President Enacts Additional Stimulus Legislation

 On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA2021), which includes $892 billion in coronavirus stimulus spending. This long-awaited and highly contested piece of legislation ties coronavirus relief funding into a $1.4 trillion resolution for funding the federal government through September of next year. The nearly $900 billion in stimulus funds comprises a variety of measures, including a renewal of enhanced unemployment benefits, an extension of the Paycheck Protection Program, and another round of individual stimulus payments. Read on for a breakdown of the various COVID-19 stimulus measures included in CAA2021. 

INDIVIDUAL MEASURES

Unemployment Benefits

Portion of the stimulus package: $120 billion An extension of federal unemployment supplemental benefits through March 14, 2021 at a rate of $300 per week.  Additionally, it legislates an extension of two pandemic unemployment programs set to expire at the end of December, the Pandemic Unemployment Assistance program, which has been expanded to provide aid to self-employed, temporary, and gig workers, and the Pandemic Emergency Unemployment Compensation Program, which provides an additional 13 weeks of benefits beyond the typical 26 weeks that states provide to jobless workers. 

Extension of Eviction Moratorium & Rental Assistance

Portion of the stimulus package: $25 billion A temporary extension of the federal eviction moratorium through January 31, 2021 and $25 billion in emergency rental assistance. 

Economic Impact Payments

Portion of the stimulus package: $166 billion Direct payments of $600 for qualifying adults and their child dependents. Individuals earning up to $75,000 annually (or married couples making up to $150,000) qualify for the full payment; individuals earning between $75,000 and $99,000 qualify for a reduced payment; individuals earning more than $99,000 do not qualify. 

Food Aid

Portion of the stimulus package: $13 billion Additional funding for the Supplemental Nutrition Assistance Program and a benefits increase of 15% to last for six months. 

BUSINESS MEASURES

Paycheck Protection Program Extension (PPP2)

Portion of the stimulus package: $284 billion CAA2021 provides an additional round of funding for the PPP and expands eligibility to include nonprofits (Sec. 501(c)(6)), local newspapers, TV stations, and radio stations. Additionally, it ensures the tax deductibility of business expenses paid with loan funds that are forgiven, a measure that has been widely called for by loan recipients and the American Institute of Certified Public Accountants (AICPA). For further details on PPP2, click here to read a helpful summary from the Journal of Accountancy

Support for Entertainment Venues

Portion of the stimulus package: $15 billion Funds for struggling live venues, independent movie theaters, and cultural institutions. 

Support for Business in Low-income Communities

Portion of the stimulus package: $12 billion Funds earmarked for businesses in low-income and minority communities.

Economic Injury Disaster Loan Grants

Portion of the stimulus package: $20 billion Additional funds to be administered through the Economic Injury Disaster Loan (EIDL) program, dedicated to businesses in low-income communities. 

Support for Child Care Centers

Portion of the stimulus package: $10 billion Aid money to help child care centers safely reopen and to support families with child care costs. The money is to be administered via the Child Care Development Block Grant. 

Aid to Transportation Sector

Portion of the stimulus package: $45 billion A variety of transportation-related assistance that includes $16 billion for airlines (for paying the salaries of workers and contractors), $14 billion for mass transit agencies, $10 billion for highways, and $1 billion for Amtrak. 

ADDITIONAL MEASURES

Support for Education Institutions

Portion of the stimulus package: $82 billion This money is designated to help schools and universities reopen. The funds are earmarked as follows: $54 billion for public K-12 schools, $23 billion for colleges and universities, $4 billion for the Governors Emergency Education Relief Fund, $2.75 billion for private K-12 education, and nearly $1 billion for Native American schools. 

Funding for Vaccine Distribution and Coronavirus Testing

Portion of the stimulus package: $68 billion CAA2021 includes money for both supporting the distribution of coronavirus vaccinations and for helping to pay for costs associated with COVID-19 testing. $30 billion is directed for the procurement of vaccines and treatments, the funding of distribution for states, and the creation of a strategic stockpile. $22 billion is earmarked for testing, tracing, and mitigation. Of the remaining funds, $9 billion will go to healthcare providers and $4.5 is earmarked for mental health. 

Increased Broadband Access

Portion of the stimulus package: $7 billion Funding for broadband initiatives to support better connectivity and infrastructure. $3.2 billion is earmarked for the Emergency Broadband Benefit, which provides low-income families and individuals laid off or furloughed due to the pandemic with a monthly stipend of $50 to pay for internet services. $1.9 billion is dedicated to financing “rip and replace” projects—the removal and replacement of Huawei and ZTE networking equipment. $1 billion will go to Tribal broadband programs and $300 billion is dedicated to rural broadband deployment. 

Farm Aid

Portion of the stimulus package: $13 billion Funding for farmers and ranchers.

Postal Service

Portion of the stimulus package: $10 billion CAA2021 includes the forgiveness of a $10 billion loan made to the United States Postal Service earlier this year. 

WHAT’S NOT INCLUDED

A number of provisions that were initially included in proposed coronavirus stimulus legislation were, ultimately, left out of the bill. These include protection for businesses against liability regarding COVID-19 exposure, financial aid to state and local governments, and an extension of federal student loan forbearance. 

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Important Tax Due Dates – December 2020

December 2020 Individual Due Dates

December 1 - Time for Year-End Tax Planning

December is the month to take final actions that can affect your tax result for 2020. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2020 should call for a tax planning consultation appointment.

December 10 - Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

December 31 - Last Day to Make Mandatory IRA Withdrawals

Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2020. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

December 31 - Last Day to Pay Deductible Expenses for 2020

Last day to pay deductible expenses for the 2020 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2020). 

December 31 -  Caution! Last Day of the Year

If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

December 2020 Business Due Dates

December 1 - Employers

During December, ask employees whose withholding allowances will be different in 2021 to fill out a new Form W4 or Form W4(SP).

December 15 - Social Security, Medicare and Withheld Income Tax

If the monthly deposit rule applies, deposit the tax for payments in November.

December 15 - Nonpayroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in November.

December 15 - Corporations

The fourth installment of estimated tax for 2020 calendar year corporations is due.

December 31 - Last Day to Set Up a Keogh Account for 2020

If you are self-employed, December 31 is the last day to set up a Keogh Retirement Account if you plan to make a 2020 Contribution. If the institution where you plan to set up the account will not be open for business on the 31st, you will need to establish the plan before the 31st. Note: there are other options such as SEP plans that can be set up after the close of the year. Please call the office to discuss your options.

December 31 - Caution! Last Day of the Year

If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

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In the Firm - December 2020

What's new at Seim Johnson?

With tax season finally behind us, we move into the holiday and end of the year season. 2020 will certainly be a year to remember. Check out what our team has been up to since our last newsletter.
 
Additions to the Family
Two of our team members recently welcomed new additions to the family!
 
Larissa Brown, tax manager, and her husband Zach welcomed baby Harper.
 
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Katie Prest, consulting associate, and her husband Lachlan welcomed baby Robert.
 
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Congratulations Jessica Watts
Jessica Watts has been nominated to Director for the Nebraska Society of CPA’s. Read more here.
 
Community Efforts
Thank you to all our employees who participated in this year's United Way campaign. The firm raised nearly $11,000 through employee donations for the 2020-21 year. We're proud that our contributions will assist the United Way of the Midlands help our local community and make Omaha and Nebraska an even better place to work and live.
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SBA Questioning PPP Borrowers with Loans Over $2 Million

When Congress initially authorized the Paycheck Protection Program, its intent was to provide loans that would be partially or completely forgiven if used for the intended purposes of helping businesses affected by COVID-19 stay afloat and to help those businesses maintain payroll. As part of the Small Business Administration’s (SBA’s) loan application, Form 2483 or lender’s equivalent form, borrowers had to certify under penalty of imprisonment and monetary penalties to the following:

  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant. 
  • The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud. 

Needless to say, the contemplation of free money had businesses scrambling to take out PPP loans, whether they were impacted by economic effects of COVID-19 or not.

The secretary of the treasury had initially indicated the need for all PPP loans to be audited, but later specified only those of $2 million or more would be subject to audit.

After a long wait, and as long anticipated, the SBA has initiated a compliance program to evaluate the good-faith certifications that borrowers made on their PPP Borrower Applications stating that economic uncertainty made the loan requests necessary. Accordingly, each borrower that, together with its affiliates, received PPP loans with an original principal amount of $2 million or greater will be required to participate in this compliance program, and will soon be receiving one of the following multi-page forms from their lender:

Sometimes referred to as a “loan necessity questionnaire,” the form and requested supporting documents must be submitted to the lender servicing the borrower’s PPP loan. The completed form is due to the lender within ten business days of receipt. Among other things, the forms request:

  • Whether the borrower’s business was shut down as a result of a government order. 
  • Whether any of the business’s owners were compensated in excess of $250,000. 
  • The borrower’s liquidity before and after receipt of the loan funds and during the covered period.
  • The business’s gross revenue amounts for 2019 and 2020. 

The SBA says it is reviewing these loans to maximize program integrity and protect taxpayer resources. The information collected will be used to inform SBA’s review of each borrower’s good-faith certification that economic uncertainty made their loan request necessary to support ongoing operations. Receipt of this form does not mean that SBA is challenging that certification. After this form is submitted, SBA may request additional information, if necessary, to complete the review. The SBA’s determination will be based on the totality of the borrower’s circumstances.

Failure to complete the form and provide the required supporting documents may result in SBA’s determination that the borrower is ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and SBA may seek repayment of the loan or pursue other available remedies.

If you have any questions related to this issue or need assistance completing the form and assembling supporting documentation, please give our office a call.

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Preparing for 2021: Tax Planning Strategies for Small Business Owners

If you are a small business owner, every penny of your income counts. This means that you not only want to optimize your revenue, but also minimize your expenses and your tax liability. Unfortunately, far too many entrepreneurs are not well-versed on the tricks and tools available to them and end up paying far more than they need to. You don’t need an accounting degree to take advantage of tax-cutting tips. Here are a few of our favorites.

THINK ABOUT CHANGING TO A DIFFERENT TYPE OF TAX STRUCTURE

When you started your business, one of the first decisions you needed to make was whether you wanted to operate as a sole proprietor, partnership, LLC, S corporation or C corporation. But as more time goes by, the initial reasons for structuring your business the way that you did may no longer be applicable, or in your best interest from a tax perspective. There is no requirement that you stick with the business structure you initially chose.

Ever since the Tax Cuts and Jobs Act of 2017 (TCJA) changed the highest corporate income tax rate from 35% to 21%, sole proprietorships, LLCs, partnerships and S corporations can realize significant tax savings by electing to be taxed as a C corporation. This simple change can make sense if the owner of these pass-through businesses is taxed at a high tax bracket. If so, all you need to do is fill out and file Form 8832. Before doing so, make sure that the tax savings you can realize are a reasonable tradeoff for the other reasons that you may have originally selected the structure you are currently in.

PASS THROUGH BUSINESSES CAN GET A 20% TAX BREAK

One of the most impactful changes that the TCJA made for pass-through businesses whose income is passed through for taxation as their owners’ personal income is a valuable tax break known as the qualified business income (QBI) deduction. For those that are eligible, this deduction is worth a maximum 20% tax break on the income they receive from the business – but determining whether or not you are eligible can be a challenge.

There are several restrictions on taking advantage of the deduction, particularly with reference to specified service trade or businesses (SSTBs) whose owners either earn too much income or rely specifically on their employees’ or owners’ reputation or skill. Though architecture and engineering firms escape this limitation, other business models – including medical practices, law firms, professional athletes and performing artists, financial advisors, investment managers, consulting firms and accountants – fall into the category that lose out on the deduction if their income is too high. In 2020 single business owners of SSTBs began phasing out at $163,300 and are excluded once their income exceeds $213,300, while those who are married filing a joint return phase out at $326,600 and are excluded at $426,600. To calculate the deduction, use Part II of Form 8995-A.

Businesses that are not SSTBs are eligible to take the deduction even when they pass the upper limits of the thresholds, but only for either half of the business owners’ share of the W-2 wages paid by the business or a quarter of those wages plus 2.5% of their share of qualified property.

These limitations and specifications for what type of business is and is not eligible are head-spinning, and though it is tempting to simply take the deduction, it’s a good idea to confirm whether you qualify and how to claim it with our office before moving forward.

KNOW HOW YOU’RE GOING TO PAY YOUR TAXES

It is incredibly rewarding to live the dream of owning your own small business, but the hard work required to generate revenue makes paying taxes extra painful. This is especially true because of the “pay as you go” tax system that the United States uses, which asks business owners to make quarterly estimated payments. While employees pay their taxes ahead via payroll deductions withheld by their employers, there is no such automatic system set up for small business owners, and that leaves many with the temptation of delaying making payments in order to maintain liquidity.

Unfortunately, failing to pay taxes quarterly can put you in the uncomfortable position of still having to pay at one point, with the additional burden of penalties and interest as a result of your delay. Though setting aside the money to pay taxes requires discipline, doing so will save you from the penalties charged by the IRS, which are calculated based on the amount you should have paid each quarter multiplied by both your shortfall and the effective interest rate during the specific quarter (established as 3 percent over the federal short-term rate – C corporations pay a different rate). Even if you don’t calculate your quarterly estimated rates correctly, the safe harbor rule allows small businesses to pay the lower amount of either 90% of the tax due on your current year return or 100% of the tax shown on your last filed tax return. For those whose AGI was over $150,000 in the previous tax year, the safe harbor percentage is 110% of the previous year’s taxes.

While it is always a good idea to increase the amount you send in if you are having a higher-income year, by doing a simple calculation of your safe harbor number and dividing it by four, you have a reasonable quarterly payment that you can safely send in on the due dates (April 15th, June 15th, September 15th and January 15th of the following year). By setting aside the appropriate percentage that you will owe from each payment you receive, you can easily set aside the money you will need to pay and entirely avoid concerns about penalties or interest. Payment is most easily submitted using the online link for IRS Direct Pay, though many people opt for sending in the paper vouchers for IRS Form 1040-ES, along with a check. There is also an EFTPS system available for C Corporations’ use.

CHOOSE YOUR ACCOUNTING METHOD CAREFULLY

Each small business owner calculates their income and revenue differently, with many using a method of accounting that is based on when money is received rather than when an order is placed and counts expenses when they are paid rather than the item or service ordered. This is known as the cash method of accounting.

Whatever method of accounting you use, smart business owners can strategically adjust their approach, reporting their annual income based on cash receipts in order to reduce their end-of-year revenues, especially if there is reason to believe that next year’s income will be lower or, for some other reason, they anticipate being in a lower tax bracket.

An example of how this approach would be helpful can be seen in the case of a business that expects to add new employees in the new year. Between that expense and other improvements planned, it makes sense to anticipate that net income will be down and the tax bracket for the business will be lower, so any work done or orders placed towards the end of the current tax year should be accounted for when payments arrive so that the income can be taxed at a lower rate. The contrast to this is if you are anticipating your business revenue increasing and being forced into a higher tax bracket in the new year: in that case it makes sense to try to collect monies for work done in the current year early, so that you can take advantage of your current, lower tax rate. The same can be done for business expenses such as office supplies and equipment, which can be deferred and accelerated in the same way so that you can take advantage of tax deductions in the way that is most advantageous.

ESTABLISH AND MAKE DEPOSITS INTO A 401K OR SEP

One of the smartest ways to lower your taxable income is to contribute to a retirement account. Not only does doing so lower your business’ tax liability, but also ensures a more secure future. As a small business owner, either a 401(K) plan or a Simplified Employee Pension (SEP) plan will do the trick while benefiting both you and those who work for you in the future.

While a 401(k) that is established prior to year-end will let you deduct any contributions you make (with contributions limited to the lower of $57,000 or the employee’s total compensation), business owners who fail to set up this type of plan by December 31st can still turn to the SEP as an alternative. Though SEP contributions are restricted to 25% of the business owner’s net profit less the SEP contribution itself (technically 20%), a SEP can be established, and contributions made up until the extended due date of your return. If you obtain an extension for filing your tax return, you have until the end of that extension period to deposit the contribution, regardless of when you actually file the return.

IF YOU TOOK OUT A PPP LOAN, PLAN ON IT BEING FORGIVEN

Many small businesses took advantage of the PPP loans that were offered by the government in the face of the COVID-19 crisis. While these loans were attractive because they are forgivable and gave businesses a chance to survive the dire circumstances, in April of 2020 the IRS issued Notice 2020-32, which indicated that despite the fact that the forgivable loans can be excluded from gross income, the expenses associated with the moneys received cannot be deducted. This effectively erases the tax benefit initially offered because losing the employee and expense deduction increases the business’ income and profitability.

There is some chance that this issue will be resolved by Congress, as it clearly contradicts the original intent of the tax benefit that accompanied the PPP funds, but that action has not yet been taken. It’s a good idea to talk to our office about this as soon as possible, as having to pay taxes on expenses incurred may be particularly challenging in the face of the difficulties the pandemic has imposed. Being financially prepared to pay more taxes than you originally intended may be a bitter pill to swallow but will still be better than having to pay penalties and interest if you fail to pay what the government says that you owe.

Though all of these strategies can be helpful, they may not all be appropriate for your situation. Keep them in mind as you go into the end of the year and be prepared to ask questions to determine which apply to you when you speak with our office. Contact us to discuss tax planning for your business today.

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