BUSINESS SEMINAR NOTES

           This past week I had an all-day webinar for corporations, S-corporations, limited liability companies, and partnerships. Most of the webinar encompassed the Economic Injury Disaster Grant (EIDL pronounced idol) and the Paycheck Protection Program (PPP) along with business tax credits for retaining employees. I will briefly answer the most asked questions in reference to this, and then address the other most common issues addressed during the webinar.

Economic Injury Disaster Grant and Paycheck Protection Program

           ****One of the most common misunderstanding of the EIDL ($1,000.00 per employee up to $10,000.00 grant) and the PPP loan is that you can have only one or the other. If you received the EIDL grant and then received a PPP loan, the grant will be deducted from the amount of the PPP loan before any forgiveness amount is allowed. Therefore, a company that received both will pay a minimum of $10,000.00 back. The reduction of the grant also changes the percentages of the required payroll to other expenses ratio requiring more to be not forgiven. ****

           It is highly encouraged that no one be in a hurry to request the forgiveness. It is anticipated that more aid (even in form of forgiveness) might happen through Congress.

           It is highly suggested that no one complete the forgiveness application themselves. With all the documentation to support the application along with the calculations and supporting worksheets, what payroll and other expenses are allowed, categorizing different types of employees, alternate payroll covered period, cash vs. accrual methods, and knowledge needed to complete this form is similar to doing a tax return.

           To reinforce what I have already stated to business clients, A LOT of information is required and will be held for 6 years for audit period of SBA (Small Business Administration) including any employee refusing to return to work must have had offer in writing, declined in writing and reported to unemployment (within 30 days) to delete their wages from calculations. The form compares wages and hours from covered period to a previous period.

           Ten months after the “covered period” commences (when the bank account is funded with the loan, not when you sign the loan agreement) the application can be filed. The lender has 60 days to decide to qualify the loan for forgiveness before it is sent to the SBA to approve the forgiveness. The SBA then has 90 days to do so. This is a total of 15 months. If the loan is denied for forgiveness, payments on the loan begin and those 15 months are deducted from the term. Example, the company has a two year loan, after the deduction of the 15 months; the borrower has 9 months to repay the loan.

           Any forgiveness of the loan is not taxable; however, the expenses are not deductible, so in essence it is taxable.

COVID Credits

           Families First Coronavirus Act beginning 04/01/20 allows for a refundable credit of sick and family leave to offset the 941 payments. There is a two-tier criterion for allowing this credit with differing maximum allowable per day amounts. Please review the Form 941 to avoid any errors in claiming amounts that do not pertain to COVID.

           The retention credit allows for a tax credit for retaining employees. It is 50% of first $10,000.00 per employee wages between 03/12/20-12/31/20. If the PPP loan was received, a business cannot take the credit.

Disaster Rules

           A national disaster has been declared on the entire US. This allows for employers to assist with living expenses (food, living, and funeral) of employees without it being taxable to employee and allowing it to be deductible to employer.

Moving on to non-COVID matters…

Social Security

           The limitation for the calculation of social security tax on wages is $141,900.00

Employee vs. Contractor

           This is still a highly discussed hot issue. I believe more subcontractors will be categorized as employees in future audits. We are already aware of the 5 member task force that was established for this purpose, which includes IRS, states, unemployment, insurance companies for worker’s compensation, etc. The IRS is seeking to establish who has the “right,” to, but not necessarily does, control the work. Does the company give instruction on how the work should be performed, set work schedule, evaluate the work, provide training along with how the “contractor” is paid, do they provide services to others and if there is a contract. I have previously suggested establishing statutory employees to prevent these types of audit issues.

Business losses

           Any excess business losses ($250,000.00 for single or $500,000.00 for married filing joint) are carried forward. These losses include schedule C, F, and K1s. This loss limitation is suspended for 2018, 2019, and 2020. It will return with 2021 returns. At which point, wages will not count as a part of business income going forward.

Hobby Laws

           Keep records! Several cases have gone before the Tax Court to disallow business benefits of loss deductions, qualified business income deduction and for including income into tax returns.

Mileage

           Business: 57.5 cents

           Medical/moving (for military): 17 cents

           Charity: 14 cents

Business meals

           It was clarified that a business meeting fitting the description of occurring before or directly after a business meeting was deductible. Document the amount, time and place, business purpose and relationship between taxpayer and person having meal. Some prior year changes are still enforced i.e. skybox tickets, or any portion of it, cannot be deducted as meals.

Student loans

           $5,250.00 can be paid by employer and deducted; however, the student cannot deduct.

Flexible Savings Account

           The amount carried over into the first three months of the year has been extended to the whole year.

Health Care Sharing Ministries

           These are now considered medical expenses

IRS Audit Guide

           I am anticipating an increase in audits due to the amount of hiring the IRS has done in the last year. Some of the matters they will be looking for are:

·        Balance sheet on tax return agrees to books

·        Basis schedules

·        Cash distributions in excess of basis

·        Property distributions (adequate basis to be non-taxable)

·        Safe harbor fair market value capital accounts when unequal allocation

Other matters involving partnerships, corporations, s corporations, accounting method changes and new forms for foreign partners were discussed but I will address with any client that they apply to as it becomes to technical for review of the seminar.

           Contact me if you need to address any of these matters.

           Thank you.