COVID-19 or whose gross receipts declined in a quarter by more than 50% compared to the prior year;
  • The credit is equal to 50% of qualified wages paid after March 12, 2020, and before January 1, 2021, up to a $5,000 maximum per credit;
  • The credit is claimed against the 6.2% employer’s portion of Social Security taxes;
  • The IRS will be providing refund advances; and
  • The credit cannot be claimed by businesses receiving a CARES Act Payroll Protection loan from the Small Business Administration.

Rather than wait weeks after the employer has filed its quarterly Form 941, the IRS has set up two alternative ways employers can cash in these credits quickly:

  • They can retain the following employment taxes rather than depositing them:
    • Federal income taxes withheld for all employees;
    • The employee’s share of Social Security and Medicare taxes (but only for the employee who received the paid benefits or qualified wages); and
    • The employer’s share of Social Security and Medicare taxes for all employees; or
  • Alternatively, employers may file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to expedite a refund of the credit due in excess of the amount of previously retained employment taxes. The IRS has stated that they will try to issue refunds within two weeks.

Form 7200 may be filed for an advance payment of the credits anticipated for a quarter at any time before the end of the month following the quarter in which the employer paid the qualified wages. If necessary, it can be filed several times during each quarter.

Submit Form 7200 by faxing it to (855) 248-0552.

Form 7200 is available at:

www.irs.gov/forms-pubs/about-form-7200

Stimulus payments (Employees)

  • The payment is an advance payment of a 2020 tax credit;
  • The maximum credit is $1,200 per individual ($2,400 MFJ) plus $500 per qualifying child under 17 years old;
  • The credit is phased out by 5% ($5 for every $100 over the limit) for AGIs exceeding:
    • $150,000 for MFJ — phased out at $198,000 if there are no children;
    • $112,500 for HOH filers — phased out at $146,500 if the HOH has one child;
    • $75,000 for all other taxpayers — phased out at $99,000; and
    • For every child claimed, add an additional $10,000.
  • For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The stimulus payment will be deposited directly into the same banking account reflected on the return filed;
  • For taxpayers who did not provide direct deposit information, in the coming weeks the Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive payments immediately as opposed to checks in the mail; and
  • For individuals who did not file a 2018 or 2019 return, the IRS is developing a simplified process for them to file.

Here is a link to the IRS’s FAQs on these payments:

www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know

2020 Tax Deadlines for Business Owners

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  • January 31, 2020
    • W-2s / 1099’s
  • Now July 15, 2020 was March 16, 2020
    • Partnerships / LLC’s
    • S-Corporations
  • Now July 15, 2020 was April 15, 2020
    • C-Corps
    • Individuals
    • Single Member LLC’s
    • Estates and Trusts
    • Gift Tax Returns
    • Foreign Bank Account Rerpots (IRS FinCen Form 114)
    • Last day to make retirement plan contributions to Traditional IRA, ROTH IRA, HSA, SEP-IRA or Solo 401(k) for previous calendar year
    • Estimated Tax Payment Q1
  • May 15, 2020
    • Nonprofits
  • June 15, 2020
    • Estimated Tax Payment Q2
  • September 16, 2020 (Extensions)
    • Partnerships
    • S-Corporations
    • Estimated Tax Payment Q3
  • October 1, 2020 (Extensions)
    • Estates and Trusts
  • October 15, 2020 (Extensions)
    • C-Corps
    • Individuals
    • Single Member LLC’s
    • Gift Tax Returns
    • Foreign Bank Account Rerpots (IRS FinCen Form 114)
  • November 15, 2020 (Extensions)
    • Nonprofits
  • December 15, 2020
    • Estimated Tax Payment Q4

Tax Deductions for Your Auto

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Income Taxes And Your Social Security Benefit

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