If you are married, most likely you’ve always filed a joint tax return with your spouse.
 
Most of the time, a joint return shows less overall tax than two separate tax returns do, because the married-filing-separately status has many tax disadvantages.
 
Fast-forward to the 2020 tax filing season, however—and nothing is as it was.
 
This year, four tax provisions will be key to determining whether you’ll be better off filing a joint tax return or separate tax returns for tax year 2020:
 

• Tax-free unemployment
• Recovery rebate, round 1
• Recovery rebate, round 2
• Recovery rebate, round 3

 
Tax-Free Unemployment
 
The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, excludes from tax the first $10,200 of 2020 unemployment benefits paid to an individual with 2020 modified adjusted gross income (MAGI) of less than $150,000.
 
Recovery Rebate, Round 1
 
The recovery rebate, round 1, is a refundable tax credit on the 2020 tax return, equal to
 

• $1,200 ($2,400 on a joint return), plus
• $500 for each dependent under age 17.

 
Your credit decreases by 5 percent of the amount your adjusted gross income (AGI) exceeds
 

• $150,000 if married, filing a joint return;
• $112,500 if head of household; or
• $75,000 if single or if married, filing separately.

 
The IRS gave you an advance payment of this credit based on either your 2018 or 2019 AGI and dependents. And now the IRS looks at your 2020 tax return and does the following:
 

• Smiles on you if the tax credit based on your 2020 tax return exceeds the advance payment. What do we mean by “smiles on you”? You get the additional amount as a refundable tax credit.
• Smiles on you (again!) if your actual credit is less than the advance payment. You keep the money. You don’t have to pay back any excess received.

 
Recovery Rebate, Round 2
 
This is a refundable tax credit on the 2020 tax return, equal to
 

• $600 ($1,200 on a joint return), plus
• $600 for each dependent under age 17.

 
Your credit decreases by 5 percent of the amount your AGI exceeds
 

• $150,000 if married, filing jointly;
• $112,500 if head of household; or
• $75,000 if single or if married, filing separately.

 
The IRS gave you an advance payment of this credit based on your 2019 AGI and dependents. And now the IRS looks at your 2020 tax return and
 

• Smiles on you if the tax credit based on your 2020 tax return exceeds the advance payment. What do we mean by smiles on you? Once again, you get the additional amount as a refundable tax credit.
• Smiles on you (again!) if your actual credit is less than the advance payment. You keep the money. You don’t have to pay back any excess received.

 
Recovery Rebate, Round 3
 
This is a refundable tax credit on the 2021 tax return, equal to
 

• $1,400 ($2,800 on a joint return), plus
• $1,400 for each dependent, regardless of age.

 
Your credit phases out over the following AGI ranges:
 

• $150,000 to $160,000 if married, filing jointly;
• $112,500 to $120,000 if head of household; or
• $75,000 to $80,000 if single or if married, filing separately.

 
The IRS will give you an advance payment of this credit based on your 2019 or 2020 AGI and dependents. If your first advance payment used your 2019 return information, then the IRS will send an additional payment based on your 2020 tax return if the IRS processes your 2020 tax return by August 15, 2021.
 
You then reconcile your advance payment(s) on your 2021 tax return:
 

• If your actual credit amount exceeds the advance payment, you get the difference as a refundable credit.
• If your actual credit is less than the advance payment, you keep what you have. You don’t have to pay back the excess benefit.

 
Why Separate Returns Could Be Better
 
There are two main reasons you may have net lower federal tax with separate returns versus a joint return.
 
First, if your MAGI is $150,000 or more on a joint return, but the spouse who received the unemployment compensation earns under $150,000 on a separate return, then that spouse can take the full exclusion up to $10,200 (except possibly in a community property state).
 
Second, if one spouse has AGI of $75,000 or less, but your joint AGI is over $150,000, then that spouse can claim the dependents and get all the available round 1 and round 2 credits on the 2020 tax return as well as the entire round 3 advance payment.
 
When considering the above, keep two important notes in mind:
 

1. For a couple that got joint advance payment(s), the law says you allocate 50 percent of the payment to each spouse. The higher-earning spouse doesn’t pay back any of his or her allocated advance payment, while the lower-income spouse will get the difference as a refundable tax credit.
2. Married taxpayers who agree how to allocate dependents on separate returns do not have to use the “tiebreaker” rules and can choose who claims which dependents. 

 
Important note. You may lose other deductions and credits on a separate return. The only way to know which is better in light of these temporary provisions is to run your tax returns both ways and see which puts you ahead. For example, separate returns can change your health insurance premium tax credit and perhaps some non-tax items such as your Medicare premiums.
 
As you can see there’s much to consider. If you would like me to check this out for you, please call me on my direct line at xxx-xxx-xxxx.

​Congress is offering billions of dollars in future tax deductions for those who file Form 1040 individual tax returns for the tax year 2021. The child tax credit, dependent care credit, and health insurance premium tax credit are among the tax credits that have been temporarily extended.

The numerous credits could potentially place an extra $5,000 or more in your wallet for the tax year 2021. With good tax planning, this money could be all yours.

Child Tax Credit—Current Law

For qualifying children under the age of 17 at the end of the 2020 tax year, you got a $2,000 tax credit.  If you had earned income and no net tax obligation, you received up to $1,400 of the credit as a refund.

This credit decreased by $50 per $1,000 over the MAGI threshold.
The MAGI threshold for 2020 is $200k or $400k MFJ.

The entire child tax credit is fully refundable if you or your spouse has a primary residence in the United States for more than half of the tax year.

With all that’s been going on, it’s easy to forget that it’s Section 199A season again. Yes, we’re talking about that lovely 20 percent deduction.


Are you compensating yourself and your fellow partners or LLC members with so-called guaranteed payments? If so, you may benefit from the following information about those payments and the preferred return option.


What Is a Guaranteed Payment?


A guaranteed payment is a payment by a partnership to a partner that’s determined without regard to the partnership’s net income.


Guaranteed payments can be for services rendered by a partner to the partnership or for the partnership’s use of the partner’s capital. Guaranteed payments made in exchange for services to a partnership are often called “partner salaries,” which is a misnomer because partners are not considered employees for most federal tax purposes.


Guaranteed payments are treated as ordinary income. Guaranteed payments to an individual partner from a partnership that’s considered to be engaged in a trade or business count as self-employment income.


At the partnership level, guaranteed payments generally count as deductible expenditures in calculating the amount of the partnership’s ordinary net business income or loss. The net income or loss is then allocated under the partnership agreement to the partners, reported on their respective Schedules K-1, and ultimately reported on their individual personal returns.


What Is a Preferred Return?


Good question. There is no specific tax-law definition of what constitutes a preferred return paid by a partnership to a partner.


But for purposes of this analysis, we will define a preferred return as a preferential allocation of partnership net income to a service-providing partner before the remaining partnership net income is allocated to all partners via the standard allocation arrangement specified by the partnership agreement--which is usually based on the partners’ percentage ownership interests. Preferred returns that meet this definition may also be called “priority profit allocations.”


Whether it is called a “preferred return” or a “priority profit allocation,” the key point is that we are talking about a payment to a partner that


is based on a specific allocation of partnership net profit, and
is not based on the partner’s ownership percentage, and
comes before any allocation of partnership net profits based on ownership percentages.







Such payments will usually constitute ordinary income and will be subject to self-employment tax when received by an individual partner.


And such payments will effectively reduce the amount of partnership net income that remains to be allocated to the partners based on the standard allocation arrangement specified by the partnership agreement.


The QBI Deduction Factor


Here’s where it gets interesting. For 2018-2025, you as an individual partner can potentially deduct up to 20 percent of your share of a partnership’s qualified business income (QBI), subject to limitations based on your income level and the type of business.


Guaranteed payments don’t count as QBI. To add insult to injury, a partnership’s deductions for guaranteed payments reduce the partnership’s QBI, which in turn can reduce allowable QBI deductions for you and the other partners. Ugh!


In contrast, a preferred return of partnership net income that constitutes a share of the partnership’s QBI counts as QBI, as long as the preferred return is a not a disguised payment for services rendered to the partnership.


Tax-saving strategy. To maximize QBI deductions for you and the other partners, consider replacing guaranteed payments that don’t count as QBI with preferred return payments that do count as QBI.


If you would like to examine the possibility of using the preferred return strategy in your partnership, please contact us.

We seem to be living in an age of natural disasters. Floods, fires, hurricanes, tornados, and other disasters often dominate the news.


If a disaster strikes you, the tax law may help.


You may qualify to deduct a tax code-defined disaster loss from your taxable income. The rules for personal losses are complex and far more restrictive than for business losses.


Only Casualty Losses Are Deductible


Damage to personal property caused by a disaster is deductible only if it qualifies as a casualty loss. A casualty is damage to, destruction of, or loss of property from events such as fires and floods that are sudden, unexpected, or unusual.


The disaster must result in physical damage to property, so economic losses due to the COVID-19 pandemic do not qualify as a casualty loss.


Many, but not all, casualty losses are covered by insurance. You can’t deduct such losses to the extent they are insured. Moreover, suppose you have insured yourself against the loss. In that case, you must file a timely insurance claim, even if that insurance claim will result in the cancellation of your policy or an increase in premiums.


Your casualty loss (not your deduction) is equal to the lesser of


the decrease in the property’s fair market value after the disaster, or
the property’s adjusted basis before the disaster (usually its cost).


Subtract any insurance or other reimbursement from the lesser of (1) or (2).


To find the decline in the property’s fair market value, you can use appraisal or repair costs.


Limits on Casualty Losses


Unfortunately, you can’t deduct all your casualty losses. From 2018 through 2025, you can only deduct personal casualty losses due to a federally declared disaster or to the extent you have casualty gains.


For example, a homeowner can claim a casualty loss if a wildfire (declared a federal disaster) destroys his home. But he gets no deduction if a faulty fireplace caused the fire and destroys his home (no federal disaster).


The law imposes major limits on your casualty-loss deduction. The general rule says that you may not deduct the first $100 and then deduct your loss only to the extent that it exceeds 10 percent of your adjusted gross income. Your final hurdle is that you then deduct the loss as an

itemized deduction. These rules significantly reduce or even eliminate many casualty loss deductions.


Fortunately, some casualty losses are not subject to these limits, including disaster losses sustained due to a federally declared major disaster from January 1, 2020, to February 25, 2021. Instead, losses from such disasters are subject to a $500 floor with no 10 percent adjusted gross income reduction. Under this rule, you deduct the loss whether or not you itemize. If you don’t itemize, you add the deductible loss to your standard deduction.


You have a choice for losses from a federal disaster: claim the loss in the year of the disaster or on the prior year’s return if it’s before October 15. This can result in a quick refund of all or part of the tax you paid that year.


Casualty Gains


If all this is not complicated enough, there’s one further wrinkle. A casualty such as a fire can result in a casualty gain instead of a casualty loss when the insurance proceeds you receive exceed the property’s adjusted basis (cost).


A casualty gain is taxable. But you may deduct casualty losses from the gains. Here, you don’t need a federal disaster.


Also, you can postpone tax on a casualty gain by buying replacement property.


If you have any questions or need my assistance, please contact us.

When you operate a business, you have a variety of tax breaks available.


The recently enacted Consolidated Appropriations Act extends and expands some of the breaks. We bring the following selection of them to your attention as a tax-strategy buffet.


You can deduct 100 percent of your dine-in and take-out business meals that are provided by restaurants in 2021 and 2022.
For hiring members of 10 targeted groups, you can obtain the work opportunity tax credit for first-year wages through 2025.
You can now qualify for the 39 percent new markets tax credit for investments through 2025.
The empowerment zone tax breaks that were scheduled to expire on December 31, 2020, are extended through 2025, but the new law terminates, for 2021 and later, both (a) the enhanced first-year depreciation rules and (b) the capital gains tax deferral break.
Employers may continue through 2025 making Section 127 education plan payments that cover student loan principal and interest up to the plan maximum of $5,250.
For residential rental property that you placed in service before 2018 and were depreciating over 40 years under the straight-line method, you can now use 30 years if you elect out of the Tax Cuts and Jobs Act business interest expense limitations.
Farmers may elect a two-year net operating loss carryback rather than the five-year carryback retroactively, as if this change were in the original CARES Act.
The $1.80 per-square-foot or $0.60 per-square-foot deductions for energy-efficient improvements to commercial buildings are now permanent.
Small Business Administration Economic Injury Disaster Loan advances and loan repayment assistance are not taxable, and you suffer no tax attribute reductions as a result of the tax-free monies.
Manufacturers of residential homes can claim a credit of $1,000 or $2,000 for homes that meet applicable energy-efficiency standards through 2021.
Your business can claim a business federal income tax credit for up to 30 percent of the cost of installing non-hydrogen alternative-fuel vehicle refueling equipment (say, for your employees’ electric vehicles) through 2021.
Your business can claim a federal income tax credit for buying vehicles propelled by chemically combining oxygen with hydrogen to create electricity, through 2021 (credits range from $4,000 to $40,000).
The new law extends the seven-year recovery period to cover motorsports entertainment complex property placed in service through 2025.
You can elect to claim the first-year write-off for the cost of qualified film, television, and theatrical productions commencing before 2025, subject to a $15 million per-production

limit or a $20 million limit for productions in certain disadvantaged areas.
For racehorses that are no more than two years old that you place in service during 2021, you may use three-year depreciation.


You do have to admire the opportunities that the tax law contains to help businesses. If you would like my help with any of the above, please don’t hesitate to contact us.

For 2018-2025, you (and estates and trusts) can use your qualified business income (QBI) to create the 20 percent deduction under Section 199A.


While federal income tax losses from business activities are usually beneficial, losses from pass-through business entities can have the adverse side effect of reducing allowable QBI deductions for pass-through business entity owners--such as you.


In this context, pass-through entities are defined as sole proprietorships, single-member (one owner) LLCs treated as sole proprietorships for federal income tax purposes, partnerships, multimember LLCs treated as partnerships for federal income tax purposes, and S corporations.


These entities can pass through business losses that you can deduct in the current year. But a pass-through of a loss could harm your QBI for the current year.


Or you may have to suspend the losses and carry them forward to future years. The suspended losses can also result in negative QBI in the year you deduct them.


Negative QBI from one source offsets positive QBI from other sources.
If you have overall negative QBI for the year, you must carry forward the negative amount to future years to offset positive QBI in those years. That can result in lower QBI deductions in carry-forward years.
The negative QBI issue is especially relevant now, since COVID-19 economic fallout will cause many pass-through business entities to pass through negative QBI amounts to their owners for 2020 and possibly for 2021 as well.
You also may have suspended pass-through business entity losses from prior years that are now deductible, such as suspended passive losses from rental real estate properties that have been sold. Suspended passive losses can also be “freed up” when you have passive income. Previously suspended losses can cause negative QBI in the year they become deductible.


If you own multiple businesses and/or rental properties, the Section 199A deduction can get complicated. If you would like my help sorting this out for you, please don’t hesitate to contact us.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) made many temporary changes in the tax law. The new Consolidated Appropriations Act (CAA) adjusted some of these and left others to die on December 31, 2020. 

With all the changes that took place in 2020, I thought you would like to be informed of the following insights.

Borrow $100,000 from Your IRA and Pay It Back within Three Years with No Tax Consequences

Thanks to the CARES Act, IRA owners who were adversely affected by the COVID-19 pandemic were eligible to take tax-favored coronavirus-related distributions (CRDs) from their IRAs during 2020—but only during 2020. 

You could take as much as $100,000. You can then recontribute a CRD back into your IRA within three years of the withdrawal date and treat the withdrawal and later recontribution as a federal-income-tax-free rollover. 

In effect, the CRD drill allowed you to borrow up to $100,000 from your IRA(s) and then recontribute (repay) the amount(s) at any time up to three years later, with no federal income tax consequences when all is said and done. There are no limitations on what you can use CRD funds for during the three years. 

Status report. The CAA does not extend the CRD deal beyond 2020, but it clarifies that similar tax rules can apply to IRA distributions taken by folks who are affected by specified future disasters. 

Suspension of Retirement Account Required Minimum Distributions

In normal times, you must begin taking annual required minimum distributions (RMDs) from traditional IRAs and tax-deferred retirement plan accounts after you reach age 72 (or age 70 1/2 if you turned 70 1/2 before 2020). The CARES Act suspended RMDs for calendar year 2020 as a COVID-19 tax relief measure, but only for that one year. 

Status report. So far, lawmakers have not extended this deal. 

Small-Employer Tax Credits to Cover Required COVID-19-Related Employee Paid Leave

The Families First Coronavirus Response Act (FFCRA) granted a federal tax credit to small employers to cover mandatory payments to employees who take time off under the FFCRA’s COVID-19-related emergency sick-leave and family-leave provisions.

Specifically, a small employer could collect a tax credit equal to 100 percent of qualified emergency sick-leave and family-leave payments made by the employer pursuant to the FFCRA. But the credit under the FFCRA covers only leave payments made between April 1, 2020, and December 31, 2020. Equivalent tax credit relief was available to self-employed individuals who took qualified leave between those dates. 

Status report. The FFCRA expired by its terms on December 31, 2020. But the COVID-Related Tax Relief Act of 2020 (contained within the CAA) extends the small-employer credit to cover leave payments made between January 1, 2021, and March 31, 2021, that fall within the FFCRA framework.

There is no requirement for small employers to provide emergency sick-leave or family-leave payments after December 31, 2020. But between January 1, 2021, and March 31, 2021, employers can choose to make voluntary leave payments that fall within the FFCRA framework and can collect the credit if they do so. 

Equivalent tax credit relief is available to self-employed individuals who take qualified leave between January 1, 2021, and March 31, 2021.

Liberalized Business Net Operating Loss Deduction Rules

Business activities that generate tax losses can cause you or your business entity to have a net operating loss (NOL) for the year. The CARES Act significantly loosened the NOL deduction rules and allows a five-year carryback for NOLs that arose in tax years 2018-2020. 

So, an NOL that arose in 2020 can be carried back to 2015. NOL carrybacks allow you to claim refunds for taxes paid in the carryback years. Because tax rates were higher in pre-2018 years, NOLs carried back to those years can result in hefty tax refunds.

Status report. The CAA does nothing for NOLs that arise in tax years beginning in 2021—you can carry them forward only. 

Suspension of Excess Business Loss Disallowance Rule 

Before the CARES Act relief, the Tax Cuts and Jobs Act (TCJA) disallowed so-called excess business losses incurred by individuals in tax years beginning in 2018-2025. The TCJA defined an excess business loss as a loss that exceeds $250,000, or $500,000 for a married joint-filing couple. The $250,000 and $500,000 limits are adjusted annually for inflation.

The CARES Act suspended the excess business loss disallowance rule for losses that arose in tax years beginning in 2018-2020. 

Status report. The CAA does nothing for excess business losses that arise in tax years beginning in 2021. As things stand, you effectively treat a 2021 excess business loss as an NOL that you can carry forward to future years. 

As always, I’m here to be of service to you. If you need my help on any of the above or other tax issues, please don’t hesitate to contact us.





​

How would you increase your total assets?

​Well let the Government Help You!


Here’s how: with both the SEP IRA and the solo 401(k) retirement plans, your investment in your tax-favored retirement

• creates tax deductions for the money you invest in the plan, 
• grows tax-deferred inside the plan, and 
• suffers taxes only when you take the money from the plan. 

Example. You invest $1,000 a month in your retirement. You are in the 40 percent tax bracket (combined federal and state), and you earn 10 percent on your investments. At the end of 30 years, you have $1.58 million in after-tax spendable cash, which comes from (in round numbers):

• $1.2 million in after-tax cash from the retirement plan ($2 million gross less 40 percent in taxes—we’re taking the entire amount out of the plan in this example)
• $380,000 in the side fund (created by investing the $400 of monthly tax savings—$1,000 deduction x 40 percent)

If you had no government help on the taxes and invested $1,000 a month in an investment that earned 10 percent (6 percent after taxes), you would have a little more than $950,000.


Winner. The retirement plan wins by $630,000—after taxes ($1.58 million vs. $950,000).


Okay, that’s the big picture. It tells you that tax-advantaged investing multiplies profits. So, do it.
If you would like to discuss your retirement options, please contact us.​

The IRS can waive penalties it assessed against you or your business if there was “reasonable cause” for your actions.


The IRS permits reasonable cause penalty relief for penalties arising in three broad categories:

1. Filing of returns
2. Payment of tax
3. Accuracy of information

Contrary to what you might think, the term “reasonable cause” is a term of art at the IRS. This seemingly simple phrase has a precise and detailed definition as it relates to penalty abatement.


There are three instances where you might qualify for reasonable cause.

There are five instances where you likely do not qualify for reasonable cause penalty relief.

If you would like to discuss IRS penalty relief, please don’t hesitate to contact us!

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted on December 27, 2020, deals with the annual tax extenders. Congress made some of them permanent, while others got short- or long-term extensions. 


These are the big five Form 1040 tax breaks that were scheduled to expire on December 31, 2020:

1. Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
2. Deduction for mortgage insurance premiums as residence interest
3. 7.5 percent floor to deduct medical expenses (instead of 10 percent)
4. Above-the-line deduction for tuition and fees
5. Non-business energy property tax credit for energy-efficient improvements to your principal residence

Here is what Congress did with each of these five provisions:

1. Cancellation of debt. Extended through tax year 2025, but with a reduced maximum exclusion from $2 million to $750,000 for discharges of indebtedness after December 31, 2020.
2. Mortgage insurance premiums. Extended through tax year 2021 only.
3. 7.5 percent floor for itemized medical deductions. This provision is now permanent!
4. Tuition and fees deduction. Eliminated, but the lifetime learning tax credit phaseout limit was increased to $80,000 (or $160,000 on a joint return) to increase access to this tax benefit.
5. Principal home energy tax credit. Extended through tax year 2021 only.

Of course, Congress extended dozens and dozens of other extenders. If you would like to discuss the extenders, please don’t hesitate to contact us!

Embedded in the COVID-19 relief law is $900 billion for financial assistance.


As you would expect in these unusual times, some of the relief is in the form of direct government financial assistance and some is from tax benefits that can impact both tax year 2020 and tax year 2021.


Most of the provisions create extra deductions or credits where Uncle Sam puts cash directly into your wallet. Here are four:


1. Recovery Rebate Payments and Credits


Remember those $1,200 checks many people got earlier in the year? Well, there’s another round of $600 payments coming, with rules very similar to the first round.


2. Paid Sick and Family Leave Credits


As you may remember from the March 2020 law, Congress provided two ways to give workers paid sick and family leave:

1. Employers received refundable payroll tax credits to fully offset the cost of the government mandate that employers provide paid sick and family leave to their employees.
2. Self-employed persons also qualify for paid sick and family leave. They claim a refundable tax credit against their 2020 self-employment tax.

The tax credits require that the self-employed person or the employee was unable to work due to a qualifying situation between April 1, 2020, and December 31, 2020. The maximum non-working days eligible for the tax credits are

• 10 days for paid sick leave, and
• 50 days for paid family leave.

Under the new law, you now can claim these tax credits for qualifying days through March 31, 2021. But the new law did not increase the maximum creditable days.


3. 100 Percent Business Meal Deduction


The new December 27, 2020, law allows you to deduct 100 percent of your business-related expenses for food and beverages provided by a restaurant for amounts paid or incurred after December 31, 2020, and before January 1, 2023.


4. Charitable Contributions


The CARES Act made three major changes to charitable contribution deductions for tax year 2020:

1. For individuals, there is no adjusted gross income (AGI) limit for contributions normally subject to the 50 percent and 60 percent limitations. The 2020 no-limit rule does not apply to donor-advised funds.
2. For corporations, the 10 percent limitation goes up to 25 percent of taxable income.
3. If you are a non-itemizer, you may now deduct above-the-line cash charitable contributions up to $300 for tax year 2020 only.

The new law enacted on December 27, 2020, extends the increased charitable contribution deduction limits for individuals and corporations to tax year 2021. In addition, in tax year 2021, non-itemizers can deduct below-the-line cash charitable contributions up to $600 on a married-filing-joint return ($300 for singles).
If you would like to discuss any of the changes described above, please contact us! 

Before the December 27, 2020, enactment of the new COVID-19 relief law, you may have chosen the PPP loan and given no thought to the employee retention credit. 


Remember, under the original law, you had to choose between the retention credit and the PPP loan. Millions chose the PPP loan route.


But now the game has changed. You may, as a PPP recipient, qualify to take the employee retention credit retroactively for tax year 2020 and also going forward in tax year 2021.


Here are the key changes you as a PPP player need to know:

• PPP loan recipients can retroactively claim the 2020 employee retention credit for wages not paid with forgiven PPP loan proceeds.
• Wages paid from March 13, 2020, through December 31, 2020, qualify for the retroactive credit.
• Wages paid from January 1, 2021, through June 30, 2021, can qualify for the more significant 2021 credit.
• For 2021 quarters only, you qualify for the credit if your business experienced (a) a full or partial suspension of the operation of its trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or (b) a decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80 percent of the gross receipts in the same calendar quarter in 2019.
• For 2021 quarters only, the relaxed requirements for qualifying wages apply to businesses with 500 or fewer 2019 full-time employees.

If you would like my help with the retroactive monies from the employee retention credit, please contact us!

Two things to know about the Paycheck Protection Program (PPP) first draw enacted on December 27, 2020: 

• The first draw is for those who missed getting in on the original PPP, which expired on August 8, 2020.
• Don’t think of a PPP draw as a loan. It’s not a loan. It’s a cash infusion. You have to repay a loan. You don’t have to repay the PPP funds.

Who qualifies for first-draw PPP money today? You, most likely—if you file a business tax return and have not yet received any PPP monies.


But don’t wait. The money is going to run out fast, and once it’s gone, so is the PPP. And the new PPP ends March 31, even if the money is not gone by then.


You qualify for the PPP if any of the following are true:

• You file your taxes on Schedule C of your tax return. Businesses that file on Schedule C include independent contractors (often called 1099 folks), single-member LLCs, proprietorships, and statutory employees such as life insurance salespeople.
• You file your taxes on Schedule F (ranchers and farmers).
• You are a general partner in a partnership, but the partnership asks for and receives the money based on your and your other partners’ combined self-employment incomes, as adjusted.
• You operate as an S corporation.
• You operate as a C corporation.
• You are the only worker in the business—but if you have employees in the business, you qualify on both your ownership worker status and your employees’ W-2 status.

If you would like to discuss the PPP, please contact us!

As you know, Congress recently passed a massive new stimulus bill that was enacted into law on December 27, 2020. Most of the public’s attention has been focused on the bill’s authorization of additional stimulus checks, new PPP loans, and other aid targeted to struggling businesses.


But Form 1040 American taxpayers who are not in business are struggling as well. The stimulus bill contains a hodgepodge of eight new or extended tax breaks intended to help Form 1040 filers.


None of these tax breaks are earthshaking by themselves, but together they add up to a nice tax present for COVID-19-weary Americans. 


Here are the eight new tax breaks that can help you:

1. Deduct cash contributions to charity if you don’t itemize.
2. Deduct up to 100 percent of your adjusted gross income (AGI) as a charitable deduction.
3. Lengthen to one year the time you have to repay your 2020 employee Social Security taxes if your employer deferred them.
4. Deduct medical expenses in 2021 using the now-extended 7.5 percent of AGI floor for these deductions.
5. Carry over unused flexible savings account (FSA) funds to next year.
6. Use your 2019 income to qualify for the earned income tax credit and/or the child tax credit if you’re a lower-income taxpayer.
7. Deduct out-of-pocket expenses for personal protective equipment (PPE) if you’re a teacher.
8. Take advantage of the lifetime learning credit in 2021 if you’re a higher-income taxpayer.

If you have any further questions or need my assistance, please contact us!

Did you miss out on your prior opportunities to receive tax-free PPP cash?


Many did miss out. Why? One reason: the word “loan.” Who wants a loan? No one. Well, almost no one.


But who wants a tax-free cash gift? If you do, read on for the details. But first, you should know that the big picture works like this:

1. You obtain your tax-free PPP monies from a lender (it’s called a “loan,” but watch that word disappear as you read on).
2. You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.
3. You apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy when you spend 60 percent or more of the money on payroll (and yourself if you are self-employed or a partner in a partnership).
4. You deduct the expenses that you paid with the PPP loan monies that were forgiven.

New Money on the Table


The new COVID-19 stimulus act sets aside $35 billion for first-time PPP applicants, with $15 billion of that made in loans for first-time applicants with 10 or fewer employees or made in amounts less than $250,000 to businesses in low-income areas.


New Deadline


The new deadline of March 31, 2021, replaces the expired deadline of August 8, 2020.


The monies available in this new round of PPP funding are on a first-come, first-served basis. Don’t procrastinate. Get your application for your first-time PPP monies in now.


If you would like to discuss the PPP, please contact us!

If you received an initial PPP loan, you can qualify for a second round (called a “second draw”) of tax-free PPP money. 


To qualify for the second-draw PPP money, you must

1. have 300 or fewer employees;
2. have suffered a 25 percent or greater loss in revenue during at least one quarter of 2020 when compared to 2019; and
3. have already used your original PPP money (or be planning to use it soon).

The mechanics of the second-draw PPP loan amount follow the rules that apply to the original (first-draw) PPP loan, with some modifications. The overall limits work as follows:

• The loans are capped at $2 million or less.
• If you are not a hotel or restaurant (NAICS code 72), you identify your average monthly payroll for either 2019 or the trailing 12 months and then multiply it by 2.5 to find your loan amount.
• If you are a hotel or restaurant, you multiply by 3.5.

During a period of your choice, beginning eight weeks from the origination date of the loan and ending 24 weeks after the origination date, you must use 60 percent or more of the monies for defined payroll in order to achieve 100 percent forgiveness. 


Expenses that can qualify for forgiveness include the following:

• Payroll
• Rent
• Interest on mortgage obligations
• Utilities
• Operations expenditures
• Property damage
• Supplier costs
• Worker protection

And finally, keep these three thoughts in mind:

1. Act fast, because this money goes in a hurry.
2. The incoming PPP loan monies are tax-free.
3. Expenses paid with PPP loan monies that are forgiven are tax-deductible.

You will not find a better bargain.


If you would like to discuss this second draw opportunity, please don’t hesitate to contact us!

Sixty-one million adults and over 12.6 million children in the United States have some type of disability. 


If you have a disabled or blind child or other family member, or are disabled or blind yourself, you should know about ABLE (Achieving a Better Life Experience Act) accounts. These tax-advantaged accounts can be a real game changer for the disabled.


Ordinarily, a disabled person who receives government benefits can have only $2,000 in cash or other countable assets. This can make it impossible for disabled people to save money for emergencies, buy a house or car, or take a vacation.


This is where ABLE accounts come in. Contributions to ABLE accounts up to certain levels are not counted for purposes of means-tested programs for the blind and disabled. Disabled people can have up to $100,000 in an ABLE account without losing Social Security disability benefits.


Contributions to ABLE accounts are not deductible for federal income tax purposes, but the money in the account grows tax-free. Withdrawals are also tax-free if made for a variety of living- and disability-related expenses.

Up to $15,000 in total can be contributed to an ABLE account each year. Contributions can come from the disabled beneficiary, from family, and from friends. Disabled people who work can put in an additional amount limited to the lesser of their compensation or $12,490 in 2021.


A total amount of $300,000 to $500,000 can be deposited into an ABLE account, depending on the state. There is only one real drawback to ABLE accounts: they are available only for people who became blind or disabled before reaching age 26. This eliminates the majority of the disabled.


ABLE accounts are run by the states. Forty-two states and the District of Columbia have them. You don’t have to set up an account in the state where you live, and it can pay to shop around.


By the way, if you have a special needs trust, you can keep it. An ABLE account can be set up in addition to a special needs trust.

If you have any questions or need my assistance, please contact us!

Good news: the new Paycheck Protection Program (PPP) law enacted with the stimulus package adds dollars to your pocket if you have or had PPP money.


Note that the PPP money comes to you in what appears to be a loan. We say “appears” because you typically pay back a loan.


Done right, however, the PPP loan is 100 percent forgiven. The word “loan” makes some businesses leery of this arrangement. Don’t be. The PPP monetary arrangement is a true “have your cake and eat it too” deal.


And this remarkable deal applies to your past PPP loan, the PPP loan you have outstanding, and the PPP loan you are about to get if you have not had one before. Here are the details:


Loan Proceeds Are Not Taxable


The COVID-19-related Tax Relief Act of 2020 reiterates that your PPP loan forgiveness amount is not taxable income to you.


Expenses Paid with Forgiven Loan Money Are Tax-Deductible


As you may remember, the IRS took the position that expenses paid with PPP loan forgiveness monies were not deductible.


Lawmakers disagreed but were unable to get the IRS to change its position. The IRS essentially told lawmakers, “If you want the expenses paid with a PPP loan to be deductible, change the law.” 


And that’s precisely what lawmakers did. The COVID-19-related Tax Relief Act of 2020 states that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.”


In plain English, the expenses paid with monies from a forgiven PPP loan are now tax-deductible, and this change goes back to March 27, 2020, the date the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted.
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There’s more to this, of course. If you would like my help with your PPP loan or simply would like to talk about it, please contact us!

Are you one of the over 11 million Americans who owe the IRS back taxes? The IRS temporarily suspended most collection efforts during the first wave of the coronavirus pandemic through its “People First Initiative.” This initiative expired July 15, 2020.

The IRS is now ready to go after delinquent accounts again. However, the agency recognizes that substantial numbers of taxpayers cannot pay what they owe right now. To help them, it has promulgated a new Taxpayer Relief Initiative.

The new Taxpayer Relief Initiative is relatively modest in scope, but it can be a big help if you owe the IRS.

Among other things, the new initiative gives you an extra 60 days to pay off a tax bill. You now have 180 days instead of 120 days to make a lump sum payment of all you owe.

The initiative also makes it easier to obtain, keep, and modify installment agreements with the IRS. These allow you to make monthly payments over several years.

If you owe $50,000 to $250,000, you may even be able to obtain an installment agreement without the IRS filing a tax lien on your property--something that has never been possible before.

The IRS is also stressing that it will help taxpayers who have already entered into installment agreements or offers in compromise with the agency and who are now having trouble making their payments.

You may also be able to get IRS penalties reduced or eliminated.

Whatever you do, don’t ignore a tax bill from the IRS. And never feel you’re helpless when confronted by the IRS collection juggernaut. You always have options, no matter how much you owe.

If you have any further questions or need my assistance, please contact us.
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