The Internal Revenue Service has announced tax relief and extensions of filing deadlines due to disasters and storms for Tennessee, Alabama, Kentucky, Louisiana, Oklahoma, Texas and Mississippi.
For details and specific dates click here.
Erroneous IRS Refund Checks
It has been brought to our attention the IRS is issuing refund checks related to quarterly payroll tax returns in error to clients. These are resulting from the failure of the IRS systems to correctly apply payments into the proper quarters.
In the event you receive a refund from the IRS, please contact our office BEFORE you deposit the check into your bank account. Once the check is deposited or cashed, if the refund is in error, you may be subject to penalty and interest in the event where the funds must be repaid to the IRS.
If you have any questions, please contact us.
PPP Extended- Act Fast or Miss Out
The PPP Extension Act of 2021 makes Paycheck Protection Program (PPP) monies available until the earlier of May 31, 2021 or when the money runs out. So if you are looking for first or second draw PPP money, get to work on that now. Don’t wait until the last minute.
Make sure your application is correct. The Small Business Administration (SBA) has rejected piles of applications because of incorrect filing.
Form 1040, Schedule C Businesses
We have very good news for Schedule C businesses. With first- or second-draw PPP monies, you can now use your gross income rather than your net income to obtain your PPP money.
Example. Sally has $90,000 of gross income on line 7 and only $10,000 of net income on line 31 of her Schedule C. She can use the $90,000 in her PPP application, and that will give her nine times more PPP money than line 31.
Schedule C businesses include folks who receive 1099s, single-member LLCs, and sole proprietors.
To find how much PPP money you qualify for as a Schedule C taxpayer, follow the three steps below:
From either your 2019 or 2020 IRS Form 1040, Schedule C, use line 7(gross income) but if this amount is over $100,000 reduce it to $100,000.
2. Divide the amount in #1 by 12 to find your average monthly gross profit.
3. Multipy the result in #2 above by 2.5 to find your PPP money amount. ( It cannot exceed $20,833)
Example. Sally has $90,000 of gross income on her 2019 Schedule C. Because she has not filed her 2020 tax return yet and does not wish to estimate, Sally opts to use her 2019 gross income. She qualifies for $19,750 in tax-free PPP money ($90,000 ÷ 12 x 2.5).
If Sally had or has a PPP loan, she may qualify for a second loan, identical to the first, as explained in Round 2: Additional Tax-Free PPP Money for You? And if Sally received less than $20,833 based on her net income, with Round 2 she can use her gross income to increase the PPP monies.
If you, as a self-employed individual, are going to use gross income, use the following (new) SBA forms:
For first-draw PPP monies based on gross income, use SBA Form 2483-C.4
For second-draw PPP monies based on gross income, use SBA Form 2483-SD-C.5
If you, as a self-employed individual, are going to use net income, use the following forms:
For first-draw PPP monies based on net income, use SBA Form 2483.6
For second-draw PPP monies based on net income, use SBA Form 2483-SD-C.7
Corporations, Partnerships, Farms, and Ranches
The new rules make no changes in how corporations, partnerships, and farms and ranches calculate the loan amounts. We last wrote about these entities in February. For your convenience, we repeat those rules here so you have all entities and their first-draw current rules in one place.
Form 1040, Schedule F Businesses
If you file your farm or ranch business on Schedule F of your Form 1040, calculate your PPP cash infusion money using the following three-step formula:
Step 1. Find your 2019 or 2020 IRS Form 1040 Schedule F line 9 gross income. If this amount is over $100,000, reduce it to $100,000. If this amount is zero or less, you are not eligible for a PPP loan.·
Step 2. Divide the amount from Step 1 by 12 to find your average monthly gross income.
Step 3. Multiply the average monthly gross income amount from Step 2 by 2.5.
Example. Your 2019 Schedule F gross income is $130,000. You reduce it to $100,000 and divide by 12 to find your average monthly gross income of $8,333. You then multiply the $8,333 average monthly gross income by 2.5 to find your PPP cash infusion amount of $20,833.
Partnership with No Employees
Individual partners do not qualify for the PPP monies. The PPP first draw for partnerships with no employees is at the partnership level and follows the three-step process below:
Step 1. Add the net earnings from self-employment of the individual general partners in 2019 or 2020,as reported on IRS Form 1065 K-1 (box 14, code A), reduced by Section 179 expense deductions claimed (box 12), unreimbursed partnership expenses claimed, and depletion claimed on oil and gas properties,and multiplied by 0.9235. If the result exceeds $100,000 for any partner, reduce the result to $100,000 for that partner.
Step 2. Divide the amount from Step 1 by 12.
Step 3. Multiply the amount in Step 2 by 2.5 to find your PPP cash infusion amount.
Example. Your partnership has three partners. The average annual net earnings from Step 1 totaled $246,000, and no individual partner had more than $100,000 in average annual net earnings. The average monthly amount is $20,500 ($246,000 ÷ 12). The PPP cash infusion amount for this partnership is $51,250 ($20,500 x 2.5).
S Corporation with Owner-Employee Only
The one-person S corporation with the owner as the solo employee computes its first-draw PPP infusion of monies as follows:
Step 1. Select either 2019 or 2020, and take the sum of the gross wages paid to the owner-employee from box 1 of the W-2. If the wage exceeds $100,000, reduce it to $100,000.
Step 2. Add to the result in Step 1 any retirement contributions (line 17 of the 1120-S) and any state and local taxes assessed to the employer on employee compensation, primarily state unemployment insurance tax.
Step 3. Divide the amount from Step 1 by 12.
Step 4. Multiply the amount in Step 2 by 2.5 to find your PPP cash infusion amount.
Note on health insurance. Unlike the C corporation example below, the health insurance for the S corporation owner employee is included in the owner’s W-2, box 1. With a higher-income W-2, this can create a lower PPP cash infusion when compared with the C corporation owner-employee.
Planning point. Most S corporation owner-employees strive for a low salary so they can save on payroll taxes. That strategy can hurt the dollar amount of the PPP cash infusion for the S corporation owner-employee.
Example. Willie operates his one-person business as an S corporation. The corporation generates a $70,000 profit, but Willie takes no salary. His PPP cash infusion is zero.
C Corporation with Owner-Employee Only
The one-person C corporation with the owner as the solo employee computes its first-draw PPP infusion of monies based on its selection of 2019 or 2020, and follows the five steps described below:
Step 1. Find the gross wages paid to the owner-employee from box 1 of the W-2. If the wage exceeds $100,000, reduce it to $100,000.
Step 2. Add to the result in Step 1 any retirement contributions (line 23 of the Form 1120) and any state and local taxes assessed to the employer on employee compensation, primarily state unemployment insurance tax.
Step 3. Add to Step 2 the employer-paid health, life, disability, vision, and dental insurance contributions.
Step 4. Total the amounts from Step 3 and divide by 12.
Step 5. Multiply the amount in Step 4 by 2.5 to find your PPP cash infusion amount.
Example. You operate your business as a C corporation. You are the only employee. The corporation pays you $100,000 in wages, contributes $25,000 to your retirement plan, pays your health insurance benefits of $18,000, and pays $350 in state unemployment insurance. Your PPP cash infusion is $29,865 ($143,350 ÷ 12 x 2.5).
Let’s Add Employees
The rules that apply to the PPP cash infusion with respect to employees are the same for businesses that report on Schedule C, Schedule F, Form 1065 (partnerships), Form 1120-S (S corporations), and Form 1120 (C corporations).
Here are the nine steps you need to follow as set forth by the SBA:
Step 1. Use IRS Form 941, and tally the taxable Medicare wages for each of the four quarters.
Step 2. Add any pre-tax employee contributions for health insurance or other fringe benefits that are excluded from taxable Medicare wages.
Step 3. Total Steps 1 and 2 for each employee, and limit those amounts to no more than $100,000.
Step 4. Add to the Step 3 total the employer contributions for employee group health, life, disability, vision, and dental insurance. (Note: HRA plans such as QSEHRAs, ICHRAs, and 105 HRA plans qualify as payroll additions for obtaining PPP funds.)
Step 5. Add to the Step 4 total the employer contributions to employee retirement plans.
Step 6. Add to the Step 5 running total the employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax.
Step 7. Using the grand total that you now have in Step 6, calculate the average monthly payroll costs by dividing the total by 12.
Step 8. Multiply the average monthly payroll costs by 2.5, and you have the employee portion of the PPP cash infusion.
Step 9. Add the results from Step 8 to the result you get for the owner or owners, and you have the total PPP cash infusion amount.
Takeaways
If you qualify for the first-draw PPP money, complete your application now. The money is going to run out fast—and once it’s gone, so is the PPP. Legislatively, the new round for the PPP ends on May 31. The clock ticks, so don’t procrastinate!!
You qualify for the PPP if any of the following are true:
You file your taxes on Schedule C of your tax return. Businesses that file on Schedule C include independent contractors (often called “1099 folks”), single-member LLCs, proprietorships, and statutory employees, such as life insurance salespeople.
You file your taxes on Schedule F (ranchers and farmers).
You are a general partner in a partnership, but the partnership asks for and receives the money based on your and the other partners’ combined self-employment incomes, as adjusted.
You operate as an S corporation.
You operate as a C corporation.
You are the only worker in the business.
You have employees whom you pay on a W-2.
If you qualify, you want the PPP. It’s a much-needed, tax-free cash infusion. It’s called a loan, but it’s not. You have to repay loans. The PPP does not have to be repaid—it’s forgiven.
Plus, expenses paid with this forgiven PPP loan are tax-deductible.
Additional Extended Tax Deadlines....
The IRS announced this week that the deadline to make contributions to IRA’s and Health Savings Accounts has been extended to May 17, 2021. To read the entire article click here.
There has NOT been an extension for Estimated Tax Payments. April 15 is still the deadline for the first estimated payment for the Tax Year 2021.
The State of Tennessee has followed suit by extending Single Member LLC Franchise and Excise tax due date to May 17, 2021. For more information click here.
What if you miss the cutoff date????
Nothing major really. The cutoff date is our deadline for information to be brought or sent into our office. The date for the 2020 tax filing year was March 26. For information that is brought or sent into our office by or before this date, we ensure that the return will be completed and electronically filed by the tax deadline.
We work diligently to complete as many returns as possible before the tax deadline and generally complete many that are received after the cutoff date. For those that are not finished before the deadline, we will file for an extension of time. This is why we work on returns in the order they were received.
We invite you to read “What is the status of my tax return” to get an overview of our process.
What is the status of my tax return........
With the latest stimulus bill there were several tax laws that were passed in the last week or two retroactively to 2020 and impacted returns. We slowed on completing returns so that our tax software could be properly updated to keep our clients from having to deal with amending returns and possibly slowing the issuance of refunds.
We receive numerous calls daily asking what is the status of my tax return. The answer is complex and simple at the same time as each persons return goes through many stages before actually being filed with the IRS.
Information comes into our office via email, mail or physically being brought in.
Files are pulled, information placed into the file and this is logged into a spreadsheet indicating when it was received. This is important because we work on each return in the order that it comes into our office.
Information is checked, entered into spreadsheets and totaled if needed.
Tax information is scanned into our secure system so that it is accessible if and when it is needed in the future. We advise clients to keep these records for at least 7 years.
Returns go into Royce’s office for him to complete using the most up to date tax software and his years of experience to ensure that each client receives the most benefit from their individual deductions. (Fun fact- Royce completes each and every tax return)
Completed returns are moved to our finishing area where individual letters are written, labels and covers are made.
Returns are reviewed to ensure accuracy and are assembled. All information that is brought is placed in an envelope to be returned to the client. (These should be kept in a safe, accessible place in case they are needed for reference or audit)
Assembled returns are once again reviewed.
Clients are called or emailed letting them know that their return is complete and ready for signature. (We must have signed pages prior to any return being transmitted)
Returns are electronically transmitted to the IRS and any state agency that is required. Some returns do still have to be sent in the mail, but these are the exception.
Notification is received stating that the return is either accepted or rejected. (Rejected returns are reviewed once again to determine why they have been rejected, then are transmitted again after any necessary changes are made)
Accepted returns are placed back in there respective file cabinets until the next tax year.
When you receive the next (3rd) Stimulus payment..........
…….email the date received and amount to our office and we will put it in your file for the 2021 tax year (insert happy face here)!!! It is as easy as click here.
2020 Tax Deadline Extended/cutoff date stays the same......
The cutoff date to bring tax information to our office will remain at Friday, March 26.
Below are excerpts taken directly from the IRS website regarding the deadline extension for the 2020 tax filing year. To read the entire article you can follow this link.
“The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS will be providing formal guidance in the coming days.
This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn't subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.”
Deadlines are approaching.......
Just to remind everyone-the cut off date for information to be received is Friday, March 26.
Information that is brought on or before this date ensures that your tax return will be complete, ready for signature and transmitted by the April 15 deadline.
Returns are placed in the order in which information is received.
Important Reminder: Amounts for ALL stimulus checks that you received should be included with your information. These amounts must be reported on your return or it could cause your return to be rejected. (This amount is not taxable but must be reported)
To find the amounts you received:·
Go through your bank statements- generally these were received in early 2020 and between December 2020 & January 2021. We must know amounts for both of these payments to ensure your tax return is not rejected causing delays and possible additional fees.·
Go to irs.gov/payments/view-your-tax-account. You will click on Create or View Your Account then either log into your existing account or create an account. For security you will be asked questions that only you should be able to answer.
·Call the IRS-The IRS IMPACT PAYMENT PHONE NUMBER is 800-919-9835. You will be able to speak to a live representative about your stimulus check.
How do I find the amounts I received as Stimulus Payments??????
That is a really good question and one that we get numerous times daily now.
Go through your bank statements- generally these were received in early 2020 and between December 2020 & January 2021. We must know amounts for both of these payments to ensure your tax return is not rejected causing delays and possible additional fees.
Go to irs.gov/payments/view-your-tax-account. You will click on Create or View Your Account then either log into your existing account or create an account. For security you will be asked questions that only you should be able to answer.
Call the IRS-The IRS IMPACT PAYMENT PHONE NUMBER is 800-919-9835. You will be able to speak to a live representative about your stimulus check.