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.

Generally, taxpayers must begin taking a required minimum distribution (RMD) from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA when they reach age 72 (70 1/2 if they reached 70 ½ before January 1, 2020). The RMD for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table” and is the minimum amount you must withdraw from your account each year.

The CARES Act, however, allowed taxpayers with an RMD due in 2020, to skip any RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020.

This waiver does not apply to defined-benefit plans.

If you’ve already taken out a required minimum distribution (RMD) this year (2020) from a retirement account you now have the opportunity to roll those funds back into a retirement account, thanks to the CARES Act RMD waiver for 2020. Furthermore, the 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity.

This repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

As always, don’t hesitate to call the office with any questions.

We are happy to announce the arrival of partner, Jaclyn Skull’s newest family member!

Dominic Anthony Biancucci was born 10:28 PM Monday, June 8th at a height of 21.8 inches and weighing eight pounds, one ounce. Dominic is Jaclyn’s third child, and sports a blonde head of hair to match his two older brothers.

Congratulations to Jaclyn and her family!

 

Temporary changes to Section 125 cafeteria plans due to the coronavirus pandemic allow flexibility for taxpayers participating in cafeteria plans. These changes include extending the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.

Specifically, these temporary changes for taxpayers include:

• extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those same qualified benefits through December 31, 2020.
• expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic.
• applying earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020.

Furthermore, temporary relief for high deductible health plans may be applied retroactively to January 1, 2020 and the $500 permitted carryover amount for health FSAs increases to $550. This amount is adjusted annually for inflation.

Please contact the office if you have any questions.

When you sell a capital asset such as a home, household furnishings, and stocks and bonds held in a personal account, the difference between the amount you paid for the asset and its sales price is known as a capital gain or capital loss. Here are ten facts you should know about how gains and losses can affect your federal income tax return.

1. Capital Assets. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset including property such as your home or car, as well as investment property, such as stocks and bonds.

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