Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
Please note that this blog is based on laws effective on December 28, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
On December 27, 2020, President Trump signed the COVID-Related Tax Relief Act of 2020 (COVIDTRA). Below are the main, non-time sensitive provisions of COVIDTRA. Click here to read Part One of this series about the time-sensitive provisions.
Before COVIDTRA, the employee retention credit (ERC) was set to expire on December 31st, 2020. Effective January 1, 2021 through June 30, 2021 the credit is available and is even more valuable to qualified employers. Qualified employers are those that either 1) have had their business suspended due to the COVID-19 pandemic or 2) have a 20% reduction in gross receipts in 2021 as compared to the same period in 2019. The credit is enhanced with an increased credit percentage from 50% to 70% of qualified wages of up to $10,000 per employee per quarter.
In an assumed effort to assist the food and beverage industry, COVIDTRA provides that business meals will be fully deductible in calendar years 2021 and 2022, as opposed to the current 50% limit on deductibility.
The 2020 provision that qualified cash charitable contributions are not subject to an income limitation has been expanded to the 2021 tax year as well. The ability to claim up to a $600 cash charitable contribution deduction for those taxpayers claiming the standard deduction has also been extended.
The refundable payroll tax credits were set to expire on December 31st, 2020. However, COVIDTRA extends the payroll tax credits through the end of March 2021.
Both the child tax credit and the earned income credit are computed based on taxpayer’s earned income. For tax year 2020, taxpayers may elect to compute the credit based on 2019 earned income if it is greater than the taxpayer’s earned income for 2020.
Extended to December 31st, 2025 is the exclusion from income of cancellation of principal residence indebtedness. Up to $750,000 of qualified debt discharged will be excluded from taxable income.
While the COVID-Related Tax Relief Act has been passed, it is now up to other governmental agencies (the Treasury and SBA, notably) to write the regulations associated with the Act. As these regulations are written we will keep you informed of additional developments. In the meantime, please contact us today with any questions.
It has now been well over two years since the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. handed states the ability to require out-of-state companies to collect and remit sales tax. The past two years has seen a wave of new sales tax legislation by states putting into place their own standards of economic nexus.
Prior to these enactments, a business without physical presence in a state was not required to collect sales tax within that state. Now, businesses must monitor not only the amount of sales into each state, but also the number of transactions each year. The evaluation period and thresholds vary from state to state. States even differ in which sales to include in the determination of nexus; some states include all sales, while others do not include sales for resale and/or exempt sales.
To protect your business from potential sales tax assessments, you should be aware of activity that may cause sales tax nexus. Many states are sending questionnaires to companies, but completing a questionnaire without a complete understanding of sales tax nexus could open up your business to further scrutiny by the state.
Here are some things to keep in mind with respect to sales tax nexus:
If you are unsure what your nexus risks are, you should act sooner rather than later. Sales tax examinations often cover several years at a time. Cray Kaiser can help you analyze where you have exposure and advise what to do about it. Contact us today, we’re here to help.
Please note that this blog is based on tax laws effective in December 2020, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
To cope with inflation, the tax code requires the IRS to adjust the tax rates, standard deductions, and a variety of other tax related numbers each year. Due to the relatively low rate of inflation from 2020 to 2021 (at least according to the calculation method prescribed by law for this purpose), several categories had no change or only a slight change. The following is a summary of the most commonly encountered inflation adjustments for 2021.
The standard deduction consists of a filing status-based basic amount and additional amounts for elderly and blind filers (and their spouses). The additional amounts do not apply to dependents. The 2020 and 2021 amounts are compared below.
Added amounts for elderly and blind:
The limit on contributions by employees who participate in Sec. 401(k), Sec. 403(b), most Sec. 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $19,500 for 2021. The catch-up contribution limit for employees age 50 and over also remains unchanged at $6,500.
The contribution limit for SIMPLE retirement accounts remains unchanged at $13,500 for 2021.
For IRAs, the limit on annual contributions remains unchanged at $6,000 for 2021 and the additional catch-up contribution limit for individuals age 50 and over is $1,000. This limit applies to the combination of traditional and Roth IRAs. However, there are additional limitations that apply to both traditional and Roth IRAs.
Traditional IRA: Typically, contributions to a traditional IRA are tax deductible, unless the taxpayer is also an active participant in an employer plan. In that case, the deductibility of the contribution is phased out for higher income taxpayers. The phaseout thresholds have increased somewhat for 2021:
Roth IRA Contributions: Roth IRA contributions are phased out for higher income taxpayers whether or not they actively participate in an employer’s plan. The AGI thresholds limiting Roth IRA contributions have been increased slightly for 2021:
The amount of the estate tax exclusion for a decedent passing away in 2021 has increased to $11.7 million, up from $11.58 million in 2020.
The annual gift exclusion amount is unchanged. The first $15,000 of gifts (other than gifts of future interests in property) to any person in 2021 is exempt from the gift tax. 2021 is the fourth consecutive year that this exclusion has been $15,000.
The Internal Revenue Code allows a business taxpayer to expense, limited to taxable income from all of the taxpayer’s active trades or businesses, rather than depreciate, certain property used in business. For 2021 the maximum is $1.05 million ($525,000 for married taxpayers filing separate), up from $1.04 million in 2020. The phaseout threshold based on the cost of Sec 179 property also increased to $2.62 million, up from $2.59 million.
Each year inflation adjustments are also made to tax rate schedules. Click here to view the schedules for 2021.
The optional vehicle mileage rates for 2021 will not be released until later in the year or early in 2021. Please check back for an update.
If you have any questions about inflation adjustments for 2021, please contact Cray Kaiser today. We’re here to help!
Please note that this blog is based on tax laws effective in December 2020, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Please note that this blog is based on laws effective on December 28, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
On December 27, 2020, President Trump signed the COVID-Related Tax Relief Act of 2020 (COVIDTRA). Below are the main, time-sensitive provisions of COVIDTRA. Click here to read about some of the non-time sensitive provisions.
In a major win for many businesses, COVIDTRA clarifies that expenses paid with forgiven PPP loans are deductible. This counters the IRS’ previous position that the expenses would be nondeductible. COVIDTRA also confirms the same tax treatment for forgiven Economic Injury Disaster Loans (EIDL).
COVIDTRA provides a refundable tax credit to eligible individuals in the amount of $600 per eligible family member. The credit is $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child. The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly). The advance payments will be distributed in a similar fashion to the first round of payments.
The credit will be based on the income shown on the 2020 tax return. If a taxpayer receives advance payment(s) that exceed the amount of the computed eligible credit, the excess is not required to be repaid. If the computed eligible credit exceeds the advance payment(s) received, that amount will be treated as a tax credit on the 2020 tax return.
The SBA Administration is required to establish regulations within 10 days of enactment; therefore, we will keep our eyes out for more details on this. Here is what we know about entities that qualify for the second round:
COVIDTRA now allows businesses to retroactively request a PPP loan and claim an Employee Retention Credit (ERC) in 2020. In our experience, businesses generally requested a PPP loan and elected to forgo the ERC, as the PPP loan was deemed more valuable.
The ERC is a refundable payroll tax credit available to businesses that suffered either a full or partial suspension of operations (due to government orders) during at least one quarter in 2020 or had a more than 50% drop in gross receipts in the first, second, third quarter, or fourth quarter of 2020 relative to the same 2019 quarter. Affected businesses are eligible for a maximum credit of $5,000 per employee. As the government will not allow businesses to double dip (meaning claim PPP benefits and the ERC on the same payroll costs), we will need more guidance on exactly how to claim the ERC on a retroactive basis.
Individuals claiming the standard deduction can take an above the line deduction of qualified charitable contributions in 2020. Qualified charitable contributions are cash contributions to qualified charities (generally, 501(c)(3) organizations; notably donor advised funds are not a qualified charity for this purpose). Before COVIDTRA, the limit was $300; but the Act clarifies that the 2020 limit is $600 for married filers. If you claim the deduction, be sure to have proper documentation as the penalty for tax underpayments due to overstating this deduction is significant: 50%.
While COVIDTRA has been passed, it is now up to other governmental agencies (the Treasury and SBA, notably) to write the regulations associated with the Act. As these regulations are written we will keep you informed of additional developments. In the meantime, please contact us today with any questions.
Please note that this blog is based on laws effective on December 23, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
UPDATE 12/23/20: As you are probably aware, yesterday President Trump cast doubt on his willingness to sign the recently passed omnibus bill that includes long-awaited COVID-19 stimulus legislation. We want to assure you that we are aware of the ongoing situation and plan to stay fully alert to any developments, even during the Christmas holiday.
You can have full confidence that we will keep you apprised of any key developments, including whether the President signs the bill or not, if Congress makes any changes to the legislation, and, in the case of a presidential veto, whether Congress is expected to be able to override the veto.
On Monday, December 21, 2020 the House released the details of the $900 billion coronavirus relief package. The bill is expected to pass in short order.
This package includes a number of relief provisions specific to aiding individuals and businesses affected by the pandemic. Of particular interest to us, as tax advisors, was the inclusion of clarifying language as it relates to the deductibility of expenses paid with PPP loans. You may recall from our last update that the IRS believed that these expenses should not be deductible. The bill released today clarifies that these expenses are deductible. As the bill reads today, there is no limit to which taxpayers benefit from this treatment.
If you received a PPP loan, and expect to receive loan forgiveness, you can breathe a sigh of relief. The loan proceeds are not taxable and you will not have phantom income tax due to your not being able to deduct expenses paid with PPP loans.
The bill has many other provisions including another round of PPP loans for eligible businesses, stimulus checks for eligible taxpayers, and an extension of certain unemployment benefits and payroll credits. Please stay tuned to our blog for further updates. In the meantime, if you have any questions, contact us at 630-953-4900.
If your business engages the services of an individual (i.e. independent contractor), other than one who meets the definition of an employee, and you paid him or her $600 or more for the calendar year, then you are required to issue that person a Form 1099-NEC or 1099-MISC. This form will help you avoid penalties and the prospect of losing the deduction for his or her labor and expenses in an audit. Payments to independent contractors are referred to as non-employee compensation (NEC). Form 1099-MISC will continue to report rents, royalties, crop insurance proceeds and several other types of income unrelated to independent contractors.
Because so many fraudulent tax returns are filed right after e-filing opens up in January, the IRS requires 1099-MISCs for NEC to be filed by January 31st and will not release refunds for individual income tax returns that include the earned income tax credit until the NEC amounts can be verified. The 2020 Form 1099-NEC deadline is February 1, 2021 due to the weekend. This is also the same due date for mailing the recipient his or her copy of the 1099-NEC.
The government provides IRS Form W-9, Request for Taxpayer Identification Number and Certification, as a means for you to obtain the vendor’s data you’ll need to accurately file the 1099s. It also provides you with verification that you complied with the law, in case the vendor gave you incorrect information. We highly recommend that you have potential vendors complete a Form W-9 prior to engaging in business with them. The W-9 is for your use only and is not submitted to the IRS.
The penalty for failure to file a required information return due in 2021, such as the 1099-NEC, is $280 per information return. The penalty is reduced to $50 if a correct but late information return is filed no later than the 30th day after the required filing date of February 1st, 2021, and it is reduced to $110 for returns filed after the 30th day but no later than August 1st, 2021. If you are required to file 250 or more information returns, you must file them electronically.
Given the hefty penalties related to noncompliance, we urge you to carefully review your records for required 1099 reporting. If you have any questions about the 1099-MISC filing date, or would like us to prepare these forms on your behalf, please contact Cray Kaiser today.
Please note that this blog is based on tax laws effective in December 2020, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Cray Kaiser has decades of experience in audits, including specialized audits for nonprofits and employee benefit plans. And today, we’re excited to announce the addition of another specialization: transnational audits.
Working with Russell Bedford, our firm underwent a strict AQC process to ensure the quality of our audit practice. From this certification process, it was determined that CK:
We are incredibly proud of our audit team for completing this rigorous certification process over the course of the last few months. As a result of the Approved Transnational Audit Firm certification, we are now able to perform audits for organizations across the globe through Russell Bedford. We look forward to offering our services and extending the CK family internationally.
To learn more about Cray Kaiser’s audit services, please click here. If you’d like assistance with an audit you can contact us at 630-953-4900.
This time of year may have you wondering, how much do charitable donations reduce taxes? And what opportunities are there this year due to tax law changes? The good news is, due to the pandemic, tax rules have been adjusted to enhance the tax benefits of charitable giving. Here’s what you need to know:
The most recent change was incorporated within 2020’s CARES Act, which Congress passed to provide relief to those impacted by the global pandemic. In addition to providing paycheck protection for workers and support for small businesses as they struggled to survive the economic impact of coronavirus, the CARES Act also boosted the limit on cash donations from 60% to 100% in some situations. This increase is only valid for tax year 2020 and is limited to cash contributions given to charities that are not donor-advised funds or supporting organizations. Congress also is allowing a limited (up to $300) 2020 cash charitable contribution deduction for non-itemizers.
If you’re over 70.5 and you like to make charitable contributions directly from an IRA, you are able to donate up to a maximum of $100,000 per year via a Qualified IRA Charitable Contribution (QCD). This contribution will count towards your required minimum distribution, and because the distribution goes directly to the charity, it doesn’t increase your income and it still allows the donor to take advantage of the increased standard deduction.
Speaking of the increased standard deduction, when the 2017 Tax Cuts and Jobs Act (TCJA) boosted the standard deduction to $12,400 (for 2020) for individual taxpayers and twice that for married couples filing jointly, it cut the number of people taking itemized deductions, effectively removing an incentive for charitable giving. With only 13.7% of taxpayers estimated to have itemized their 2019 taxes, we have previously written about the benefit of “bunching”. Effectively, individuals can bunch their donations into a single year, thus allowing them to continue giving to the charities that they believe in while still taking an itemized deduction.
While the TCJA’s boost in standard deduction decreased the percentage of people itemizing, at the same time it boosted the deductibility of cash contributions being made from 50% to 60% of the donor’s adjusted gross income, making it more attractive for individual donors to give cash gifts.
Finally, in late 2019 Congress passed the SECURE ACT, which made a couple of notable changes, including pushing the age at which retirement plan participants need to take required minimum distributions (RMDs) from 70½ to 72, and taking away the ability for account holders to designate non-spousal beneficiaries who could hold onto them over the course of their entire lifetimes, taking distributions at will. Under the SECURE Act, those distributions need to be completed within 10 years’ time, making it a potentially better option to making the beneficiary a lifetime-income charitable vehicle in the form of either a remainder trust or a gift annuity funded with the account proceeds.
By indicating a beneficiary who will receive income over the course of their lifetime, you get the advantage of accomplishing the initial intent of giving to the beneficiary, and then upon the beneficiary’s death, whatever is left in either an IRA or a life insurance policy structured in this way gets distributed to the original benefactor’s designated charity.
Charitable contributions are an important part of our individual legacy. And when structured properly, they can also offer tax advantages. For more information on how you can leverage the new tax laws to benefit causes you care about as well as your own personal finances, contact Cray Kaiser today.
Please note that this blog is based on tax laws effective in December 2020, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
The IRS has warned taxpayers of a clever stimulus payment text scam by internet scammers that tricks taxpayers into revealing their bank account information under the guise of receiving the $1,200 Economic Impact Payment (EIP). The current scam is a text message that reads: “You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment…” The text includes a link to a fake phishing web address.
This fake phishing URL, which appears to come from a state agency or relief organization, takes recipients to a fraudulent website that impersonates the IRS.gov Get My Payment website. Individuals who visit the fraudulent website and then enter their personal and financial account information will have their information collected by the scammers.
The IRS is asking people that receive this stimulus payment text scam not to go to the fake website or enter their financial information. Instead, take a screenshot of the text message that was received and include it in an email to phishing@irs.gov with the following information:
Be aware that the IRS does not send unsolicited texts or emails. The IRS does not call people with threats of jail or lawsuits, nor does it demand tax payments on gift cards. If you encounter any such communication, you can forward it to phishing@irs.gov.
If you believe you are eligible for the EIP and have not already received it, you can go directly to IRS.gov and search for Get My Payment. Payments not received in advance can be claimed when you file your 2020 tax return next year.
If you have questions about any tax or financial text or email, please call Cray Kaiser at 630-953-4900 before taking action.
Please note that this blog is based on laws effective in November 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
When Congress initially authorized the Paycheck Protection Program (PPP), its intent was to provide loans that would be partially or completely forgiven if used for the intended purposes of helping businesses affected by COVID-19 stay afloat and maintain payroll. As part of the Small Business Administration’s (SBA’s) loan application, Form 2483 or the lender’s equivalent form, borrowers had to certify under penalty of imprisonment and monetary penalties to the following:
Needless to say, the contemplation of free money had businesses scrambling to take out PPP loans, whether they were impacted by economic effects of COVID-19 or not. Therefore, the Treasury had initially indicated the need for all PPP loans to be audited, but later specified only those of $2 million or more would be subject to an audit.
After a long wait, the SBA has initiated a compliance program to evaluate the good-faith certifications that borrowers made on their PPP Borrower Applications stating that economic uncertainty made the loan requests necessary. Accordingly, each borrower that, together with its affiliates, received PPP loans with an original principal amount of $2 million or greater will be required to participate in this compliance program, and will soon be receiving one of the following multi-page forms from their lender:
Sometimes referred to as a “loan necessity questionnaire,” the form and requested supporting documents must be submitted to the lender servicing the borrower’s PPP loan. The completed form is due to the lender within 10 business days of receipt. Among other things, the forms request:
The SBA is reviewing these loans to maximize program integrity and protect taxpayer resources. The information collected will be used to inform the SBA’s review of each borrower’s good-faith certification that economic uncertainty made their loan request necessary to support ongoing operations. Receipt of this form does not mean that the SBA is challenging that certification. After this form is submitted, the SBA may request additional information to complete the review. The SBA’s determination will be based on the totality of the borrower’s circumstances.
Failure to complete the form and provide the required supporting documents may result in the SBA’s determination that the borrower is ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and the SBA may seek repayment of the loan or pursue other available remedies.
If you have any questions related to PPP loans over $2 million or need assistance completing the form and assembling supporting documentation, please contact Cray Kaiser today.
Please note that this blog is based on laws effective in November 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
