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:

• Social Security Number (SSN) OR the SSN of a minor child in the household who is a U.S. Citizen, Non-Citizen National or Qualified Alien
• Annual Household Income
• Contact Information (phone number, mailing address, email address*, and damaged home address)
• Insurance Information (coverage, insurance company name, etc.)
• Bank Account Information (if you are eligible to receive financial assistance, the money can be deposited in your account)

*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.

Millions of small businesses received loans under the Small Business Administration (SBA) Paycheck Protection Program (PPP loans), and questions are being raised on how to account for the funds.

In June 2020, the American Institute of Certified Public Accountants (AICPA), along with the Financial Accounting Standards Board (FASB), created a Technical Question and Answer (TQA) document. The document, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program, addresses accounting for nongovernmental entities which includes business entities and non-profit organizations. The TQA explains that an entity accounting for the PPP loan under Topic 470 (Debt) would do the following:

• Initially record the receipt of the PPP loan funds as a financial liability. Entities would accrue interest in accordance with the interest method under ASC Subtopic 835-30 (Imputation of Interest).
• Do not impute additional interest at a market rate.
• Continue to record the PPP loan proceeds as a liability until either:
  • the PPP loan is partly or wholly forgiven and the debtor has been legally released, or,
  • the debtor pays off the loan
• Reduce the liability by the amount forgiven and record a gain on extinguishment of debt once the loan is partly or wholly forgiven and legal release is received.

Additionally, among the questions is whether the PPP loans received by non-profit organizations is subject to the Uniform Guidance single audit requirements. The SBA recently clarified that PPP loans received by non-profit organizations is not subject to the Uniform Guidance single audit requirements. However, the SBA stated that funds received under the Economic Injury Disaster Loan are subject to the Uniform Guidance single audit requirements as the funds are disbursed directly from the SBA and considered federal financial assistance.

According to the Treasury Department, more than 159 million individuals have already received their Economic Impact Payments; however, a recent audit found that the IRS sent $1.4 billion in stimulus checks to deceased individuals. As such, many people may have received a payment for a deceased family member or another taxpayer who is not eligible to receive a payment and may have questions about what to do. Here are some answers:

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As a reminder, employers whose business has been financially impacted by COVID-19 can take advantage of the Employee Retention Credit, a refundable tax credit designed to encourage businesses to keep employees on their payroll. The credit is worth 50 percent of up to $10,000 in wages paid by an employer. Employers that are eligible for the credit for the first and second quarters of 2020, can apply for the credit when they file their second-quarter filing of Form 941, Employer’s Quarterly Federal Tax Return, which is due July 31.

The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses that make small business loans. Qualifying wages are based on the average number of a business’s employees in 2019 and are divided into employers with fewer than 100 employees and employers with more than 100 employees.

When employers report their qualified wages on Form 941, they can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit. Eligible employers also may use the employee retention credit with other relief including payroll tax deferral and can also request an advance of the employee retention credit by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. Please call the office with any questions.

More than 100,000 small businesses have closed due to COVID-19. If yours is one of them, you should be aware that there is more to closing a business than laying off employees, selling office furniture, and closing the doors – you must also take certain actions as required by the IRS to fulfill your tax obligations. For example, if you have employees, you must file final employment tax returns as well as make final federal tax deposits of these taxes.

You must also file an annual tax return for the year you go out of business. You also need to attach a statement to your return listing the name and address of the person that keeps the payroll records (this could be you or another person). If you are disposing of business property, exchanging like-kind property, and/or changing the form of your business, you must file a return to report these actions.

Depending on your type of business structure, you may need to take the some or all of the following steps:

• File final federal tax deposits
• File final quarterly or annual employment tax form (Forms 94x)
• Issue final wage and withholding information to employees (Form W-2, Wage and Tax Statement
• Report information from W-2s issued (Form W-3, Transmittal of Income and Tax Statements)
• File final tip income and allocated tips information return (Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips)
• Report capital gains or losses
• Report partner’s/shareholder’s shares (Schedules K-1)
• File final employee pension/benefit plan
• Issue payment information to sub-contractors (Form 1099-MISC, Miscellaneous Income)
• Report information from 1099s issued Form 1096, Annual Summary and Transmittal of U.S. Information Returns)
• Report corporate dissolution or liquidation
• Consider allowing S corporation election to terminate
• Report business asset sales
• Report the sale or exchange of property used in your trade or business.

If you find yourself in the position of having to close your business, help is just a phone call away.