SME CPA https://www.smecpa.com Wed, 22 Sep 2021 17:39:12 +0000 en-US hourly 1 https://wordpress.org/?v=5.3.9 https://www.smecpa.com/wp-content/uploads/2019/07/cropped-logo-32x32.png SME CPA https://www.smecpa.com 32 32 How to Manage Non-Profit Accounting https://www.smecpa.com/how-to-manage-non-profit-accounting/ https://www.smecpa.com/how-to-manage-non-profit-accounting/#respond Wed, 22 Sep 2021 17:38:27 +0000 https://www.smecpa.com/?p=1590 If you’re the executive director of a non-profit organization, you’re likely tasked with keeping all the initiatives moving forward, planning for future campaigns, and managing the business aspects of the organization.  But a non-profit isn’t a standard business. There are many objectives, strategies, and processes that differ for 501(c)(3) and 501(c)(6) organizations, compared to the…

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If you’re the executive director of a non-profit organization, you’re likely tasked with keeping all the initiatives moving forward, planning for future campaigns, and managing the business aspects of the organization.  But a non-profit isn’t a standard business. There are many objectives, strategies, and processes that differ for 501(c)(3) and 501(c)(6) organizations, compared to the standard, for-profit business.  When it comes to effectively managing Non-Profit Accounting practices throughout the year having a knowledgeable partner by your side can make all the difference.

Is non-profit accounting different than standard business accounting?

In many aspects, non-profit accounting is similar to standard business accounting. The biggest difference is that non-profits have specific reporting requirements and are required to file an annual Form 990.

Throughout the year Non-Profit organizations account for expenses on a functional basis, typically classifying items into these categories:

  • Program expenses
  • Fundraising expenses
  • Management and general expenses

When tracking revenues and expenses throughout the year non-profit organizations should be careful to track based on donor or third-party designations, if applicable.

Keep an Eye on these Ratios

Throughout the year you’ll want to keep an eye on the NFP’s operating reserve ratio and functional expense ratio. These two ratios can help you keep a pulse on the overall financial health of your organization.

What does a Non-Profit Accountant do?

A trusted non-profit accounting partner allows you to stay focused on the business, while your accounting team keeps an eye on the ratios and reporting to ensure you can fulfill your missions throughout the year.

At SME CPAs our team of experienced, qualified accountants is here to help our non-profit partners with a variety of planning, auditing and filing needs.

Non-Profit Financial Audits

Uniform Guidance Audit:  SME is available to assist South Carolina and Georgia-based non-profits with single audits. For any NFP that receives grant funds from the federal government and expends more that $750,000 of federal dollars in a single fiscal year, a single audit of those funds will likely be required.

Government Auditing Standard:  The purpose of this audit is to provide an opinion on the financial statement of the non-profit in accordance with GAGAS. For organizations using federal funds, audits must be conducted according to the “yellow book standard” or the Generally Accepted Government Auditing Standards.

Compliance Audits & HUD Consolidated Audit Guide:  For Profitentities that receive funding from the U.S. Department of Housing and Urban Development (HUD) must follow compliance requirements outlined in the HUD Consolidated Audit. These compliance requirements apply to Uniform Guidance Audits, Single Audits, or the GAGAS category mentioned above.

Examination Engagement

For organizations not in need of a full audit, an examination engagement offers an opportunity to fine tune the financial processes, as opposed to auditing the financial statements. The examination helps to ensure accountability and compliance across processes and minimize the opportunity for error and fraud.

Internal Audit

An internal audit provides a level of risk management in that it evaluates the effectiveness of an organization’s internal controls, corporate governance and accounting processes. This type of audit provides Executive Directors and Non-Profit Board of Directors with an opportunity to identify and correct procedural flaws prior to external audits.

Non-Profit Consulting and Advising

Conducting audits and examinations is just a small part of overseeing the financial obligations of a Non-Profit. To get a more wholistic view, SME offers a variety of other consulting services related to governmental and Non-Profit audits including:

  • Non-Profit Accounting Services
  • Financial Projections and Forecasting Studies
  • Form 990, Form 990PF, Form 990T planning and compliance
  • Grant Accounting and Management
  • Operational and capital budgeting

Why Your 501(c)(3) or 501(c)(6) needs a specialized Non-Profit Accountant

As a non-profit, you are a fiduciary for funds that have been gifted or granted to the organization and it is crucial that those funds are handled in a prudent manner. Non-profit organizations follow specific reporting standards that are unique to their structure, including management of restricted funds and functional allocation of expenses.

Non-profit organizations are also responsible for being able to provide accurate reporting on funds and expenses to the public upon request and an experienced non-profit accountant can work alongside you to ensure your reporting is always accurate and up-to-date according to GAAP and federal requirements.

What to look for when hiring a Non-Profit Accountant

An experienced accounting firm with knowledge of Non-Profit Generally Accepted Accounting Principles (GAAP), such as SME, can be a critical player in the long-term success of a non-profit.

When dealing with funds specifically allocated from the federal government, having an accounting partner that understands best practices and federal requirements for tracking, reporting and auditing can alleviate some of the burdens of managing non-profit financials and also helps your organization avoid costly reporting errors that may jeopardize future funds.

Additionally, a qualified non-profit accountant will understand appropriate management of funds (restricted and non-restricted) and the uniqueness of tracking revenues and expenses based on donor and grantor designations.

For almost 70 years, SME has been partnering with organizations across the Aiken-Augusta area to provide qualified tax planning, accounting and auditing services. If your non-profit is ready to streamline your internal accounting practices, our experienced, non-profit accountants are here for you. Get in touch with one of our experts today, and let’s get to work to help you better serve your mission.

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Personal Tax Planning and Stimulus Payments https://www.smecpa.com/personal-tax-planning-and-stimulus-payments/ https://www.smecpa.com/personal-tax-planning-and-stimulus-payments/#respond Wed, 15 Sep 2021 13:08:24 +0000 https://www.smecpa.com/?p=1586 While the tax deadlines are still months away, quarter four is the ideal time to start planning for your filings. The biggest questions taxpayers have going into the 2021 tax season involve the implications of Stimulus Payments and Child Tax Credits issued by the government as a part of the American Rescue Plan Act. As…

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While the tax deadlines are still months away, quarter four is the ideal time to start planning for your filings. The biggest questions taxpayers have going into the 2021 tax season involve the implications of Stimulus Payments and Child Tax Credits issued by the government as a part of the American Rescue Plan Act.

As you’re working through your 2021 Tax Returns, here is what you need to know about how stimulus payments will impact you.

Economic Impact Payments and Child Tax Credits

In March of 2021, Congress passed the American Rescue Plan Act which included a third round of Economic Impact Payments and additional stimulus funds for families with children. Similar to the first two rounds of Economic Impact Payments, the third check offered lump sum payments to eligible Americans.

The Advance Child Tax Credit was issued based on a person’s 2020 tax return and payments are issued via direct deposit on July 15, August 13, September 15, October 15, November 15, and December 15.

Will I have to pay taxes on funds received through Stimulus Payments?

In short, no, you will not have to pay income tax on your third stimulus payment in 2021.

Your third stimulus payment will not be a part of gross income and will not be taxable; however, it should be reported for purposes of qualifying for the Recovery Rebate Credit. These payments are essentially grants, not to be taxed by the government.

Only in extreme situations would they need to be repaid back (i.e., the recipient passed away).

Will I have to pay taxes on funds received through the Advanced Child Tax Credit?

The Child Tax Credit included in the 2021 Rescue Plan Act is considered an Advance on your 2021 tax return, not a stimulus payment.

The Child Tax Credit is based on a number of factors that can change from year to year, including income, filing status, and the number of qualifying children. To determine your Advance Child Tax Credit payment, the IRS used one of three sources of information:

  • Your 2020 tax year return
  • If your 2020 tax year return was not filed, then your 2019 tax year return
  • If you used the Child Tax Credit Update Portal in 2021 to update the IRS with changes to your income, filing status, or number of qualifying children, the IRS used this 2021 update.

Since the advance credits are based on an estimation, if your 2021 tax year return shows factors that would qualify you for a smaller total child tax credit than what was issued, you will have to reconcile the payment in your return.  

Factors that may cause a change in the amount you should have received include:

  • A large increase in income
  • A smaller number of qualifying children
  • A change in filing status

Any excess of advances will be repaid back; any excess of credit will be added to your refund.

Repayment Protection

You may qualify for repayment protection which will negate the repayment of excess advances if your modified adjusted gross income (MAGI) in 2021 is no more than the following amounts:

  • $60,000 and filing status is married filing joint or qualifying widow(er)
  • $50,000 and filing status is head of household
  • $40,000 and filing status is single or married filing separately

What documentation do I need for tax purposes?

As you prepare your 2021 Tax Return, here are a few of the documents you will want to have on hand, as they relate to Economic Impact Payments and the Child Tax Credit.

Notice 1444-C

This is the notice you received with the third stimulus payment. If you did not keep the notice you received with the third stimulus payment (or did not receive one), you can create an online account at irs.gov > View Your Account > Log in to your Online Account > Create Account.

This will show your official record of Stimulus Payments received in 2021.

Bank Statements

Keep a copy of your bank statement on hand that reflects receipt of the third stimulus payment as a direct deposit.

The bank memo line may mention “EIP3”.

Letter 6419

Keep your eyes open for a letter from the IRS in January 2022. They will be issuing Letter 6419 which documents the total amount of the Child Tax Credit Payments you received.

You will need the amount listed on the letter to reconcile the eligible Child Tax Credit with the payments you received in 2021.

What do I do if I did not receive my stimulus payments?

Use the “Get My Payment” tool on irs.gov to determine if you were eligible for a payment.

If you were but did not receive one, you should request a payment trace to track the payment by calling 800-919-9835 or completing and mailing Form 3911 to the IRS.

Who is eligible to claim the 2021 Recovery Rebate Credit on their 2021 return?

If you did not receive as much of a third stimulus check as you were truly eligible, you can claim the 2021 Recovery Rebate credit on your 2021 return. There are a variety of reasons you may have received less than you were owed, including:

  • an increase in dependents
  • a decrease in income
  • a change in filing status

For example, single filers with an Adjusted Gross Income (AGI) of at least $80,000 on their 2020 return ($120,000 for head of household, $160,000 for married filing jointly) did not receive a third stimulus check in 2021. If the person’s 2021 income fell below $80,000 ($120,000 for head of household, $160,000 for married filing jointly), or experienced an increase in dependents, such as aging/disabled relatives or adult children moving back in, they should claim the 2021 Recovery Rebate Credit.

Self-Employment Tax Credits for 2021

If you are self-employed and experienced any of the following situations that prevented you from working, you may be eligible for the same Credits for Sick Leave and Family Leave as many conventional employees are by filing Form 7202 with your personal return.

  • You spent time away from work to get a COVID-19 vaccine
  • You spent time away from work to recover from complications of a COVID-19 vaccine
  • You spent time away from work to await the results of a COVID-19 test or diagnosis

Tax Planning Tips for 2021

Tax policy is an instrument of politics; as administrations and landscapes change, so do the tax laws. Planning your affairs in a way to minimize taxes is a healthy part of your financial well-being. As you prepare to file your 2021 Tax Return, here are a few tips.

Start early

2020 and 2021 brought many changes, and that includes changes in income levels, tax implications, and more. Start your tax planning early to give yourself enough time to gather appropriate documentation and file for any and all tax benefits you are due.

Research Tax Credits

There are a variety of circumstances at play that may change your filing status and opportunities for tax credits. Take time to identify the appropriate opportunities to decrease your tax liability, within the framework of existing legislation.

Partner with a Professional

While taxes aren’t your area of expertise, they are ours. Working with a professional minimizes the potential for mistakes. Our team of tax professionals ensures you don’t miss deductions or make careless errors on your filings that may lead to penalties, interest, and unwanted love letters from the IRS and state agencies.

At SME, CPAs, our tax preparation process is quick and easy, offering digital solutions for a hands-off tax filing. But our experience doesn’t stop there. Working with a tax professional year-round ensures tax compliance throughout the year and gives your tax professional an inside look at the best opportunities to maximize your return to benefit you.

Have Tax Planning Questions?

For more than 70 years, we have invested in your success, our community, and tomorrow. We’re ready to put that expertise to work for you, today. Let’s connect.

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Paul Wade Named SME CPAs’ Next Managing Partner https://www.smecpa.com/paul-wade-named-sme-cpas-next-managing-partner/ https://www.smecpa.com/paul-wade-named-sme-cpas-next-managing-partner/#respond Wed, 14 Jul 2021 14:39:06 +0000 https://www.smecpa.com/?p=1567 AUGUSTA, GA: SME CPAs, a top 400 U.S. accounting firm, is proud to announce that Paul Wade, CPA will serve as SME CPA’s next Managing Partner effective July 1, 2021. Wade, who joined the firm in 2003, was promoted to partner in only six years, in 2009. He has helped grow our tax team and…

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AUGUSTA, GA: SME CPAs, a top 400 U.S. accounting firm, is proud to announce that Paul Wade, CPA will serve as SME CPA’s next Managing Partner effective July 1, 2021.

Wade, who joined the firm in 2003, was promoted to partner in only six years, in 2009. He has helped grow our tax team and multitude of services. Paul succeeds Rick Evans who was SME CPAs Managing Partner for 9 years. “Paul has been an integral part of the firm’s success for almost two decades and is committed to the success of our clients and employees.” says Evans. Rick will continue to serve as a full-time client service partner with the firm.

Paul has more than 18 years of experience servicing businesses, private enterprise, and high-net-worth individuals in a diverse range of industries such as technology, construction, real estate, manufacturing, distribution and more.

Paul will lead one of the fastest growing firms in the CSRA in 2021 with over 55 employees.

Beyond the office walls, Wade is an active member in the community, where he is a graduate of Columbia County Leadership, an active member of the Downtown Augusta Rotary Club and frequently serving on several committees for local charitable events. One of his favorite things to do is to be outdoors with his wife, Mary Ann and two daughters, Meredith, and Caroline. 

About SME CPAs: For almost 70 years, we have brought financial security and peace of mind to our clients in the Greater Augusta Region. We’ve built trust through tradition, but it’s our uncompromising integrity that has made us the preferred choice for generations. Inspired by our community, we are passionate about helping you. Our approach means you always have the convenience of one point of contact, and a team of experts behind you. Whether you need estate planning or an employee benefit audit, or guidance with real estate or retirement; we foresee the roadblocks and cultivate new opportunities. Your growth and success is our goal. Let’s achieve it together.

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Restaurant Revitalization Fund (RRF) Program Guidelines https://www.smecpa.com/restaurant-revitalization-fund-rrf-program-guidelines/ https://www.smecpa.com/restaurant-revitalization-fund-rrf-program-guidelines/#respond Wed, 21 Apr 2021 13:42:48 +0000 https://www.smecpa.com/?p=1558 On Saturday, April 17, 2021, the Small Business Association (SBA) released the Restaurant Revitalization Fund’s highly-awaited program guidelines. The Restaurant Revitalization Fund (RRF) is part of the $1.9 trillion American Rescue Plan Act (ARPA) which became law on March 11, 2021 and appropriated $28.6 billion for the SBA to award to eligible restaurants, bars and similar businesses who…

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On Saturday, April 17, 2021, the Small Business Association (SBA) released the Restaurant Revitalization Fund’s highly-awaited program guidelines. The Restaurant Revitalization Fund (RRF) is part of the $1.9 trillion American Rescue Plan Act (ARPA) which became law on March 11, 2021 and appropriated $28.6 billion for the SBA to award to eligible restaurants, bars and similar businesses who suffered revenue losses due to COVID-19. Eligible entities can receive grant monies of up to $10 million per business and no more than $5 million per location. The grant funds must be spent by March 11, 2023.

Eligible Entities

Eligible entities (EE) cannot be permanently closed at the time of application and are a “place of business in which the public or patrons assemble for the primary purpose of being served food or drink”.  The SBA listed the following as eligible entities who can apply:

  • Restaurants
  • Food stands, food trucks, food carts
  • Caterers
  • Bars, saloons, lounges, taverns
  • Snack and nonalcoholic beverage bars
  • Bakeries (onsite sales to the public comprise at least 33% of gross receipts)
  • Brewpubs, tasting rooms, taprooms (onsite sales to the public comprise at least 33% of gross receipts)
  • Breweries and/or microbreweries (onsite sales to the public comprise at least 33% of gross receipts)
  • Wineries and distilleries (onsite sales to the public comprise at least 33% of gross receipts)
  • Inns (onsite sales of food and beverage to the public comprise at least 33% of gross receipts)
  • Licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products

Applicants that have a pending PPP loan application at the time of applying for RRF funding, must withdraw the PPP application (more on the implication of PPP loans below).

All applicants must make a certification that they are eligible under the rules in effect at the time of application submission, including a certification that current economic uncertainty necessitates the application for these funds. This certification is nearly identical to the one required for PPP loan applications.

The SBA has provided a sample RRF application on their website.

Eligible Uses of Funds

RRF funds may be used for expenses paid or incurred during the covered period, which is defined as the period from February 15, 2020 through March 11, 2023. However, for businesses that permanently close after receiving the grant, the covered period ends upon their business closure or March 11, 2023, whichever comes first.

The SBA program guide identifies eligible uses of funds, which include most operating costs including payroll and food and beverage expenses, as well as mortgage and other debt service.

Payments of past-due expenses incurred from February 15, 2020 through March 11, 2023 are considered eligible.

Unused RRF funds must be returned to the U.S. Treasury.

Priority In Awarding Funds

The SBA will accept applications from all applicants during the first 21 days of the program. However, during this period it will only process and distribute funds to those approved as priority applicants. Priority applicants are small business concerns that are at least 51% owned by one or more individuals who are women, veterans, or socially and economically disadvantaged.

The SBA has also set aside additional funds for 3 grant categories, which are:

  1. $5 billion for recipients with 2019 gross receipts not more than $500,000
  2. $4 billion for recipients with 2019 gross receipts from $500,001 to $1,500,000
  3. $500 million for recipients with 2019 gross receipts no more than $50,000

Calculating Grant Amount

The SBA has provided three methods for determining the amount of the grant based on whether the entity was in operation before January 1, 2019. The program guideline specifies that ‘in operation’ means “the day the entity started making sales.”

Generally, the amount of the grant will be the decline in annual gross receipts (defined below) minus PPP loan funds received (1st and 2nd draw).

  1. For eligible entities in operation on or before January 1, 2019,
    the grant will be 2019 gross receipts, minus 2020 gross receipts, minus PPP loan amounts.
  2. For eligible entities that began operations in 2019,
    the grant will be the average 2019 monthly gross receipts multiplied by 12, minus 2020 gross receipts, minus PPP loan amounts.
  3. For applicants that began operations on or between January 1, 2020 and March 10, 2021; and those who have not yet begun operations as of March 11, 2021, but have incurred eligible expenses,
    the grant will be the total amount spent on eligible expenses between February 15, 2020 and March 11, 2021, minus PPP loan amounts.

Gross receipts generally consist of all sources of income (sales less returns and allowances, fees, rents, etc.) based on the company’s accounting method used on its income tax returns. Gross receipts should not include PPP loans, income from SBA loan payments made by the SBA under the CARES Act, Economic Injury Disaster Loans (EIDL) or EIDL advances, or state and local grants.

The minimum grant size is $1,000.

How To Apply

While applications are not being accepted yet, the two most efficient ways to apply are directly on the SBA’s dedicated website or through an SBA-recognized Restaurant Partner.

For those applying through the SBA’s website portal, once the application is completed, an email will be sent to the applicant with a DocuSign package. It is important to execute the DocuSign package immediately to enter the SBA’s application review. 

For those applying through the SBA’s Restaurant Partners, the SBA will be forthcoming with further information. SBA Restaurant Partners are technology companies that provide software, hardware and payment services to the restaurant industry and have a partnership with the SBA.

Currently, both the SBA and its yet-to-be-named Restaurant Partners have customized, secure portals that are open to receive applications. The RRF program guidelines did not identify an opening date for applications but did state that the SBA will undergo a 7-day application testing period before officially accepting applications.

Required Documentation

All applicants must provide:

  1. Completed, initialed, signed Restaurant Revitalization Funding Application (SBA Form 3172)
  2. Completed & signed Verification of Tax Information (Form 4506-T); this can be completed digitally on the SBA portal.
  3. Gross receipts documentation may be any of the items below:
  4. Business tax returns (IRS Form 1120 or IRS Form 1120-S)
  5. IRS Form 1040 Schedule C; IRS Form 1040 Schedule F
  6. For a partnership:  Partnership’s IRS Form 1065 (including K-1s)
  7. Bank statements
  8. Externally or internally prepared financial statements, such as Income Statements or Profit and Loss Statements
  9. Point of sale report(s), including IRS Form 1099-K
  10. Businesses with only part of their sales qualifying, such as brewpubs, tasting rooms, wineries, inns, and bakeries, must provide additional documents evidencing onsite sales to the public comprised of at least 33% of gross receipts for 2019.

Additional rules and eligibility restrictions apply, so businesses considering this program should carefully review all SBA guidance and seek counsel from their advisors.

SME CPAs encourages eligible entities to be prepared to apply immediately once the application window opens. If you need assistance or have any questions contact us at info@smecpa.com or 706.722.5337.

Updates:

Highlights include:

• Applicants can register via the SBA online application portal starting this Friday, April 30, at 9:00 AM (Eastern). This is a unique registration; registrants will not be able to use other SBA account information.

• Starting Monday, May 3, 12 PM (Eastern), the SBA will begin accepting applications through their specified site. One applicant can apply for multiple EINs and work on or view them all at once.

• Businesses can also apply through various POS vendors starting Monday, May 3 at 12 PM Eastern. Currently, the SBA has announced the following approved POS vendors: Square, Toast, Clover, and Aloha (NCR). Applications can currently only be submitted through Square or Toast, but Clover and Aloha are helping with documentation that will be needed during the application. SBA is working with other POS vendors as well.

• The SBA recommends that an existing operating bank account be used for the deposit of the funds, and of course, it’s important for the name and EIN on the account to match.

• Application completion is anticipated to take 20-25 minutes.

• Applicants are encouraged to be vigilant and attentive to details, but should not be too delayed in applying since funds are generally distributed on a first-come, first-served basis.

• The SBA has provided an RRF knowledge base support documentation to address many additional details.

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Tax and financial planning tips: Welcoming a New Child https://www.smecpa.com/tax-and-financial-planning-tips-welcoming-a-new-child/ https://www.smecpa.com/tax-and-financial-planning-tips-welcoming-a-new-child/#respond Tue, 06 Apr 2021 19:40:13 +0000 https://www.smecpa.com/?p=1552 Welcoming a new child into your life is a great joy, but it also means big financial changes. These young family members can affect your tax situation. To start things right, here are some tips to keep in mind. Tax returns and withholdings Having a baby – or adopting a child – could affect your…

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Welcoming a new child into your life is a great joy, but it also means big financial changes. These young family members can affect your tax situation. To start things right, here are some tips to keep in mind.

Tax returns and withholdings

Having a baby – or adopting a child – could affect your filing status. For example, a single adult with a baby may be able to change his or her filing status to head of household. In some cases, changing your filing status could mean a better tax rate. If you had been using the married filing separate filing status, a change to head of household status may allow you to claim additional credits and deductions.

A major life event, such as getting married or having a child, could affect your tax liability. Parents may qualify for one or more tax credits or deductions. Adjust your withholding to compensate for these life changes. Not doing so could result in more funds being withheld than necessary.

What credits are available?

The Recovery Rebate Credit is a special one-time benefit that most people received in 2020 in the form of an Economic Stimulus Payment. But people who did not receive the maximum amount of the Economic Stimulus Payment, and whose circumstances have changed, may be eligible now.

The child and dependent care tax credit allows married couples filing jointly to claim up to $3,000 in childcare expenses per qualifying individual (up to $6,000 total). The qualifying individual must be under the age of 13 and claimed on the tax return as a dependent. Married couples claiming the credit must both be working and file jointly. How much you can claim depends on your income. It is important to note a parent must have custody of the child for more than half of the year to qualify for this credit.

Recovery Rebate Credit

An adoption tax credit or income exclusion could be an option for you if you adopted a child or tried to adopt a child. The non-refundable tax credit is available for certain qualified adoption expenses. Qualified adoption expenses do not include expenses that someone pays to adopt the child of their spouse. How much a person can claim is dependent on income and is capped at $14,300. In addition, parents may be able to exclude from their gross income up to $14,300 of qualified adoption expenses paid by an employer under an adoption assistance program. Both a credit and an exclusion for expenses may be claimed, but not for the same expense.

The earned income tax credit is a refundable credit for people who earn low to moderate incomes. Even if you did not qualify for this credit before, you may now qualify as limits are set higher for those with children. 

A child tax credit is worth up to $2,000 per qualifying child, with a refundable portion up to $1,400. To qualify for the child tax credit, a child must be under the age of 17 and claimed as a dependent. A $500 credit for dependents who are ineligible for a child tax credit is also available.

You may want to take advantage of an employer’s dependent care flexible spending account. These accounts help you pay for childcare by allowing you to divert up to $5,000 of your salary on a pre-tax basis and use it to be reimbursed for these childcare expenses.

If you choose to hire a nanny to care for your child, you may be subject to household employment taxes. Your CPA can help you navigate these taxes to ensure you are compliant.

Other smart financial planning moves

Financial planning tip – Start saving early for education by opening a 529 plan account for your child. A 529 plan is an excellent choice for college savings since contributions grow tax-deferred and the distributions are income-tax-free if they are used for qualified education expenses.

Guardians and wills – A will provides instruction on how, when and on what terms your assets will be distributed to your family and other beneficiaries at your death. Updating or creating a will becomes particularly important when having children as it is the legal document where a guardian is appointed for minor children.

Review beneficiary designation forms – Retirement accounts and life insurance policies pass according to the beneficiary designations rather than a will. Review beneficiary forms for retirement accounts and life insurance policies to ensure the proper individuals are listed, especially after children are born.

Life and disability insurance – Consider obtaining life and disability insurance to protect you or your spouse’s income stream in the event of a death or disability.  This is important for young families whose financial security is dependent on their ability to earn income.

What else should I know?

If your child is born in the United States getting a Social Security number obtaining a Social Security number is a straightforward process that can be done before you even leave the hospital. This process is more complicated if you are adopting a child from another country. You will have to wait until the adoption is final and the child is in the United States before you can apply for a Social Security number.

If you have questions about your new bundle of joy contact SME CPAs at 706-722-5337.

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ARPA modifications of the payroll tax credits for paid sick leave and family leave https://www.smecpa.com/arpa-modifications-of-the-payroll-tax-credits-for-paid-sick-leave-and-family-leave/ https://www.smecpa.com/arpa-modifications-of-the-payroll-tax-credits-for-paid-sick-leave-and-family-leave/#respond Thu, 25 Mar 2021 16:28:47 +0000 https://www.smecpa.com/?p=1548 The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, extended and significantly modified the payroll tax credits for qualifying sick leave and family leave wages. Below is a summary of the key provisions. Background: Both Covid-19-related credits were initially provided by the Families First Coronavirus Response Act and…

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The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, extended and significantly modified the payroll tax credits for qualifying sick leave and family leave wages. Below is a summary of the key provisions.

Background: Both Covid-19-related credits were initially provided by the Families First Coronavirus Response Act and first applied to eligible wages paid from April 1, 2020, through December 31, 2020. In December of 2020 the Consolidated Appropriations Act of 2021 extended the credits, with some modifications, to apply to wages paid through March 31, 2021.

Extension of both credits. ARPA further extended both the paid sick leave credit and paid family leave credit to apply to wages paid through September 30, 2021.

Modifications to both credits. Beginning with respect to wages paid on April 1, 2021, ARPA made modifications to the credits. The following are the modifications that affect non-government employers:

  • The credits are applied against the Medicare portion of payroll taxes instead of the OASDI (Social Security) portion. The Medicare portion taxes against which the credit is applied are those of all employees, not just employees to whom qualifying leave wages are paid. Additionally, the credits continue to be refundable (and thus allowed in excess of the Medicare taxes) and advance refundable (they can be applied against any employment taxes, including income tax withholdings, for the quarter in which eligible leave wages are being paid, with any remaining credit refundable at the end of the quarter).
  • Reasons for eligible leave are expanded to include obtaining or recovering from Covid-19 immunization.
  • The credits are increased by both the amount of the OASDI taxes paid and Medicare taxes paid with respect to eligible wages, instead of just the Medicare taxes.
  • The credits are increased by the amounts of certain collectively bargained pension and apprenticeship program benefits. Under ARPA, the credits continue to be increased by qualified health plan expenses, but under clarified rules.
  • Rules are provided that coordinate the credits with second draw Payroll Protection Program loans and certain government grants.
  • The no-double benefit rule, which disallows claiming both:
    1. Either of the above credits, and
    2. The income tax credit for family or medical leave, is expanded to include similar coordination with certain other income and payroll tax credits.
  • An employer is ineligible for the credits if, in providing paid leave, the employer discriminates in favor of highly compensated or full-time employees or on the basis of employment tenure.
  • IRS is allowed an extended limitation-on-assessment period for deficiencies due to claiming either of the credits.

Modification to the paid sick leave credit. Effective beginning with wages paid on April 1, 2021, in determining whether the 10-day limit on eligible wages is complied with, only days after March 31, 2021, are taken into account.

Modifications to the paid family leave credit. Effective beginning with wages paid on April 1, 2021:

  • The per-employee limit of wages taken into account is raised from $10,000 to $12,000 (but the limit continues under ARPA to be reduced by wages previously taken into account).
  • Reasons for eligible leave are expanded to include any qualifying reasons for taking paid sick leave.

SME CPAs is available at your convenience to answer any questions you may have about the ARPA changes to the credits or how they apply to your business. Don’t hesitate to reach out to us at 706.722.5337.

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Updates on The American Rescue Plan Act (ARPA) of 2021 https://www.smecpa.com/updates-on-the-american-rescue-plan-act-arpa-of-2021/ https://www.smecpa.com/updates-on-the-american-rescue-plan-act-arpa-of-2021/#respond Fri, 12 Mar 2021 19:13:41 +0000 https://www.smecpa.com/?p=1539 With President Biden’s signature yesterday, March 11, 2021, the $1.9 Trillion Stimulus Bill (ARPA) became law. This is the six separate COVID-relief bill enacted by the federal government. The American Rescue Plan Act of 2021 (ARPA) includes tax provisions, business stimulus provisions, individual assistance like extended unemployment benefits, additional funding for existing programs like the…

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With President Biden’s signature yesterday, March 11, 2021, the $1.9 Trillion Stimulus Bill (ARPA) became law. This is the six separate COVID-relief bill enacted by the federal government. The American Rescue Plan Act of 2021 (ARPA) includes tax provisions, business stimulus provisions, individual assistance like extended unemployment benefits, additional funding for existing programs like the Paycheck Protection Program (PPP), help for state and local governments, and funds for coronavirus testing and vaccines. We will touch on just a few of the provisions in this legislation below.

Individual tax provisions

Tax-free unemployment benefits

Beginning with 2020, ARPA makes up to $10,200 of unemployment benefit exempt from federal income tax. To benefit from this exclusion, the taxpayer’s adjusted gross income (AGI) must be less than $150,000. Once income hits $150,000, regardless of filing status, all the unemployment benefits are taxable. For taxpayers that received unemployment benefits and already filed their 2020 federal income tax return, an amendment may result in a refund.

Stimulus payment

In addition to the two previous individual recovery rebates, where taxpayers received payments from the IRS labeled “economic impact payments”, ARPA enacts another $1,400 per person. For joint filers, this means $2,800 plus $1,400 for each qualifying dependent. The following reflects the points at which the rebate amount starts being reduced and at the point by which it is fully eliminated, depending on the filing status:

Filing status                Begin reduction          Fully eliminated

Joint                            $150,000                     $160,000

Head of household      $112,500                     $120,000

All others                    $75,000                       $80,000

Like the earlier version of this credit, ARPA requires the IRS to make advance payments to taxpayers based on either their 2019 or 2020 tax returns. The payment is considered an advance of the credit for the year 2021, and any shortfall in the advance will be considered as part of the taxpayer’s 2021 tax return.

Child tax credit and advance payment

ARPA increases the 2021 child tax credit from $2,000 to $3,000 per child ($3,600 for children under age 6 at the end of 2021). Certain income limitations apply. Unlike the current child tax credit, the IRS is instructed to make advance payments to taxpayers of 50% of the anticipated credit. The advances are to be paid in monthly installments from July through December 2021. The advance will be reconciled on the taxpayer’s 2021 tax return, and any shortfall or excess will result in an adjustment.

Premium tax credit

The 2021 and 2022 premium tax credit (PTC), which is used to subsidize the cost of Marketplace health insurance, is enhanced. Taxpayer’s have been able to receive an advance of the credit to help reduce the monthly premiums they pay. Under current law, the credit is available on a sliding scale for individuals and families with income between 100% and 400% of the federal poverty level (FPL).

At least 250% but less than 300%                  8.33%                                      9.83%

At least 300% but not more than 400%          9.83%                                      9.83%

Under ARPA, the amount required to be paid by the taxpayer is reduced and advanced credits can still be received when income exceeds 400% of the FPL.

ARPA also provides that if a taxpayer receives excess advances on their PTC during the year, as determined on that year’s tax return, that excess does not have to be repaid. This provision was made retroactive to 2020. If a taxpayer has already filed their 2020 income tax return and repaid some of the advance PTC, they should consider amending the return to secure a refund.

Other individual tax credits

The earned income tax credit is expanded and modified. In addition, the child and dependent care credit is enhanced and made refundable, meaning that a credit that exceeds the amount of tax will result in a refund.

Business provisions

COVID sick/leave pay credits

The Families First Coronavirus Response Act (FFCRA) required certain employers to pay employees when they were absent due to the virus. It also provided credits to fully reimburse employers. While the mandate on employers ended December 31, 2020, the credits continued through March 31, 2021. ARPA now extends the credits through September 30, 2021 for employers and self-employed individuals.

The credit provisions are modified in a number of ways, including:

• The limitation on the overall number of days that should be considered for paid sick leave will reset after March 31, 2021.

• The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount increases from 50 to 60.

• The paid leave credits will be allowed for leave that is due to a COVID-19 vaccination.

Employer retention credit

We have previously written about substantial modifications to this credit that were extended to many businesses struggling with the economic impact of the virus. The credit was set to expire on June 30, 2021, but ARPA now extends the credit through the end of 2021.

Grants for food and beverage industry

ARPA provides “Restaurant Revitalization Grants” that will provide a total of $28.6 billion to qualifying entities, $5 billion of which is reserved for businesses with 2019 revenues of $500,000 or less. These grants are tax-free, and the requirements are similar to the PPP. The program runs through December 31, 2021.

Eligible businesses include restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, and alcohol producers “where the public may taste, sample, or purchase products.” The law also ensures broad eligibility by referring to “other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.”

Applicants must assert that there is economic uncertainty necessitating the grant, must not have received a Shuttered Venue Operators Grant, and must be able to show COVID-related revenue loss by comparing 2020’s gross receipts to 2019’s gross receipts. The amount of the revitalization grant will equal the amount of documented lost revenue, less the amount of PPP first and second draw loans received in 2020 or 2021, up to $10 million per entity (or $5 million per location). Presumably, businesses with sources of revenue other than from food and beverage sales will be eligible based solely on a reduction in qualifying revenues. Alternate calculations are available for those that were not in business for all of 2019 or 2020.

The grant funds can be used for payroll, facilities maintenance, utilities, rent, mortgage principal and interest, supplies, and food and beverage purchases. Businesses that do not fully expend the funds by the end of 2021 or that cease operations before the end of 2021 will be required to repay any funds not spent on qualifying expenses.

The SBA will administer the program and will be developing rules and creating application forms. Expect to see additional guidance and the opening of the application process in the coming weeks.

Other business provisions

ARPA provides an additional $15 billion for economic injury disaster loan (EIDL) grants, as well as $7 billion of funding for PPP loans; that program is currently set to expire on March 31, 2021. Income from these programs remains tax-free.

To help employees with the cost of health care coverage after loss of employment, ARPA introduces a 100% subsidy for COBRA continuation coverage from the date of the legislation’s enactment through September 2021. From April 1 through September 30, 2021, employers that are out-of-pocket for this coverage can receive a credit against Medicare payroll taxes. An additional $1.25 billion is set aside for the SBA shuttered venue operators grant program, a program designed to help businesses offering live venues for performing arts, museums, zoos, aquariums, movie theaters and others working in and around these industries. This program was funded with $15 billion in December, but the SBA has yet to deploy those funds. ARPA also allows businesses to apply for both a venue grant and a PPP loan; that was previously prohibited.

For 2021 only, ARPA increases the exclusion for employer-provided dependent care from $5,000 to $10,500 ($2,500 to $5,250 for MFS).

Every person’s situation is different and some of these provisions can be complicated. If you need assistance with navigating all these new rules, then please reach out to SME CPAs with any questions you may have.

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Tax and Financial Planning Tips: Marriage and Divorce https://www.smecpa.com/tax-and-financial-planning-tips-marriage-and-divorce/ https://www.smecpa.com/tax-and-financial-planning-tips-marriage-and-divorce/#respond Mon, 15 Feb 2021 20:11:47 +0000 https://www.smecpa.com/?p=1527 A wedding is an exciting milestone, but it is also a big financial turning point for couples. Whether it is a first marriage or two families blending, these unions have major tax consequences. Ending a marriage by divorce is also significant for your tax situation. To start off right, here are some tax tips to…

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A wedding is an exciting milestone, but it is also a big financial turning point for couples. Whether it is a first marriage or two families blending, these unions have major tax consequences. Ending a marriage by divorce is also significant for your tax situation. To start off right, here are some tax tips to keep in mind.

Tax returns and withholdings

Getting married could influence which tax bracket a couple falls into, so the first step is determining the most advantageous filing status. A couple must determine if it is in their best interest to file jointly or separately. Then, they should review how this choice affects each spouse’s tax burdens and adjust tax withholdings accordingly. 

Effects of marriage on taxes – If spouses have disparate incomes, they may see a marriage bonus. If one spouse’s income falls into a higher tax bracket than the other before marriage, their combined incomes may drop the couple down into a lower tax bracket if they file jointly.

Marriage penalty – When two people with similar incomes marry, they may be at risk of a marriage penalty as their combined incomes may bump the couple into a higher tax bracket. 

Medical expenses – Some couples may choose to file separately for various reasons, for instance, if one spouse has significant unreimbursed medical expenses. This could provide an overall tax savings since the hurdle to get over the 7.5% adjusted gross income threshold will be based on the income of that spouse.

Deductions – If a married couple chooses to file separately, both spouses must either itemize or use the standard deduction.

Qualified business income – Filing separately may also be beneficial if one spouse has income that qualifies for the 20% qualified business income deduction. The phaseout limitations are the same as for single taxpayers and this could allow a higher deduction in certain situations.

Blended families

Couples with children have unique tax implications to consider. This is especially true for blended families.

The Child tax credit is Worth up to $2,000 per qualifying child, with a refundable portion of up to $1,400.

The amount of the child tax credit begins to reduce or phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly. Note: To qualify for the full child tax credit, a child must be under the age of 17 and claimed as a dependent. Child and dependent care tax credit — This credit allows married couples filing jointly to claim up to $3,000 in childcare expenses per qualifying individual (up to $6,000 total). The qualifying individual must be under the age of 13 and claimed on the tax return as a dependent. Married couples claiming the credit must both be working and file jointly. How much a couple can claim depends on their income. Note: A parent must have custody of the child for more than 50% of the year to qualify for this credit.

Did you know that retirement accounts and life insurance policies pass in accordance with their beneficiary designation form and not per your will? After significant life events, such as marriages, divorces, and births, make sure to review all beneficiary designation forms and ensure the correct people are listed.

Divorce

No matter the cause, divorce is a sensitive and challenging issue that raises many tax concerns.

Filing status – Those couples who finalize their divorce after Dec. 31, 2020, may choose to file jointly or as married filing separately on their 2020 returns. Divorced individuals should consider filing as head of household if they claim a qualified child or relative as a dependent.

Alimony – If a divorce was finalized after Dec. 31, 2018, anyone making alimony payments will lose the alimony deduction, and the receiving spouse will not pay taxes on these payments. If the couple finalized their divorce before that date, the payor may still deduct these payments. The payments are considered taxable income to the recipient.

Child support payments – Child support payments are neither deductible by the payee, nor are they taxable income to the recipient. The noncustodial parent may claim the child as a dependent in some cases.

Child medical costs and care – Parents who continue to pay medical expenses for a child after a divorce may include these costs in their medical expense deduction even if they don’t have custody of the child and even if the ex-spouse claims the child as a dependent.

Capital gains – If a couple chooses to sell a home both spouses own, that sale may be subject to capital gains tax. In the year of the sale, couples filing jointly can avoid tax on the sale of their primary residence – up to $500,000 – if they have used the home as their personal residence for more than two years of the preceding five years. The limit is reduced for divorced couples and is set at $250,000 per individual.

Medical insurance – Individuals may be able to remain on their former spouse’s health care plan for up to 36 months if that plan is subject to COBRA. This option is available even if that individual’s coverage was terminated before the divorce was finalized. The cost of coverage is the responsibility of the recipient unless the couple reaches another agreement as part of the divorce proceeding.

Copies of records – Individuals should obtain copies of documents that may affect their tax situation in future years, including copies of prior year returns they filed with a former spouse along with the appropriate supporting information. Divorced individuals should retain records relating to any property transferred as part of the divorce to establish the required cost basis when selling the property. 

Note: Individuals should always retain documents relating to a separation or divorce.

Miscellaneous tips

Some married couples have special considerations complicating their tax situation. Investments and property – Couples with investments, property, back child support payments, back taxes or who stand to claim a significant inheritance should consider the unique tax implications of their union.

Same-sex marriage – Same-sex marriage is treated the same as traditional marriage for federal tax purposes. Civil unions and domestic partnerships are not, but state laws may require these couples to file jointly. Be sure to review state guidance.

Passive losses – Taxpayers who may have qualified for a passive loss deduction may no longer qualify after marriage. Taxpayers can take up to a $25,000 passive loss from rental real estate if they actively participate in the activity. Phaseout starts at $100,000 of adjusted gross income (AGI) and is completely lost at $150,000 for both single and married filers. Married taxpayers filing separately have phaseout thresholds of $50,000 and $75,000, respectively. Also, married couples filing separately may claim $12,500 each if they live apart the entire year. If this condition is not met, the deduction is $0.

Back child support payments – If one person owes back child support payments and files a joint tax return with their new spouse, any refunds generated from this joint filing may be used to satisfy this outstanding debt.

Pre-existing debts – If one spouse owes past-due federal tax, state income tax, state unemployment compensation debts, child or spousal support or a past-due non-tax debt, such as a federal student loan, the other spouse’s income could be vulnerable, particularly if the couple resides in a community property state. The other (“injured”) spouse may file Form 8379 with the return to request their portion of the joint refund. Form 8857 should be filed to relieve a spouse of a tax burden if they believe their current or former spouse should be responsible for all or part of the tax.

Note: Both spouses’ financial contributions to the household are taken into consideration when the IRS determines available income for payment plan negotiations.

Name and address changes Individuals changing their name after marriage must report their name change o the Social Security Administration (SSA) before filing their next tax return. If a child’s name changes due to marriage, they should notify the SSA. Report changes of address to the IRS via Form 8822.

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How to scan .pdfs from your iPhone or Android https://www.smecpa.com/how-to-scan-pdfs-from-your-iphone-or-android/ https://www.smecpa.com/how-to-scan-pdfs-from-your-iphone-or-android/#respond Thu, 11 Feb 2021 18:38:27 +0000 https://www.smecpa.com/?p=1522 Let’s face it, tax season requires clients and accountants to share large amounts of data – mostly in the form of paper documents. With COVID happening, we are having to adjust the way we share those documents.   Dropping off an envelope full of tax documents to your accountant is becoming more of a rarity than…

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Let’s face it, tax season requires clients and accountants to share large amounts of data – mostly in the form of paper documents. With COVID happening, we are having to adjust the way we share those documents.   Dropping off an envelope full of tax documents to your accountant is becoming more of a rarity than the norm.  Many of our clients like to send us electronic documents.  Not only does that help with social distancing, but it can be much easier and more convenient than locating, copying and delivering paper files. With that said, many times we receive documents as pictures or images (.JPEG files).  Many times, these are blurry and hard to read, and there is no easy way to convert them into a usable format. Ideally, we need documents in PDF format. To help make life easier on our clients and our accountants we wanted to share instructions on how to “scan” documents using your Apple and Android cell phones and other devices, instead of just snapping a picture and sending the image.  Below are the instructions:

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New tax laws that affect businesses https://www.smecpa.com/new-tax-laws-that-affect-businesses/ https://www.smecpa.com/new-tax-laws-that-affect-businesses/#respond Tue, 05 Jan 2021 18:29:30 +0000 https://www.smecpa.com/?p=1501 The Consolidated Appropriations Act, 2021 (the CAA, 2021), signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CAA, 2021 include–along with spending and other non-tax provisions and tax provisions primarily affecting individuals–the numerous business tax provisions briefly summarized below. The provisions are found in two of…

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The Consolidated Appropriations Act, 2021 (the CAA, 2021), signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CAA, 2021 include–along with spending and other non-tax provisions and tax provisions primarily affecting individuals–the numerous business tax provisions briefly summarized below. The provisions are found in two of the several acts included in the CAA, 2021, specifically, (1) the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the TCDTR) and (2) the COVID-related Tax Relief Act of 2020 (the COVIDTRA).

Tax provisions made permanent (without other changes). The TCDTR makes permanent without other changes (1) the railroad track maintenance credit and (2) the exclusion of the aging period in determining the mandatory interest capitalization period in producing beer, wine or distilled spirits.

Tax provisions extended (without other changes). The TCDTR extends the following tax credits without other changes: (1) the new markets tax credit, (2) the work opportunity credit, (3) the employer credit for paid family and medical leave that was provided by the 2017 Tax Cuts and Jobs Act (2017 TCJA), (4) the carbon sequestration credit, (5) the business energy credit (the ” Code Sec. 48 credit”) both as regards termination dates and phase-downs of credit amounts, (6) the credit for electricity produced from renewable resources (the ” Code Sec. 45 credit”) and the election to claim the Code Sec. 48 credit instead for certain facilities (but the phase-down of the amount of the Code Sec. 45 credit for wind facilities isn’t deferred), (7) the Indian employment credit, (8) the mine rescue team training credit, (9) the American Samoa development credit, (10) the second generation biofuel producer credit, (11) the qualified fuel cell motor vehicle credit as applied to businesses, (12) the alternative fuel refueling property credit as applied to businesses, (13) the two-wheeled plug-in electric vehicle credit as applied to businesses, (14) the credit for production from Indian coal facilities, and (15) the energy efficient homes credit.  

Additional provisions extended by the TCDTR without other changes are the following: (1) the exclusion from employee income of certain employer payments of student loans, (2) the 3-year recovery period for certain racehorses, (3) favorable cost recovery rules for business property on Indian reservations, (4) the 7-year recovery period for motor sports entertainment complexes, (5) expensing for film, television and live theatrical productions, (6) empowerment zone tax incentives except for the increased section 179 expensing for qualifying property and the deferral of capital gain for dispositions of qualifying assets, and (7) the exclusion from being personal holding company income for certain payments or accruals of dividends, interest, rents, and royalties from a related person that is a controlled foreign corporation.

Energy provisions. The TCDTR makes changes to energy provisions in addition to making them permanent or extending them.

The TCDTR adds ”waste energy recovery property” to the types of property that qualify for the Code Sec. 48 credit (above). And the credit rate assigned is 30%. ”Waste energy recovery property” is property (1) the construction of which begins before 2024, (2) that has a capacity of no more than 50 megawatts, and (3) generates electricity solely from heat from buildings or equipment if the primary purpose of that building or equipment isn’t the generation of electricity. But it doesn’t include property eligible for the Code Sec. 48 credit for cogeneration property unless the taxpayer doesn’t take the  Code Sec. 48 credit for that property.

For wind facilities that are ”qualified offshore wind facilities,” the TCDTR relaxes the rules under which wind facilities that are eligible for the Code Sec. 45 credit can, by election (see above), be eligible instead for the Code Sec. 48 credit.

The TCDTR makes permanent the energy efficient commercial buildings deduction. Additionally, the TCDTR indexes for inflation the per-square-foot dollar caps on the full and partial versions of the deduction. And the TCDTR provides that to the extent that deductibility depends on specified recognized energy efficient standards, the referred-to standards will be standards issued within two years of construction (rather than the standards bearing now-stale dates that applied under pre- TCDTR law).

Clarifications of tax consequences of PPP loan forgiveness. The COVIDTRA clarifies that the non-taxable treatment of Payroll Protection Program (PPP) loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations. Also, the COVIDTRA clarifies that taxpayers whose PPP loans or other obligations are forgiven as described above, are allowed deductions for otherwise deductible expenses paid with the proceeds and that the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.

Waiver of information reporting for PPP loan forgiveness. The COVIDTRA allows IRS to waive information reporting requirements for any amount excluded from income under the exclusion- from-income rule for forgiveness of PPP loans or other specified obligations. Note: IRS had already waived information returns and payee statements for loans that, before enactment of the COVIDTRA, were guaranteed by the Small Business Administration under section 7(a)(36) of the Small Business Act.

Extensions and modifications of earlier payroll tax relief. The TCDTR extends the CARES Act credit, allowed against the employer portion of the Social Security (OASDI) payroll tax or of the Railroad Retirement tax, for qualified wages paid to employees during the COVID-19 crisis. Under the extension, qualified wages must be paid before July 1, 2021 (instead of January 1, 2021). Additionally, beginning on January 1, 2021, the credit rate is increased from 50% to 70% of qualified wages. and qualified wages are increased from $10,000 for the year to $10,000 per quarter. Many other rules are also relaxed. And the TCDTR makes some retroactive clarifications and technical improvements to the credit as initially enacted.

The COVIDTRA extends (1) the credits provided by the Families First Coronavirus Response Act (FFCRA) against the employer portion of OASDI and Railroad Retirement taxes for qualifying sick and family paid leave and (2) the equivalent FFCRA-provided credits for the self-employed against the self-employment tax. Under the extension of the employer credits, wages taken into account are those paid before April 1, 2021 (instead of January 1, 2021). Under the extension of the credits for the self employed, the days taken into account are those before April 1, 2021 (instead of January 1, 2021).

The COVIDTRA also makes retroactive clarifications of (1) the FFCRA paid leave credits that were extended as discussed above, (2) the exclusion of qualifying paid leave in calculating the employer portion of Railroad Retirement taxes and (3) and the increase in the amount of the FFRCA paid leave credits against the employer portion of Railroad Retirement taxes by the amount of the Medicare payroll taxes on qualifying paid leave. Additionally, the COVIDTRA directs IRS to extend the Presidentially ordered deferral of the employee’s share of OASDI and Railroad Retirement taxes. As first provided by IRS, the deferral was of taxes to be withheld and paid on wages and other compensation (up to $4,000 every two weeks) paid in the period from September 1, 2020 to December 31, 2020 so that the taxes were instead withheld and paid ratably in the period from January 1, 2021 to April 30, 2021. Under the deferral, the period over which the deferred-from-2020 taxes are ratably withheld and paid is extended to all of 2021 (instead of the four-month period ending on April 30, 2021).  

Employee benefits and deferred compensation. The TCDTR provides that expenses for business-related food and beverages provided by a restaurant are fully deductible if they are paid or incurred in calendar years 2021 or 2022, instead of being subject to the 50% limit that generally applies to business meals. The TCDTR temporarily allows (1) carryovers and relaxed grace period rules for unused flexible spending arrangement (FSA) amounts, whether in a health FSA or a dependent care FSA, (2) the raising of the maximum eligibility age of a dependent under a dependent care FSA from 12 to 13 and (3) prospective changes in election limits set forth by a plan (subject to the applicable limits under the Code). 

With a view to layoffs in the current economic climate, the TCDTR relaxes rules that would otherwise cause a partial qualified retirement plan termination if the number of active participants decreases.

Because of market volatility during the COVID-19 pandemic, the COVIDTRA relaxes, if certain conditions are met, the funding standards that, if met, allow a defined benefit pension plan to transfer funds to a retiree health benefits account or retiree life insurance account within the plan. The CARES Act’s relaxed rules for ”coronavirus-related distributions” are retroactively amended by the COVIDTRA to additionally provide that a coronavirus-related distribution that is a during-employment withdrawal from a money purchase pension plan meets the distribution requirements of Code Sec. 401(a) .

And under a provision of narrow applicability, the TCDTR lowers to 55 years, from the usually applicable 59½ years, the age at which certain employees in the building or construction trades can, though still employed, receive pension plan payments under certain multiple employer plans without affecting the status of trusts that are part of the pension plans as qualified trusts.

Residential real estate depreciation. For tax years beginning after December 31, 2017, the TCDTR assigns a 30-year ADS depreciation period to residential rental property even though it was placed in service before January 1, 2018 (when the 2017 TCJA first applied the more-favorable 30-year period) if the property (1) is held by a real property trade or business electing out of the limitation on business interest deductions and (2) before January 1, 2018 wasn’t subject to the ADS.

Farmers’ net operating losses. The COVIDTRA allows farmers who had in place a two-year net operating loss carryback before the CARES Act to elect to retain that two-year carryback rather than claim the five-year carryback provided in the CARES Act. It also allows farmers who before the CARES Act waived the carryback of a net operating loss, to revoke the waiver.

Low-income housing credit. The TCDTR provides a 4% per year credit floor for buildings that aren’t eligible for the 9% per-year credit floor. (Both floors are alternatives to the calculation under which the per-year credit is generally a percentage, prescribed by IRS, that is intended to result in a credit that, in the aggregate over the 10-year credit period, has a present value of 70% of the qualified basis for certain new buildings and 30% of the qualified basis for certain other buildings.)

Life insurance. The TCDTR changes the interest rate assumptions that determine whether a contract meets the cash value and premium caps for qualifying as a life insurance contract. The change is to designated floating rates from the respective 4% and 6% rates fixed by prior law.

Disaster relief. The TCDTR includes several provisions targeted at ”qualified disaster areas,” some of which affect individuals and some which affect businesses as described below. ”Qualified disaster areas” are areas for which a major disaster was Presidentially declared during the period beginning on January 1, 2020 and ending February 25, 2021. The incidence period of the disaster must begin after December 27, 2019 but not after December 27, 2020. Excluded are areas for which a major disaster was declared only because of COVID-19.

The relief includes relief for retirement funds that consists of the following: (1) waiver of the 10% early withdrawal penalty for up to $100,000 of certain withdrawals by individuals living in a qualified disaster area and that have suffered economic loss because of the disaster (qualified individuals), (2) a right to re-contribute to a plan distributions that were intended for home purchase but not used because of a qualified disaster, and (3) relaxed plan loan rules for qualified individuals. Changes to plan amendment rules facilitate the relief.

The relief also provides to employers in the harder-hit parts of a qualified disaster area an up-to-$ 2,400-per-employee employee retention credit, subject to coordination with certain other employer tax credits. Generally, tax-exempt organizations can take it as a credit against FICA taxes.

Corporations are provided with relaxed charitable deduction rules for qualified-disaster-related contributions, and individuals are provided with relaxed loss allowance rules for qualified-disaster-related casualties.

The low-income housing credit is modified to allow, subject to various limitations, increases in the state-wide credit ceilings to the extent allocations are made to harder-hit parts of qualified disaster areas.

Excise taxes. The TCDTR makes various excise tax changes for beer, wine and distilled spirits. The TCDTR also provides that the temporary increase in the Black Lung Disability Trust Fund tax won’t apply to coal sales after 2021 (instead of after 2020). And the end of the liability imposed because of the Oil Spill Liability Trust Fund Rate is deferred until after 2025. Additionally, the alternative fuels credit against the diesel and special motor fuels tax is extended.

I will be pleased to hear from you at any time with questions about the above news or any other matters.

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