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Member of Russell Bedford International, a global network of independent professional service firms.
With all the changes COVID-19 has brought upon the world, it is easy for some to slip your mind. We wanted to remind you of the tax change to meals deductibility because of COVID. Certain meal expenses are now 100% deductible instead of 50% deductible.
The new rules surrounding meals deductibility are in effect for expenses that are paid or incurred after December 31, 2020, and before January 1, 2023. Fiscal year-end businesses whose year may have begun before December 31, 2020 will have to ensure the expenses were incurred after December 31, 2020 to take advantage of this benefit. Otherwise, this will begin for businesses using a 2021 calendar tax year.
According to the updated rules, meals that are now 100% deductible strictly apply to food or beverages provided by a restaurant. The IRS implemented the new rule to incentivize businesses to still make purchases from restaurants struggling due to Covid. The IRS rule defines a restaurant as a “business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.” That means if you bought food from a restaurant and brought it back to the office for a meeting this will still qualify for 100% deductibility since you made the purchase from a restaurant.
While this may apply to the majority of expenses in your meal’s account balances, it is important to note that the IRS indicates that any place that primarily sells pre-packaged food or beverages not for immediate consumption does not constitute as a restaurant. Businesses will have to watch out for grocery store, convenience store, and Amazon expenses and the like and delineate those expenses in the accounting records.
Note, the remaining meals and entertainment rules that went into effect with the Tax Cuts & Jobs Act of 2017 remain in effect. See below for a refresher on those.
1) Entertainment expenses, such as sporting events and club memberships that were 50% deductible under the old law are not deductible under TCJA.
2) Meals, water, coffee, snacks, etc. at the office for benefit of employees are now eligible for only a 50% deduction, unless brought in from a restaurant as noted above. Under the prior law, these expenses were eligible for the full deduction.
We suggest that your accounting records isolate entertainment, meals (from a restaurant), prepackaged meals and office snacks in separate accounts to identify the proper deductibility of these expenses. Please note that picnics and holiday parties held primarily for the benefit of your employees will continue to be fully deductible. We suggest that this amount be recorded in a separate account from the entertainment, meals, and office snacks accounts.
Keep in mind that meals with clients and others for business purposes still require substantiation (the amount, time and place, business purpose, and business relationship).
Cray Kaiser is here to help if you have further questions about the deductibility of meals and entertainment expenses. Please contact us today at 630-953-4900.
Throughout 2021 we have kept you informed of significant regulatory matters related to the Employee Retention Credit (ERC). This credit was first introduced to us in 2020 through the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was further modified in the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021. The ERC was designed to incentivize employers to maintain their payroll during the coronavirus pandemic. We are seeing it assist many businesses in obtaining cash through refunds of payroll taxes paid or by reducing the outlay of cash during the payroll cycle. With the modifications in 2021, we are now assisting many businesses to realize benefits from an ERC application and wanted to make resources available to assist other businesses in applying.
These templates will assist you in determining your specific qualification and the potential credit to your business.
The ERC is currently set to expire on September 30, 2021. Therefore, it is important to determine your qualification and act quickly on these credits should you qualify. It is not too late to claim the ERC as you can amend previously filed payroll tax returns and request cash refunds for quarters that have already been filed and processed.
Just as working through the math for PPP funds was worthwhile for many, we are putting those numbers to work once again to relieve the tax burden via the ERC for many clients. Should any questions arise as you complete these calculations using the ERC templates, please contact Cray Kaiser at 630-953-4900.
The State of Illinois has announced the $250 million Back to Business (B2B) grant program, which will issue small businesses recovery grants for those hit hardest by the COVID-19 pandemic. The B2B grant program is financed with Illinois designated American Recovery Plan Act (ARPA) funds.
The $250 million in funds will be disbursed across the state, including the following allocations:
Grants will range from $5,000 to $150,000 per business and can be used to cover a wide range of operations/staff/overhead costs. For hotels, the grant may be as much as $250,000.
Who is eligible?
Eligible businesses are those with revenues of $20 million ($35 million for hotels) or less in 2019 that experienced a reduction in revenue of at least $5,000 in 2020 due to COVID-19.
As many Illinois businesses will meet this requirement, the program has indicated that priority will be given to the following categories:
How much is the grant?
The grant seeks to replace two months of revenue decline. The formula takes the difference between 2020 revenue and 2019 revenue, and divides that amount by 6. The total is rounded up to the next $5,000 and is subject to the $150,000 ($250,000 for hotels) limits noted previously.
How do I apply for the grant?
Grant applications are submitted through a portal which is open now and closes at the beginning of October. Unlike the PPP, the State advises applicants that the speed of application is not as important as submitting a complete and accurate application. The application will require the driver’s license of the business owner as well as completed and filed 2019 and 2020 tax returns.
Upon receipt the application will be graded based on the priority groups outlined above. For example, a restaurant in a DIA area that has a significant reduction in receipts but did not qualify for a PPP loan or RRF assistance would receive a high priority score. Applications will be reviewed on a rolling basis based on priority.
As with prior initiatives, Cray Kaiser is here to support you with application assistance. Please contact Cray Kaiser if we can help in any way.
As we look back over the last year, many thoughts and emotions may come to mind – some social, some political, and some just plain emotional. However, when you take a few minutes to digest what we learned through the pandemic, it should spark a feeling of accomplishment. We learned to work in new and different ways. We were challenged to make an impact, to put first things first and to rely on the expertise of those around us.
The COVID era challenged the cliché “business as usual” and taught us a few things that will transform us in the months and years ahead as we open the economy and start gathering once again.
It’s not so much what you know but who you know. Expertise was highly sought after and getting the right advice from professionals in your corner allowed you to succeed and maneuver through many challenges. Legislation was and is changing rapidly, and having your accountant or legal professional available, accessible, and trending with current pronouncements gave you the needed push to make it through. Not just make it, but to see success at the end of the journey.
Having your accounting records clean and reconciled allowed you to understand the pandemic’s effect on your business and strategize with your accountant. Perhaps you even enrolled in a few government programs designed to maintain and safeguard your greatest assets, your people, customers, and facilities.
Tax legislation was introduced, passed, and implemented at record speed. Staying abreast of the action of legislative bodies and how it impacted you and your business gave you the ability to strategize, make key decisions, and be stronger after the pandemic than when you entered it. Reaching out to tax accountants to guide you through these ever-changing laws provided you an opportunity to enhance business assets and to build for future growth with those who understood and could interpret the legislation best.
As the world shifted to a virtual environment, online software and platforms allowed your business to continue with minimal interruptions. Businesses once apprehensive of storing data in the cloud were now embracing the technology with open arms. Accounting systems and transactional processing were being tested for automation of key functions or outsourced altogether by those accounting firms specialized in such matters. Service providers were collaborating with each other to make their product multi-use and app-driven as the world regained momentum.
The pandemic stressed goods that were typically in abundant supply causing delays, price increases and general economic insecurity. On the other hand, companies that were able to reengineer their product and develop new ones came out of the pandemic in a better position than when it began. Research and development expenditures, sometimes an afterthought were the driving force to impact and change the direction of the pandemic-driven world.
In the weeks and months ahead, let us not forget the momentous journey we have been on and focus on ways to continue our efforts as we navigate the virtual world and impact those closest to us.
Contact Cray Kaiser to find out how we can partner with you as the economy reopens.
We all know Covid-19 has had a worldwide impact and most businesses have had to re-engineer both their internal processes and resource management, especially cash resources, at some point during the last 18 months. At the onset of the pandemic, business owners grappled with fears surrounding business shutdowns, managing cash flow, and maintaining an established workforce. In addition, they worried about relationships with customers and suppliers. The inability of these key partners to stay afloat during the pandemic could have drastic repercussions on business owners. As a result, many business owners found themselves navigating never-before-experienced rough waters, and they needed someone by their side to help them traverse the storm.
While everyone was reeling from the shock of the COVID pandemic, CK Accounting Services got to work researching how to help our clients. With our recurring accounting and payroll engagements, the CK team has a working knowledge of clients’ industries and companies. We were able to quickly:
As legislation was passed (and subsequently amended with enhancements), CK proactively reached out to clients to ensure they were aware of these programs. In many instances, we were able to determine eligibility and potential opportunities from various funding sources. We were also able to chart the course to successfully apply for and receive the funds.
Here’s an example of how CK’s deep customer knowledge helped one distribution client navigate a particularly challenging journey to maximize COVID relief funds.
In April 2020, we reached out to our client to advise them they had an opportunity to apply for the Paycheck Protection Program Loan and assisted them with the payroll cost calculation for the loan. Using SBA guidelines to help maximize the loan amount, the client received over $860,000 in PPP funds.
Many business owners who tackled the payroll cost calculations on their own often left money on the table. They neglected to include other eligible payroll costs such as employer paid health insurance and retirement contributions which would have resulted in a higher PPP loan.
In October 2020, we provided full-service assistance to help the client with the PPP forgiveness application. We prepared their PPP tracking, calculated their full-time employee equivalent counts, prepared supporting docs, completed the forgiveness application, and submitted forgiveness on the client’s behalf. Within a few weeks the client was notified that their PPP load was forgiven in full.
In January 2021, we acted on our client’s behalf once again when the Federal government extended the PPP to include a second round of funding to certain businesses that received relief under the original PPP. The second round of PPP included an eligibility check that left many companies confused about the ability to apply for funding. Once the eligibility test was met, an employer could calculate the loan amount using either 2019 or 2020 eligible payroll costs. The CK team ran the test and determined that our client was indeed eligible for the second round of PPP. By using 2020 numbers, they stood to receive $1.3 million versus the $860k received in the original PPP. We are proud to say we did all of this proactively. When we advised the client of the opportunity, they didn’t even know a second round of PPP was available, let alone that they qualified.
Finally in April 2021, while preparing our client’s quarterly payroll service, we took a proactive approach to determine their eligibility for 2021 Q1 employee retention tax credit based on changes to the American Rescue Plan Act of 2021. After reaching out to the client to let them know of their eligibility for this credit we proceeded to calculate and include the refundable credit of $265k on their form 941.
Knowing our client and staying current on the ever-changing legislation related to COVID relief programs, CK was able to assist this client in receiving over $2.4 million in much-needed funds. Sometimes it takes more than one approach to help our clients, which is why we live our core mission each day by providing trusted advisor services to empower our clients to financially succeed. In this case, we helped them to weather a (hopefully) once-in-a-lifetime storm by navigating them through the complicated government support programs. Please contact us at Cray Kaiser for more information on how our Accounting Services team can empower you.
The first quarter of 2021 has been one for the record books with legislation enacted to strengthen our economy through continued pandemic funding and taxpayer relief. To put it simply – The Consolidated Appropriations Act of 2021 (Con App)and the American Rescue Plan Act (ARPA) have transformed the playing field. Through the Con App, taxpayers can now qualify for both Paycheck Protection Program (PPP) loans and Employee Retention Credits (ERC) simultaneously, as long as the specific payroll costs are used only once. In other words, you cannot use an employee’s wages to claim both an ERC credit and PPP loan forgiveness for the same day of pay. As the first quarter of 2021 comes to an end, employers will have substantial planning and strategizing to do in order to maximize the benefits offered by both the ERC and PPP loans.
You can revisit the basics of the ERC by reading our past blog here. Below we will review the additional guidance we now have on the interplay of the ERC and PPP loans.
As a result of the ARPA, the 2021 ERC has been extended and will currently end on September 30, 2021. The amount of the credit is based upon eligible payroll costs for each employee, up to $10,000 on a quarter-by-quarter basis at 70%. Therefore, the maximum credit is 70% of eligible payroll costs, or $7,000 per employee, per quarter. In 2020, the credit was based upon annual payroll costs at 50%, or a maximum credit per employee, per year of $5,000.
What are payroll costs? The guidance clearly indicates that payroll costs are not limited to wages paid. In addition to wages paid, qualified health expenses are eligible for the ERC. Qualified health expenses generally include both employer and employee pretax payments for insurance under a qualified health plan. The formula for determining qualified expenses is dependent on the number of employees an employer has.
In 2021, the ease of qualifying for the ERC has lessened. You can now be eligible with a 20% decline in gross receipts measured on a comparable quarterly basis. For example, a decrease of 20% or more in quarterly gross receipts for the quarter ending March 31, 2021 in comparison to March 31, 2019 would make you eligible. There is also a safe harbor that allows you to use the previous quarter such as the quarter ended December 31, 2020 in comparison to December 31, 2019. For the safe harbor, you would need to show a 20% decline in gross receipts in the comparable quarters.
Note that you can also qualify for the ERC in 2021 if you had a government order for a full or partial shutdown of your business.
The ERC is claimed on federal payroll tax returns (Form 941) based upon the quarter the payroll costs were paid. As many organizations use third-party payroll providers in preparing and submitting payroll returns, it is extremely important to communicate with these providers on how to implement the ERC once you determine that you are eligible. These payroll providers will need information from you on the wages that you will be using for the ERC. In some instances, you will need to set up pay codes for the ERC and these pay codes will be used by the provider to prepare and report the credit on Form 941. The credit can also be claimed through an amended Form 941; however, this would include additional costs and the credit would be delayed to you.
While we have discussed the ERC at length, the PPP loan forgiveness still provides a greater benefit to most taxpayers. As such, employers should be focused on applying payroll costs first to PPP loan forgiveness. From there, you will want to provide the payroll provider with the payroll costs you will use the ERC for. But beware – any wages that will be claimed under a loan forgiveness application for PPP and used for the ERC may result in denial of a portion of your loan forgiveness. In some instances, it may be beneficial to delay claiming the ERC on your payroll tax filings and later amend the filings so you can appropriately determine the payroll costs used for the ERC vs. the PPP loan. Although this may result in additional costs and time, the benefits of leveraging both the ERC and PPP will outweigh these costs.
Here are some considerations to keep in mind as you apply for the ERC:
ERC Implementation without PPP Loan Funding
ERC Implementation with PPP Loan Funding
For further guidance on how to apply for the Employee Retention Credit or assistance with allocating payroll costs to maximize your PPP loan forgiveness and applicability for the ERC, contact Cray Kaiser today.
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Wondering how to implement the Employee Retention Credit in QuickBooks Online? As a subscriber to the QuickBooks Online (QBO) Payroll community, our Accounting Services team prepared the guidance below to assist you in implementing the Employer Retention Credit (ERC) in your payroll software. As you may have heard, the ERC is claimed on federal payroll tax returns (Form 941) based upon the quarter the payroll costs were paid. With this in mind, organizations who use third-party payroll providers, such as QBO, in preparing and submitting the payroll returns will need to take steps to implement this credit once they determine their eligibility. This includes setting up your payroll to accept and track the credit in “real time”.
Before we get into the details behind the implementation, we would like to highlight some underlying issues:
Another issue to consider is how the ERC will impact other relief programs such as the Paycheck Protection Program (PPP) loans. Remember, you cannot use the same payroll for both the ERC and PPP loans. If you did not receive PPP loan round 2, then this is not an issue. However, if you did receive PPP loan round 2 and you do not have a proper plan in place to utilize payroll costs, you may be inclined to start coding all wages as “ERC”. But beware – this may affect your ability to receive loan forgiveness on the PPP loan. In this situation, you may want to consider holding off the ERC implementation in QBO until a plan is put in place to maximize both the ERC and PPP loan funding and opt to file amended returns at a later date, instead.
Filing amended returns in QBO is different depending on your subscription.
For Elite and Premium Subscriptions:
For Core and Enhanced Subscriptions:
Step 1: Set Up Your Employees with the Pay Types
Step 2: Run Your Payroll Using the Pay Types
Lastly, you should be prepared to manually calculate your credits to verify the computation generated within the software. Please look for further guidance from us to assist you in this process. For more information on the ERC please contact Cray Kaiser today.
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Over the past few weeks there have been several legislative updates impacting the Economic Injury Disaster Loan (EIDL) program and the Paycheck Protection Program (PPP) loans. Below is a summary of the most important changes, and we encourage you to call us at 630-953-4900 with any immediate questions.
The U.S. Small Business Administration (SBA) recently announced a major update to the COVID-19 EIDL program. As of the week of April 6, 2021, the maximum loan amount for COVID-19 EIDLs will increase to $500,000.
Under the CARES Act, the EIDL program was expanded to cover eligible businesses experiencing substantial economic injury resulting from the pandemic. The act also relaxed a number of traditional EIDL loan stipulations, making COVID-19 EIDL loans more readily available.
This latest update from the SBA drastically expands both the maximum loan limit and the period of economic injury that they cover. Previously, the limit for COVID-19 EIDL loans was a maximum of $150,000 covering six months of economic injury. As of the week of April 6, 2021, the maximum loan amount will increase to $500,000 and extend to cover up to 24 months of economic injury.
Loan applicants whose loans are already in process at the time of the EIDL expansion will automatically be considered for the new maximum limits. Additionally, current COVID-19 EIDL loan recipients will be able to request a loan increase. Borrowers should visit the SBA website for further guidance.
The U.S. Senate approved the PPP Extension Act of 2021 on March 25 and the bill was sent to President Biden for his signature. This legislation extends the time for borrowers to apply for a PPP loan until May 31, 2021. No additional funding was provided through the legislation, but it extended the time to submit an application for either PPP round 1 or round 2. Borrowers should consult with their bank on the process and procedures in applying for these loans.
If you’d like to further discuss how the legislative changes to the EIDL program and the PPP loans impact you, please contact Cray Kaiser today. We’re here to help!
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
On March 11, President Biden signed the American Rescue Plan Act (ARPA). Below are the highlights of the ARPA. If you have any questions about how these provisions impact you, please contact us today.
Another round of economic impact payments (also known as stimulus checks) for people who meet certain income eligibility requirements is provided under the ARPA. Single taxpayers who earn less than $75,000 will receive $1,400 and married taxpayers filing jointly who earn less than $150,000 will receive $2,800. The payments phase out at an adjusted gross income of $80,000 for single filers and $160,000 for joint filers. The bill also includes a $1,400 payment per dependent. Payment amounts will be determined using 2020 tax returns, if already processed by the IRS, or 2019 returns.
Like rounds one and two of the stimulus payments, if a taxpayer receives more of a payment than they are entitled to based on their tax filing, the excess is not required to be repaid.
The ARPA makes the first $10,200 of unemployment insurance benefits for households with incomes at or below $150,000 non-taxable. Interestingly, the income limit applies regardless of filing status – the same limit applies for single taxpayers and married filing jointly taxpayers. For those taxpayers that have already filed their 2020 tax returns, it is unclear if the IRS will require amended returns or will have an internal mechanism to correct already filed returns. If you have not already filed your tax return and would qualify for this benefit, we recommend not filing until tax forms for 2020 have been updated.
Additionally, the bill renews federal unemployment benefits at a lower level—$300 per month—through September 6, 2021.
The existing child tax credit is greatly enhanced under the ARPA. These changes include:
Clearly, the ARPA is favoring those taxpayers with children; the credit prior to the ARPA was a maximum of $2,000 per child. The increased credit amounts phase out at certain income levels ($75,000 for singles, $150,000 for married couples filing jointly, and $112,500 for heads of household).
To distribute the monthly estimated child tax credit payments, the IRS will create an online portal where taxpayers can both opt out of advance payments and provide information that modifies the amount of their payments.
The ARPA again favors taxpayers with children in that the credit for working parents is expanded and will be refundable in 2021. Under the old law, income at much lower levels reduced the credit to 20% of the maximum paid ($3,000 for one child, $6,000 for two or more children). For 2021, the maximum credit is 50%, and does not phase out unless taxpayers have more than $125,000 of adjusted gross income. Taxpayers with higher incomes will still be eligible for a 20% credit. The maximum amounts eligible for credit are increased to $8,000 for one child and $16,000 for two or more children.
It is important to note that this credit is only available to those taxpayers with earned income (a married couple would need to show earned income for both husband and wife).
The ARPA increases the exclusion for employer-provided dependent care assistance for 2021 to $10,500. Employees with existing elections to exclude dependent care assistance from their wages should check with their payroll department if they choose to change their election.
The American Rescue Plan Act demonstrates that the government is continuing to provide support through tax and other incentives during the COVID-19 pandemic. At Cray Kaiser we are committed to educating our clients and friends as changes continue to occur at a rapid pace. If you’d like to discuss how any of the ARPA changes may affect you, please call us at (630) 953-4900.
Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
COVID-19 has affected nearly every aspect of our lives since the pandemic began in March 2020. It has affected the finances of most Americans, creating waves of economic stress. The pandemic will have lasting tax implications that many people may have not considered. For some, it can mean simply reporting income or expenses differently. For others, it may mean having to pay additional income taxes that had not been planned for. Regardless of your specific situation, this might be the year that you should hire a tax professional to help address tax complications due to COVID-19.
As individuals are losing their jobs or had to decrease work because of the pandemic, they are turning to other sources of income such as unemployment benefits and/or dipping into retirement savings. For those who are tapping into these funds for the first time, there are likely questions about taxation, specifically whether taxes are due as a result of these additional income sources.
Are unemployment benefits taxable?
This may be surprising to you, but your unemployment benefits will be fully taxable at the federal level. In general, unemployment benefits might be taxed by the state as well, depending on where you live. For example, Alabama and California do not impose any taxes on unemployment benefits, but the benefits are fully taxable as regular income in Illinois. If you are the recipient of Illinois unemployment benefits, taxes likely have been withheld from the payments, but these may or may not cover your individual tax burden.
Are retirement benefit withdrawals taxable?
If you take out retirement benefits early (before age 59 ½), there is generally a 10% penalty imposed on any taxable distributions. However, tax changes because of COVID-19 allowed individuals to withdraw from retirement without paying the 10% penalty, as long as the withdrawal took place during 2020. You must also meet certain requirements that indicate you have a stressful financial situation because of COVID-19.
Even if you meet the qualifications, avoiding the 10% penalty is not the only tax that you must pay. Additionally, the amounts withdrawn are often taxed as income, depending on how your retirement plan was established. Many people may not recognize this additional tax cost until the tax return is filed, so they have not been planning for it. If you hire a tax professional, they will be able to guide you through the tax implications of collecting unemployment and/or withdrawing from your retirement plan and planning for the tax ramifications accordingly.
The various stimulus programs have created opportunity as well as uncertainty. The stimulus payments, in particular, generated a fair amount of misinformation as to who qualified and who didn’t qualify. As the final stimulus payment/credit will in certain cases be based on your 2020 tax filing, did you know there may be an opportunity to receive even more of a stimulus payment? Your tax professional can advise of planning that may generate an additional tax credit on your 2020 tax filing.
The best way to ensure that you are addressing tax issues appropriately with the IRS, or any other taxing authority, is to hire a tax professional. A tax professional will be able to determine if there is a valid tax issue and how to best resolve the matter.
The tax professional can also advocate with taxing authorities on your behalf. For example, there have been a number of incorrect tax notices issued, and issues with payments posting correctly. Tax professionals are aware of these challenges and can work directly with the revenue agents to ensure that not only is your account resolved, but that there are no implications to your credit score from invalid collection efforts.
Having a tax professional on your side to help you deal with tax preparation, tax planning, tax notices and negotiations with the IRS can be invaluable. Do not work through this process alone, especially if COVID-19 has created some unique issues for you in 2020. Cray Kaiser is here to help you in this process, so please do not hesitate to contact us to get started on your taxes.
Please note that this blog is based on tax laws effective in January 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
