Selecting your business successor is a fundamental objective when planning your exit strategy and requires a careful assessment of what you want from the sale of your business and who can best give it to you.
There are only four ways to leave your business and the more you understand about each one, the better the chance is that you will leave your business on your terms and under the conditions you want. With that in mind, here’s what you need to know about each option:
It’s always a good idea to plan for what to do in case of a disaster. Here are some simple steps you can take right now to prepare:
1. Backup Records Electronically. Many people receive bank statements by email. This is a good way to secure your records. You can also scan tax records and insurance policies onto an electronic format. You can use an external hard drive, CD, or DVD to store important records. Be sure you back up your files and keep them in a safe place. If a disaster strikes your home, it may also affect a wide area. If that happens you may not be able to retrieve your records.
2. Document Valuables. Take photos or videos of the contents of your home or business. These visual records can help you prove the value of your lost items. They may help with insurance claims or casualty loss deductions on your tax return. You should store them with a friend or relative who lives out of the area. The IRS has a disaster loss workbook, Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property), which can help taxpayers compile a room-by-room list of belongings.
3. Update Emergency Plans. Review your emergency plans every year. Personal and business situations change over time as do preparedness needs, so update them when your situation changes. Make sure you have a way to get severe weather information and have a plan for what to do if threatening weather approaches. In addition, when employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.
4. Get Copies of Tax Returns or Transcripts. Use Form 4506, Request for Copy of Tax Return, to replace lost or destroyed tax returns or need information from your return. You can also file Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return. If you need assistance filling this form out, please call.
5. Check on Fiduciary Bonds. Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
If you fall victim to a disaster, help is just a phone call away. Don’t hesitate to call the office regarding any disaster-related tax questions or issues you might have.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
If you discover a mistake on your tax return after you’ve already filed, don’t panic. In most cases, all you have to do is file an amended tax return. Here’s what you need to know:
Starting in tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation to report any payment of $600 or more to a payee. There is a new form that only applies to business taxpayers who pay or receive nonemployee compensation.
Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, however, the due date is February 1, 2021. Be advised that there is no automatic 30-day extension to file Form 1099-NEC although an extension to file may be available under certain hardship conditions.
Nonemployee compensation may be subject to backup withholding if a payee has not provided a taxpayer identification number to the payer or the IRS notifies the payer that the taxpayer identification number provided was incorrect.
Backup withholding refers to situations when the person or business paying the taxpayer doesn’t generally withhold taxes from certain payments. It applies to most kinds of payments reported on Forms 1099 and W-2G. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. This is known as backup withholding.
A taxpayer identification number (TIN) can be one of the following numbers:
If you have questions on nonemployee compensation, contact the office for more information:
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
Temporary administrative relief has been issued that helps certain retirement plan participants or beneficiaries who need to make participant elections by allowing flexibility for remote signatures. Generally, signatures of the individual making the election must be witnessed by a notary public or in the presence of a plan representative. This includes a spousal consent as well.
Plan participants, beneficiaries, and administrators of qualified retirement plans and other tax-favored retirement arrangements have now been granted temporary relief from the physical presence requirement for any participant election that is:
The guidance was issued as a result of local shutdowns and social distancing practices due to COVID-19 and is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, as permitted by the CARES Act. The relief is in effects for the period from January 1, 2020, through December 31, 2020. During this period, a plan participant or beneficiary may use an electronic system facilitating remote notarization if executed via live audio-video technology to satisfy the requirements of participant elections.
In the case of a participant election witnessed by a plan representative, the individual may use an electronic system using live audio-video technology if the following requirements are satisfied:
Don’t hesitate to contact the office if you have questions about this or need additional information regarding tax relief for those affected by the COVID-19 pandemic:
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
In most cases, gains from sales are taxable. But did you know that if you sell your home, you may not have to pay taxes? Here are ten facts to keep in mind if you sell your home this year.
1. Exclusion of Gain. You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.
2. Exceptions May Apply. There are exceptions to the ownership, use, and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more information about these exceptions, please call the office.
3. Exclusion Limit. The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
4. May Not Need to Report Sale. If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
5. When You Must Report the Sale. You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds from Real Estate Transactions. If you report the sale, you may need to pay the Net Investment Income Tax. Please call the office for assistance on this topic.
6. Exclusion Frequency Limit. Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.
7. Only a Main Home Qualifies. If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
8. First-time Homebuyer Credit. If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, please call.
9. Home Sold at a Loss. If you sell your main home at a loss, you can’t deduct the loss on your tax return.
10. Report Your Address Change. After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. You can find the address to send it to in the form’s instructions on page two. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.
Questions? Help is just a phone call away:
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
Our firm takes great pride in its employees for stepping up to the plate during a challenging time. This quarter we would like to recognize all the team players who hit it out of the park, despite the curve balls. Please take a moment to appreciate our Employees of the Quarter:
Michael D. Montgomery, Senior Support Specialist
Natalie N. Nguyen, Staff Accountant
Susan S. Conners, Senior Tax Specialist
Vanessa S. Mun, Senior Tax Manager
Yesica Morales, Senior Accountant
We’re looking forward to another home run this fall!
California Board of Accountancy released the following statement on Monday, August 24.
California continues to battle two of the largest fires in the state’s history, and nearly 600 new fires have been caused by dry lightning strikes in the last week. Yesterday, a Presidential Major Disaster Declaration was approved for seven Northern California counties, triggering the availability of federal relief.
Governor Gavin Newsom yesterday announced that the White House has approved California”s request for a Presidential Major Disaster Declaration to bolster the state”s emergency response to wildfires burning in Northern California and to support impacted residents in Lake, Napa, San Mateo, Santa Cruz, Solano, Sonoma and Yolo Counties.
A Presidential Major Disaster Declaration helps people in those counties through eligibility for support including crisis counseling, housing and unemployment assistance and legal services.
People who have sustained losses in the designated areas can now begin applying for assistance by registering with the Federal Emergency Management Agency (FEMA) online at https://www.disasterassistance.gov or by calling 800-621-FEMA (3362) or 800-462-7585 TTY. FEMA is encouraging people to register online whenever possible.
When registering, you will be asked for information, including:
*Note: You must provide an email address if you want to review your registration status online. If you do not provide an email address, you will be required to contact FEMA for any updates to your registration.
The Small Business Administration (SBA) opened the forgiveness portal for its Paycheck Protection Program (PPP) loans this past week, however we are recommending that recipients of the PPP loans don’t rush to get the application filed. We are making this recommendation because the SBA is continuing to issue guidance in the form of frequently asked questions, with the most recent updates issued on August 11, 2020. We are expecting to see additional changes in the coming weeks and months as lawmakers continue to debate the next COVID-19 relief bill. Some of the changes being debated are simplifying the forgiveness application with the possibility of self-certification under $150k as well as potentially making the expenses covered by the PPP loan funds deductible for tax purposes. The IRS has previously stated that the loan forgiveness will be tax-free, however businesses are not currently able to deduct the covered expenses.
As difficult as it may be to wait, the safest move for now is to see how lawmakers proceed before taking a chance on applying for forgiveness. In the meantime, we recommend gathering the supporting documentation on covered expenses and calculating when full forgiveness will be achieved. This will ensure that you are ready when the timing is right. It is important to note that loan forgiveness applications are due 10 months after the covered period has ended.
Please reach out to us if you have any questions or would like us to assist you in gathering the supporting documentation and calculating loan forgiveness.
By Evan Benevento
Did you know that farmers have different and more generous estimated tax requirements than most other taxpayers? A typical taxpayer may be required to pay estimated taxes on a quarterly basis, in four equal installments throughout the year on April 15th, June 15th, September 15th, and January 15th of the following year. For qualified farmers, income can be highly seasonal and unpredictable leading to irregular quarterly tax payments under the traditional rules. If you are a qualified farmer, you may be eligible to take advantage of more favorable estimated tax rules such as delaying quarterly payments.
A qualified farmer is an individual in the current year that has at least two-thirds of his or her gross income from farming in both the current AND prior year. For example, a qualified farmer for 2020 will have 66% of his or her gross income from farming in both 2019 and 2020. If this is the first year with a qualified farming activity, then the taxpayer does not need to include the prior year.
All taxpayers can avoid penalties for underpayment of estimated tax by abiding by one of the two “safe harbors” for estimated tax payments. The first is the “prior year safe harbor” method where you are not penalized so long as you pay 100% of your prior-year tax liability (110% if AGI is over $150k) in quarterly estimated tax installments throughout the year. The second method is the “current year safe harbor” which applies so as long as you pay in at least 90% of your actual tax liability for the current year.
For a traditional business owner with steady/predictable income, making quarterly estimates at either of the two safe harbor amounts is relatively straightforward. However, qualified farmers can choose to pay no estimated taxes throughout the year as long as they file their complete income tax return and pay all tax due by March 1st of the following year. Alternatively, if the taxpayer knows that he or she won’t be able to file and pay by March 1st, they can make one estimated tax payment by January 15th of the following year which is also known as the “required annual payment”. This payment is the smaller of 66% (2/3) of your total current year tax, or 100% of the total tax listed on your prior year return. Under either method available to farmers, the result is deferral of most estimated taxes due for the entire calendar year and into the following year.
Farmers typically have unpredictable and seasonal income that make paying traditional quarterly estimated taxes a cash-flow burden that can be difficult to calculate. By utilizing one of the alternatives covered in this article, a qualified farmer is able to preserve cash flow in lean periods and reduce the risk of underpayment penalties.
Please reach out if you have more questions or would like more information on the estimated tax rules for qualified farmers. We’re here to help! Please call 831-726-8500 or email@wheelercpa.com.
