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Employee Retention Tax Credit

COVID-19 Relief Law Turbocharged Employee Retention Tax Credit

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

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

But now the game has changed. Did you know? You may, as a PPP recipient, qualify to take the employee retention credit retroactively for the tax year 2020 quarters and also going forward in the tax year 2021. Your Tax Accountant in Maryland can help you claim these. Don’t have a good Accounting Firm In Columbia, MD to help you? Worry not, Sigma is here to help.

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

  • PPP loan recipients can retroactively claim the 2020 employee retention credit for wages not paid with forgiven PPP loan proceeds. Looking for help with tax preparation in Maryland to claim these credits effectively? Contact Sigma today!
  • Wages paid from March 13, 2020, through December 31, 2020, qualify for the retroactive credit. A Columbia Maryland CPA can help you avail these credits.
  • Wages paid from January 1, 2021, through June 30, 2021, can qualify for the more significant 2021 credit. Ask your Accountants In Maryland to claim these for you. We can help you too.
  • For 2021 quarters only, you qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter with the corresponding quarter in 2019. Don’t know which option would be suitable? Allow Sigma, Tax Accountant Columbia MD to help.
  • For 2021 quarters only, the relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

Employee Retention Credit 101

The CARES Act gives you, if you are eligible, a refundable tax credit against the employer portion of the Social Security tax equal to 50 per cent of wages paid to your employees on or after March 13, 2020, through December 31, 2020. Claim this credit with the help of a professional CPA Firm In Columbia, MD.

You are eligible for this credit if

  • A government order fully or partially suspended your operations during a calendar quarter due to COVID-19 (you have a high likelihood that you suffered this problem)
  • Your gross receipts for a calendar quarter are less than 50 per cent of gross receipts from the same quarter in the tax year 2019, in which case your credit ends in the quarter when gross receipts exceed 80 per cent of gross receipts from the same quarter in the prior year. Sounds confusing? Allow us at Sigma, Accountants In Maryland to simplify it.

Your qualifying wages for the credit depend on the size of your business:

  • If you had more than 100 full-time employees in 2019, then you can take credit for wages paid to your employees when they are not providing services due to either the suspension or decreased business.
  • If you had 100 or fewer full-time employees in 2019, then all your employee wages qualify for the credit during the period of the suspension order or if you are using the gross receipts test, for the entire quarter.

The maximum creditable wage amount is $10,000 per employee for all calendar quarters in the tax year 2020. The definition of wages includes the value of the health benefits you pay on your employee’s behalf.

Does tax preparation and accounting take up your valuable time? Allow a reliable Accounting Firm In Maryland like Sigma to help. Contact us today to avail our premier accounting and bookkeeping services.

Law Before the Holiday Gift

Businesses that selected the PPP option could not claim the employee retention credit. A responsible Columbia Maryland CPA would have helped you choose the best option for your business.

Holiday Gift—Retroactive Changes

In the new COVID-19 relief law enacted on December 27, 2020, lawmakers made two changes retroactive to March 13, 2020:

  1. PPP loan recipients can use the employee retention credit for wages not paid with forgiven PPP loan proceeds.
  2. Group health plan expenses are now considered qualified wages even if your business paid no other wages to the employee (this codified the IRS’s position all along).

Since the change is retroactive as if it were in the CARES Act, you may have unclaimed employee retention credit amounts all the way back to the first quarter of 2020. To claim those missed credits, you will need to amend your payroll tax returns using IRS Form 941-X. A good Accountant In Maryland like Sigma will help you amend your returns quickly and affordably.

IRS troubles? If you have unpaid payroll tax bills from prior quarters, your amended returns could reduce penalty and interest charges on those quarters, granting you even more cash. Don’t let this opportunity slip from your hand. Contact our Accounting Firm today.

The tax Year 2021 Changes

First, and most important, Congress extended the employee retention credit to wages paid through June 30, 2021.

For the two quarters in 2021, Congress increased the credit amount and made it easier for employers to claim the credit with the following changes:

  • The credit rate increases from 50 per cent to 70 per cent of qualified wages.
  • The maximum creditable wage amount increases to $10,000 per employee per quarter (versus per year).
  • You qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of
  • gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter to the corresponding quarter in 2019.
  • The relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

There is one new wrinkle: an employer cannot receive advance payments of the employee retention credit unless the employer has 500 or fewer employees. Need help optimizing your deductions for your medical or dental practice? Contact Sigma, the best CPA For Doctors in Maryland

Important note. The changes listed in this section apply to the 2021 quarters only.

Takeaways – Employee Retention Tax Credit Summary

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

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

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

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

  • PPP loan recipients can retroactively claim the 2020 employee retention credit for wages not paid with forgiven PPP loan proceeds.
  • Wages paid from March 13, 2020, through December 31, 2020, qualify for the retroactive credit.
  • Wages paid from January 1, 2021, through June 30, 2021, qualify for the more significant 2021 credit.
  • For 2021 quarters only, you qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter with the corresponding quarter in 2019.
  • For 2021 quarters only, the relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

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

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PPP1 Alert: New Shot for Your Tax-Free Cash

PPP1 Alert: New Shot for Your Tax-Free Cash

Did you miss out on the first two opportunities to receive your tax-free Paycheck Protection Program (PPP) cash because you didn’t have a reliable accounting firm in Columbia, MD?

  • Many did miss out.
  • Why, you ask?
  • One of the primary reasons – the word “loan.”
  • Who wants a loan? No one! Well, almost no one.
  • But who wants a cash gift, tax-free?

If you too want it, read on for the details. But first, you should know that the big picture works like this:

  1. You obtain your PPP tax-free monies from a lender with the help of a CPA firm In Columbia MD (it’s called a “loan,” but watch that word disappear as you read this blog).
  2. You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies); and other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection. Need a Tax Accountant in Columbia MD, to help you with the classification of expenses? we’re just a call away
  3. Apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 percent or more of the money on payroll (and yourself if you are self-employed or a partner in a partnership).
  4. Deduct the expenses you paid with the PPP loan monies forgiven.

New Money on the Table

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

New Deadline

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

The monies available in this new round of PPP funding are on a first-come, first-served basis. Don’t procrastinate. Get your application for your first-time PPP monies in place now. Our accounting and tax preparation firm in Columbia, MD can help you.

Your accountants In Maryland can help you prepare and claim the monies on payroll (including pay to you, if that applies); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.

You or your Tax Accountant apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 percent or more of the money on payroll (yourself if you are self-employed or a partner in a partnership).

First-Draw Rules

  • The first piece of good news is that the new, favorable PPP rules in the recent stimulus law apply as if they were in the CARES Act enacted a little more than nine months ago, on March 27, 2020.
  • The second piece of good news is that numerous changes made by the Small Business Administration that affect the loan application and forgiveness process have been clarified during the past nine months.
  • The third piece of good news is that the lenders have a better idea of what they are doing, so you can spend less time applying for your free PPP money.
  • The fourth piece of good news? Our Columbia Maryland CPA firm can and will help you from start to end. Contact us today

What’s the Limit on My Cash Infusion?

You have a $10 million limit on your initial PPP loan. For most small businesses, that’s not likely to come into play. If it does, you’ll need an excellent accounting Firm In Columbia, MD, to back you.

In general, the real limit is 2.5 times your business’s defined or deemed 2019 payroll. The deemed payroll for a proprietorship is based on the owner’s Schedule C net profit, on line 31 of the 2019 Schedule C. For partners, it is based on a more complicated calculation of 2019 self-employed income, as adjusted. Need help understanding the limits? Give our CPA In Columbia MD, a chance to help.

As of January 14, 2021, in the IFR issued on January 6. The treasury exercised its authority under section 1109 of the CARES Act to allow borrowers of first draw PPP loans to use 2019 or 2020 to calculate their maximum loan amount.

Example. Susan has a 2019 defined payroll for PPP purposes of $1,200,000, or $100,000 a month. She operates a dental practice. Her PPP cash infusion is $250,000 ($100,000 x 2.5).

Make sure to check the links above for your specific limits, as they vary for C corporations, S-corporations, proprietorships, and partnerships. We at Sigma would love to take the burden off your shoulder. Contact our Accounting Firm In Columbia, MD, for fantastic service.

What Do I Have to Spend the Money On?

Under the new rules, you pick a spending period between eight weeks from the origination date of the loan and 24 weeks from that date.

To achieve 100 percent forgiveness, you must use 60 percent or more of the monies for defined payroll during this period. A Tax Accountant in Columbia MD like Sigma can help you achieve 100 forgiveness.

Example. You obtain $100,000 in first-draw PPP monies. You spend the entire $100,000 during the 11 weeks immediately following the date you received the loan—$65,000 for payroll and $35,000 for other covered expenses. You qualify for 100 percent forgiveness.

In addition to payroll, covered expenses include the following:

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

What If I Spend Less Than 60 Percent on Payroll?

Let’s say you obtain a $100,000 loan but use only $48,000 (48 percent) for payroll. The PPP rules limit your total loan forgiveness to $80,000 ($48,000 ÷ 60 percent). That’s still a great deal.

Takeaways

Keep the big picture in view. It works like this:

  1. You obtain your PPP tax-free monies from a lender.
  2. You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies because you operate as a corporation); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.
  3. You apply for loan forgiveness, and you achieve 100 percent loan forgiveness when you spend 60 percent or more of the money on payroll (including pay to yourself if you are self-employed or a partner in a partnership).
  4. You deduct the expenses that you paid with the PPP loan monies that were forgiven.
  5. You will not find a better deal than the PPP. If you are eligible for initial PPP monies, get your application in place now.

You will not find a better deal than the PPP. If you are eligible for the intimal PPP monies, get your application in place now with the help of a leading tax and small business accountant like Sigma. Contact us today.

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Tax Free PPP Money

Round 2: Additional Tax-Free PPP Money for You?

Did you receive money from a lender under the existing Paycheck Protection Program (PPP)? If so, you may qualify for more tax-free money. Wondering how you can claim it? allow our Accounting Firm In Columbia, MD to help.

First, let’s clarify what’s happening. When you think of the PPP program, what do you think?  “tax-free money” or “loan”? Allow me, a Tax Accountant Maryland to help.

Think “tax-free money.” That’s exactly what it is. Easy, right?

Sure, it comes in the form of a loan, and you could be under the impression that you have to pay it back—but you don’t. You just have to use 60 percent or more of it for defined or deemed payroll. Need a Small Business Accountant Columbia MD to help with it? Feel free to get in touch.

Okay, that’s good news part 1. – Read More – New PPP Forgiveness Rules for Past, Current, and New PPP Money

Now on to good news part 2. The expenses you pay with the forgiven PPP monies are tax-deductible.

It’s the perfect deal. Take advantage of it if you can today, allow an expert CPA In Columbia MD to help.

How Do You Qualify for the New Second-Draw PPP Money?

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

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

Example. John had $1 million in quarterly revenue during the 2019 third quarter. In 2020, John’s third quarter showed revenue of $700,000. John meets the “25 percent or greater loss in revenue” test.

For the business that did not operate during all of 2019, alternate tests are available, such as comparing the fourth quarter of 2019 to the first, second, or third quarter of 2020.

All these calculations can get complicated if you don’t have a reliable Business And Tax Accountant by your side. Allow my CPA Firm In Maryland to help you figure it out.

How Much Can You Get?

The mechanics of the second-draw PPP loan amount follow the basic rules that apply to the original (first-draw) PPP loan, with some modifications such as the following:

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

Confused? Allow me to help. Sigma accountants are the best Tax Accountant in Columbia MD.

What Can You Use the Money For?

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

Example. Wendy obtains $100,000 in second-draw PPP monies. She spent the entire $100,000 during the nine weeks following the date she received the loan, and of that, $65,000 was for payroll. She spent the remaining $35,000 on other covered expenses. Wendy qualifies for 100 percent loan forgiveness.

Still not sure? As a qualified Small Business Accountant in Columbia MD, I help businesses, like yours manage your accounts and organize your books properly. Let me help you, contact sigma today.

Other Covered Expenses

To obtain 100 percent forgiveness, you must spend all the PPP money on covered expenses and at least 60 percent of that on defined and/or deemed payroll.

In addition to payroll, covered expenses include the following:

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

Example. Janet obtains a $100,000 loan but uses only $48,000 (48 percent) for payroll. The PPP rules limit Janet’s total loan forgiveness to $80,000 ($48,000 ÷ 60 percent).

If you claim all the expenses, you will need help from a professional Tax Preparation consultant from Columbia MD. I’m a Tax Accountant that can help you.

Expenses Are Deductible

Before the recent stimulus, the IRS took the position that expenses paid with PPP loan monies that were forgiven were not tax-deductible. Some lawmakers disagreed, but the IRS held firm and told those lawmakers that if they didn’t like the IRS position, they should change the law. So they did.

Now, thanks to the new law, expenses paid with PPP loan monies that are forgiven are tax-deductible. An experienced Business And Tax Accountant can help you prepare your taxes appropriately and claim all the deductions applicable to your business.

Act Fast

If you qualify for the 2nd round of PPP money  and want the tax-free money from PPP Round 2, don’t procrastinate. When the allocated monies are gone, the funding is over. Claim the money today with the help of a Columbia Maryland CPA.

Takeaways

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

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

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

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

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

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

Expenses that can qualify for forgiveness include:

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

And finally, keep these three thoughts in mind:

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

You will not find a better bargain. You will not find a better Small Business Accountant in Columbia MD either. We have only a few open spots. Act fast and get in touch with us now.

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International Taxation

New Laws – COVID-19 Related Government Grants: Taxable or Not?

Billions of dollars in grants are being doled out to individuals and businesses in the wake of the COVID-19 pandemic. Have you availed these grants? allow a Small Business Accountant from Columbia MD to help you. The recently enacted second stimulus bill has increased these grants, including $25 billion in rental assistance for individuals, a new round of Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) advances, and new grants for shuttered entertainment venues such as movie theaters.

The good news is that, unlike loans such as SBA EIDLs, these grants don’t have to be paid back.

The bad news is that federal, state, and local grants may be taxable income to the grantee.

Seems complicated? Allow me, Business And Tax Accountant, to help you simplify things and save money.

General Rule Of Taxation: All Grants Are Income

All income, from whatever source derived, is taxable income unless the tax law provides an exception.

Since a government grant is income, it is taxable unless otherwise provided by law. A Tax Accountant in Columbia MD can help you plan and prepare your taxes according to the recently changed rules.

COVID-19-Related Grants to Individuals

Fortunately, the general rule that grants are taxable does not apply to COVID-19-related grants to individuals. The general welfare exclusion allows individual taxpayers to exclude from their taxable income payments made by government units in connection with a qualified disaster. These include payments for necessary personal, family, or living expenses—or, more broadly, payments to promote the general welfare.

The COVID-19 pandemic is a qualified disaster, so federal, state, and local government grants to individuals for COVID-19-related expenses are tax-free. This would include, for example, the $25 billion in new rental assistance authorized by the recent enactment of the new stimulus bill that was signed into law by the president on December 27, 2020. If you’re not sure how you can benefit from these grants, get in touch one with of the many Accounting Firms In Columbia, MD like Sigma Accountants

COVID-Related Grants to Businesses

Payments to businesses do not qualify under the general welfare exclusion because they are not based on individual or family need.  Thus, COVID-19-related government grants to businesses are taxable income unless Congress acts to specifically exempt them from tax. A Small Business Accountant from Columbia MD can help you reduce your tax liability by maintaining your books correctly.

For example, the CARES Act established the Coronavirus Relief Fund, which gave $150 billion to state and local governments to (among other things) establish grant programs to help businesses impacted by the COVID-19 pandemic.  The IRS has made clear that these state and local grants to businesses are taxable income.

State and local grants to businesses funded outside the CARES Act are also taxable income to the businesses.

But Congress has acted to make a few types of COVID-19-related government grants tax-free, as described below.

A good accountant In Maryland can help you save money on your taxes and take the maximum benefit of these government grants. Get in touch for a free consultation today.

EIDL Emergency Advances Are Tax-Free

When Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it made low-interest EIDLs available to businesses in all 50 states. Congress also established a new EIDL emergency advance program that gave EIDL applicants loan advances of $1,000 per employee, up to $10,000. Although they’re called “advances,” these payments are actually grants—they need not be paid back.

Applicants received the EIDL advance whether or not they went ahead and completed the process to obtain an EIDL loan. Unfortunately, due to funding issues, not all eligible businesses were paid the full $10,000 advance to which they were entitled. The EIDL advance program ended July 11 when the funding ran out.

Were you able to claim this advance grant? A Tax Accountant Columbia MD could have helped you claim them on time. If you were able to claim the grant, you will need professional Tax Preparation help from a Columbia MD based accountant. We’re here to serve you.

$20 Billion in New EIDL Advance Money Targeted to Businesses in Low-Income Areas

The new COVID-19 stimulus bill signed into law on December 27, 2020, provides $20 billion for EIDL advance grants of $10,000 for small businesses that

  • were in operation by January 31, 2020, with fewer than 300 employees;
  • were directly affected by COVID-19;
  • are located in low-income communities (census tracts with a 20 percent poverty rate or 80 percent of the statewide median income); and
  • have suffered a decline in gross receipts greater than 30 percent during an eight-week period between March 2, 2020, and December 31, 2021, relative to a comparable eight-week period immediately preceding March 2, 2020, or during 2019 (as far back as January 1, 2019).

In addition, the new law directs the SBA to create a process for those businesses described above that are existing EIDL advance grantees and received less than $10,000 to reapply for the difference between what they received and what they should have been paid.

Not sure if your business qualifies? I’m a CPA In Columbia MD that can help you simplify accounting and bookkeeping. Please get in touch today

No Offset of PPP for EIDL Advance – Refunds Coming

If you receive an EIDL advance and also a PPP loan, the CARES Act requires the lender to deduct the advance from your PPP forgiveness, effectively denying you any benefit from the advance.

The new stimulus law repeals that requirement retroactively. For insights, see New PPP Forgiveness Rules for Past, Current, and New PPP Money.

EIDL Advances Are Not Taxable; Expenses Paid Are Deductible

Most important, the new stimulus law provides that the EIDL advances are not taxable income. And otherwise deductible business expenses paid with EIDL advances are tax-deductible. A good Tax Accountant in Maryland like Sigma can help you claim proper deductions.

Grants for Shuttered Venue Operators Are Tax-Free

The new stimulus law also gives $15 billion to the SBA to make grants to live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theater operators, and talent representatives who demonstrate a 25 percent reduction in revenues due to the pandemic.

The SBA may make an initial grant of up to $10 million and a supplemental grant of up to 50 percent of the initial grant. The grants must be used for expenses such as payroll costs, rent, utilities, and personal protective equipment.

As with EIDL advances, these grants are tax-free, and expenses paid with the grants are tax-deductible.

We’re a leading Business And Tax Accountant in Columbia MD that helps shuttered venues claim benefits and deductions as per the law. Feel free to contact us for advice or help.

Key Takeaways

Here are eight things to know from this article:

  1. Government grants are taxable income to the recipient unless the tax law makes an

exception.

  1. COVID-19-related grants to individuals are tax-free under the general welfare exclusion.
  2. COVID-19-related grants to businesses do not qualify as tax-free under the general welfare exclusion and are generally taxable, including state and local grants made under the CARES Act Coronavirus Relief Fund.
  3. EIDL advances are not taxable, and expenses paid with such advances are tax-deductible.
  4. Business in low-income areas that received EIDL advances of less than $10,000 will be able to apply for an increase in the prior advance to the $10,000 level.
  5. The new law sets $20 billion for EIDL advances for businesses located in low-income areas.
  6. EIDL advances will not offset PPP forgiveness, and any such prior offsets will be refunded
  7. SBA grants to shuttered venue operators are tax-free, and expenses paid with the monies are tax-deductible.

We hope we were able to clarify things for you. Our Accounting Firm In Columbia, MD is a specialised CPA For Doctors from Maryland. We help Small businesses, individuals and medical practitioners reach their financial goals.

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New PPP Forgiveness Rules for Past, Current, and New PPP Money

Small businesses rejoice! Sigma accountants, Small Business Accountants in Columbia MD come bearing Good news.

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

Before we go further, please note the PPP money comes to you in what appears to be a loan. We say “appears” because you typically pay back a loan. If you are a doctor or a medical practitioner that’s looking for help with accounting and taxation please allow Sigma Accountants, CPA For Doctors in Maryland, to help.

Done right, however, the PPP loan is 100 percent forgiven. The word “loan” makes some businesses leery of this arrangement. Don’t be. The PPP monetary arrangement is a true “have your cake and eat it too” deal but only if you have a professional and qualified Tax Accountant in Maryland to guide you.

And this remarkable deal applies to your past PPP loan, the PPP loan you have outstanding, and the PPP loan you are about to get if you have not had one before.  Allow our Accounting Firm in Columbia, MD to provide you  the details.

Loan Proceeds Are Not Taxable

The COVID-related Tax Relief Act of 2020 reiterates that your PPP loan forgiveness amount is not taxable income to you. Do you need help with Tax Preparation in Columbia MD? We’re here to assist.

Expenses Paid with Forgiven Loan Money Are Tax-Deductible

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

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

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

In plain English, the expenses paid with monies from a forgiven PPP loan are now tax-deductible, and this change goes back to March 27, 2020, the date the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted.

A Columbia Maryland CPA can help you claim all the deductions and take the maximum benefit during the Tax Preparation season in Columbia MD. I’m a Small Business Accountant in Columbia MD that has helped many small businesses, individuals, medical practitioners and dentists get dental accounting services, tax preparation and bookkeeping services in Maryland.

Key Takeaways

The PPP loan that’s forgiven is not a loan. It’s tax-free money.

To have all or part of the loan forgiven, you had to spend the money on covered expenses. Under the new law, and retroactive to the inception of the original law, you can deduct the expenses that you pay with forgiven PPP monies.

The new law changes the treatment of EIDL advances that reduced the amount of your PPP loan forgiveness. First, for new loans, there is no reduction in forgiveness for the EIDL advance. Second, for prior loans that were forgiven and that suffered a reduction in forgiveness, the SBA is working on instructions that will tell the lenders to refund the EIDL advance money.

(If you are due one of the upcoming refunds, set up a receivable for this money so you don’t forget about it. If you need help with it, feel free to get in touch with our Accounting Firm In Maryland)

The new law adds four new categories of expenses that qualify as covered expenses for forgiveness:

  1. Operating expenditures
  2. Property damage costs
  3. Supplier costs
  4. Worker protection expenditures

But remember that to achieve 100 percent forgiveness, you must spend at least 60 percent of the loan on covered payroll costs. With 24 weeks at your disposal, you likely can spend the entire loan on payroll and not consider the other categories at all.

There’s much more to this, of course. If you would like a Tax Accountant’s help for your PPP loan or simply wish like to talk about other accounting and bookkeeping needs, please set up an appointment with a Business And Tax Accountant at: https://sigmataxes.acuityscheduling.com/schedule.php

Why Work With A Professional Accounting Firm In Columbia, MD?

There are many benefits of working with a skilled Small Business Accountant from Columbia MD. Some of the major ones are –

  1. Reliable and Dependable Service
  2. Skillful Mentorship
  3. Customized And Personalized Offerings
  4. Tax Saving
  5. 24×7 Availability Of Records And Documents

Sigma is the best CPA For Doctors in Maryland as well as small businesses in Columbia,MD. Learn more about Sigma Accountant and what sets us apart. Book your free consultation now

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If the SBA Made Loan Payments on Your Behalf, Are You Taxed?

Are you one of the millions of businesses that have an outstanding non-disaster Small Business Administration (SBA) loan? These include:

  • 7(a) loans: general small business loans of up to $5 million,
  • 504 loans: loans of up to $5.5 million to provide financing for major fixed assets such as equipment or real estate, and
  • microloans: short-term loans of up to $50,000 for small businesses.

If so, you have already benefited, or soon will benefit, from a little-known provision included in the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Congress appropriated $17 billion so that the SBA could provide a temporary loan payment subsidy to businesses with these non-disaster SBA loans. Under this provision, the SBA automatically makes six monthly loan payments on behalf of borrowers. There is no need to file an application.

Are the SBA loan subsidies taxable income to you?

Unfortunately, the CARES Act is silent on this subject and the IRS has yet to issue any guidance on this particular loan subsidy program. In the past, the IRS advised that similar loan payments were includible in income by the taxpayer-borrower.

It’s unclear whether the IRS will follow this prior guidance.

The IRS could instead conclude that these loan subsidies are not taxable under the general welfare exclusion. The general welfare exclusion has often been used to exempt from tax SBA disaster payments made to individual taxpayers. The exclusion ordinarily does not apply to payments to business. But the IRS could make an exception due to the extraordinary nature of the COVID-19 pandemic.

It’s also possible that Congress will act to make the SBA loan payments tax-free. This could be done in a future stimulus bill.

Right now, the prudent course is to assume that the SBA loan subsidies are taxable income and plan accordingly.

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2020 Last-Minute 20% qualified business income deduction for dental and medical practices

Remember to consider your Section 199A deduction in your year-end tax planning.

If you don’t, you could end up with a big fat $0 for your deduction amount. We’ll review three year-end moves that (a) reduce your income taxes and (b) boost your Section 199A deduction at the same time.

First Things First

If your taxable income is above $163,300 (or $326,600 on a joint return), then your type of business, wages paid, and property can reduce and/or eliminate your Section 199A tax deduction.

If your deduction amount is less than 20 percent of your qualified business income (QBI), then consider using one or more of the strategies described below to increase your Section 199A deduction.

Strategy 1: Harvest Capital Losses

Capital gains add to your taxable income, which is the income that

  • determines your eligibility for the Section 199A tax deduction,
  • sets the upper limit (ceiling) on the amount of your Section 199A tax deduction, and
  • establishes when you need wages and or property to obtain your maximum deductions.

If the capital gains are hurting your Section 199A deduction, you have time before the end of the year to harvest capital losses to offset those harmful gains.

Strategy 2: Make Charitable Contributions

Since the Section 199A deduction uses taxable income for its thresholds, you can use itemized deductions to reduce and/or eliminate threshold problems and increase your Section 199A deduction.

Charitable contribution deductions are the easiest way to increase your itemized deductions before the end of the year (assuming you already itemize).

Strategy 3: Buy Business Assets

Thanks to 100 percent bonus depreciation and Section 179 expensing, you can write off the entire cost of most assets you buy and place in service before December 31, 2020.

This can help your Section 199A deduction in two ways:

  1. The big asset purchase and write-off can reduce your taxable income and increase your Section 199A deduction when it can get your taxable income under the threshold.
  2. The big asset purchase and write-off can contribute to an increased Section 199A deduction if your Section 199A deduction currently uses the calculation that includes the 2.5 percent of unadjusted basis in your business’s qualified property. In this scenario, your asset purchases increase your qualified property, which in turn increases the deduction you already depend on.

Takeaways

If your taxable income is over $163,300 (or $326,600 on a joint return), you could face a reduced or eliminated Section 199A deduction.

In such cases, consider using one or more of the three strategies described in this article to reduce your taxable income and increase your Section 199A deduction. The three strategies are:

  • Harvest capital losses if you have capital gain income that’s causing the trouble.
  • Make charitable contributions to increase your itemized deductions and reduce your taxable income—and consider donating appreciated long-term-gain stock to come out even better.
  • Buy and place in service before midnight on December 31, 2020, business assets that you can expense 100 percent to lower your taxable income. (This also lowers your QBI, but if you need it to gain the Section 199 deduction, it’s a good strategy..)
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5 Things to Know About Employing Your Spouse in your Medical Practice

If you own your own business and operate as a proprietorship or partnership (wherein your spouse is not a partner), one of the smartest tax moves you can make is hiring your spouse to work as your employee.

But the tax savings may be a mirage if you don’t pay your spouse the right way. And the arrangement is subject to attack by the IRS if your spouse is not a bona fide employee.

Here are 5 things you should know before you hire your spouse that will maximize your savings and minimize the audit risk.

1. Pay benefits, not wages. The way to save on taxes is to pay your spouse with tax-free employee benefits, not taxable wages. Benefits such as health insurance are fully deductible by you as a business expense, but not taxable income for your spouse.

Also, if you pay a spouse only with tax-free fringe benefits, you need not pay payroll taxes, file employment tax returns, or file a W-2 for your spouse.

2. Establish a medical reimbursement arrangement. The most valuable fringe benefit you can provide your spouse-employee is reimbursement for health insurance and uninsured medical expenses. You can accomplish this through a 105-HRA plan if your spouse is your sole employee, or an Individual Coverage Health Reimbursement Account (ICHRA) if you have multiple employees.

3. Provide benefits in addition to health coverage.There are many other tax-free fringe benefits you can provide your spouse in addition to health insurance, including education related to your business, up to $50,000 of life insurance, and de minimis fringes such as gifts.

4. Treat your spouse as a bona fide employee. For your arrangement to withstand IRS scrutiny, you must be able to prove that your spouse is your bona fide employee. You’ll have no problem if:

  • you are the sole owner of your business,
  • your spouse does real work under your direction and control and keeps a timesheet,
  • you regularly pay your spouse’s medical and other reimbursable expenses from your separate business checking account, and
  • your spouse’s compensation is reasonable for the work performed.

5. Beware of Certain Tax-Free Benefits. Section 127 education plan. The law prohibits Section 127 benefits to your spouse and dependents under the 5 percent ownership test.

Transportation benefits. If you and your spouse work in an outside office, you can provide him or her tax-free transportation benefits—just as you can for any rank and file employee. For 2020, you may pay up to $270 per month for parking near your business premises or for transit passes.

But as a result of the Tax Cuts and Jobs Act, the tax-free transportation benefits to your employees are not deductible by you, the employer.

Because we are talking about your spouse as an employee, the transportation fringe benefit gives no net benefit to you and your spouse (it’s a wash).

Takeaways

Hiring your spouse can result in substantial tax savings, but only if you pay your spouse solely, or mainly, with tax free employee fringe benefits instead of taxable wages. The IRS doesn’t require you to pay your spouse any W-2 wages.

The most valuable fringe benefit you can provide your spouse-employee is reimbursement for health insurance and uninsured medical expenses. You can accomplish this through a 105-HRA plan if your spouse is your sole employee, or through an ICHRA if you have multiple employees.

Tax-free employee fringe benefits are not limited to health benefits—for example, you can provide certain education, life insurance, and working condition fringe benefits.

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7 Last Minute Business Deductions

The purpose of this blog is to get the IRS to owe you money.

Of course, the IRS is not likely to cut you a check for this money (although in the right circumstances, that will happen), but you’ll realize the cash when you pay less in taxes.

Here are seven powerful business tax deduction strategies that you can easily understand and implement before the end of 2020.

1. Prepay Expenses Using the IRS Safe Harbor

1. Prepay Expenses Using the IRS Safe Harbor

You just have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2020 prepayments cannot go into 2022. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.

For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Thursday, December 31, 2020, you mail a rent check for $36,000 to cover all of your 2021 rent. Your landlord does not receive the payment in the mail until Tuesday, January 5, 2021. Here are the results:

  • You deduct $36,000 in 2020 (the year you paid the money).
  • The landlord reports taxable income of $36,000 in 2021 (the year he received the money).

You get what you want—the deduction this year.

The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.

Don’t surprise your landlord: if he had received the $36,000 of rent paid in advance in 2020, he would have had to pay taxes on the rent money in tax year 2020.

2. Stop Billing Customers, Clients, and Patients

Here is one rock-solid, time-tested, easy strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2020. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

Customers, clients, patients, and insurance companies generally don’t pay until billed. Not billing customers and patients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example. Jim Schafback, a dentist, usually bills his patients and the insurance companies at the end of each week; however, in December, he sends no bills. Instead, he gathers up those bills and mails them the first week of January. Presto! He just postponed paying taxes on his December 2020 income by moving that income to 2021.

With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31, and get a deduction for 100 percent of the cost in 2020.

Qualifying bonus depreciation and Section 179 purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).

4. Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.

If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.

But if you operate your business as a corporation and you are the personal owner of the credit card, the corporation must reimburse you if you want the corporation to realize the tax deduction, and that happens on the date of reimbursement. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.

5. Don’t Assume You Are Taking Too Many Deductions

If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL.

If you are just starting your business, you could very possibly have an NOL. You could have a loss year even with an ongoing, successful business.

You used to be able to carry back your NOL two years and get immediate tax refunds from prior years; however, the Tax Cuts and Jobs Act (TCJA) eliminated this provision. Now, you can only carry your NOL forward, and it can only offset up to 80 percent of your taxable income in any one future year.

What does this all mean? You should never stop documenting your deductions, and you should always claim all your rightful deductions. We have spoken with far too many business owners, especially new owners, who don’t claim all their deductions when those deductions would produce a tax loss.

6. Thank COVID-19

Let’s be real: there’s little to be grateful for with COVID-19, with one of the several exceptions being the potential opportunities to turn NOLs into cash for your business.

Two NOL opportunities come from the Coronavirus Aid, Relief, and Economic Security (CARES) Act:

  1. The CARES Act allows NOLs arising in tax years beginning in 2018, 2019, and 2020 to be carried back five years for refunds against prior taxes.
  2. The CARES Act allows application of 100 percent of the NOL to the carryback years.

Before the CARES Act, you could not carry back your 2018, 2019, or 2020 losses, and your NOL could offset only up to 80 percent of taxable income before your Section 199A deduction.

7. Deal with Your Qualified Improvement Property (QIP)

In the CARES Act, Congress finally fixed the qualified improvement property (QIP) error that it made in the TCJA.

QIP is any improvement made by the taxpayer to the interior portion of a building that is non-residential real property (think office buildings, retail stores, and shopping centers) if you place the improvement in service after the date you place the building in service.

If you have such property on an already filed 2018 or 2019 return, it’s on that return as 39-year property. You now have to change it to 15-year property, eligible for both bonus depreciation and Section 179 expensing.

TAKEAWAYS

When it comes to your taxes, business deductions are king. The more business deductions you can claim, the better. The more business deductions you claim, the less you pay in regular taxes.

Yes, paying less in taxes is good.

Here are the seven last-minute tax deduction strategies we covered in this article:

  1. Prepaying your 2020 expenses right now reduces your taxes this year, without question. While it’s true you kicked the can down the road some, perhaps you have an offset with a big deduction planned for next year. And even if you don’t have such a plan at the moment, you have plenty of time to create one or to put additional big deductions in place for 2021.
  2. The easiest year-end strategy of all is simply to stop billing your customers, clients, and patients. Once again, this kicks the can down the road some and makes your 2021 tax planning more important.
  3. With 100 percent bonus depreciation and increased Section 179 expensing in 2020, you can make significant purchases of equipment, machinery, and furniture and write off 100 percent of the value. Make sure you place the assets in service on or before December 31, 2020, to get the deduction this year.
  4. Charges to your credit cards can create deductions on the day of the charge. This is absolutely true if you are a sole proprietor or if you operate as a corporation and the credit card is in the name of the corporation. But if you operate as a corporation and the credit card is in your personal name, your corporation needs to reimburse you before December 31 to create the 2020 deduction at the corporate level.
  5. Make sure to claim all your legitimate deductions. Don’t think you have too many, and don’t try to avoid deductions that you think could be a red flag. First, it’s unlikely you could have enough deductions to create a red flag. Second, no one knows what those red flags are. Third, if the deduction is legitimate, it doesn’t matter if the IRS audits it—you’ll win.
  6. If your deductions exceed your income, you will have a loss for the year and that loss can create an NOL. The good news here is that the NOL can give your business a cash infusion from the taxes you paid five years ago.
  7. If you placed QIP in service in 2018 or 2019, you have some work to do because that QIP is no longer 39-year property; it is 15-year property and requires a 100 percent bonus depreciation deduction if you don’t elect out of bonus depreciation

Sigma Accountant’s blog is intended for educational purposes and provides general information about tax accounting, business related topics. It is not intended to provide professional advice. By using this blog site, you understand that there is no CPA/client relationship between you and Sigma Accountants or its employees. The blog and website, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for competent counsel from a qualified advisor.

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