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2021 Year-End Tax Planning for Businesses

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Posted by BOOSCPA Strategic Tax Services Group Posted on Dec 20 2021

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2021 Year-End Tax Planning for Businesses

As the U.S. entered 2021, many assumed that newly elected President Joe Biden along with Democratic majorities in the House and Senate would swiftly enact tax increases on both corporations and individuals to pay for the cost of proposed new infrastructure and social spending plans, potentially using the budget reconciliation process to do so. Since then, various versions of tax and spending measures have been negotiated and debated by members of Congress and the White House. As 2021 heads to a close, tax increases are still expected, but the timing and content of final changes are still not certain.

On November 5, 2021, the U.S. House of Representatives delayed voting on its version of the Build Back Better Act (H.R. 5376), a package of social spending measures funded by tax increases. The delay allows members more time to review the budget impact of the provisions in the bill. Some of the legislation’s major tax proposals, which mainly target large profitable corporations and high-income individuals, include:

A 1% surtax on corporate stock buybacks.
A 15% country-by-country minimum tax on foreign profits of U.S. corporations.
A 5% surtax on individual incomes over $10 million, an additional 3% surtax on incomes over $25 million and expansion of the 3.8% Net Investment Income Tax.

At the time of writing, the House had not yet voted on the Build Back Better Act. Once the House votes, the legislation will be taken up by the Senate. If enacted in its current form, the legislation would generally be effective for taxable years beginning after December 31, 2021; however, many of the corporate and international proposals affecting businesses would apply for taxable years beginning after December 31, 2022 – i.e., they would be deferred for one year.

The information contained in this article is based on tax proposals as of November 4, 2021 and is subject to change based on final legislation. Businesses should continue to track the latest tax proposals to understand the impacts of possible new legislation, particularly when engaging in tax planning. Despite the delays and uncertainty around exactly what tax changes final legislation will contain, there are actions that businesses can consider taking to minimize their tax liabilities.

Consider tax accounting method changes and strategic tax elections
The 2017 Tax Cuts and Jobs Act (TCJA) lowered the regular corporate tax rate to 21% and eliminated the corporate alternative minimum tax beginning in 2018. The current version of the proposed Build Back Better Act would leave the 21% regular corporate tax rate unchanged but, beginning in 2023, would create a new 15% corporate alternative minimum tax on the adjusted financial statement income of corporations with such income over $1 billion. Companies with adjusted financial statement income over $1 billion, therefore, should take into account the proposed 15% corporate alternative minimum tax when considering 2021 tax planning actions that could affect future years.

Companies that want to reduce their 2021 tax liability should consider traditional tax accounting method changes, tax elections and other actions for 2021 to defer recognizing income to a later taxable year and accelerate tax deductions to an earlier taxable year, including the following:

Changing from the overall accrual to the overall cash method of accounting.
Changing from capitalizing certain prepaid expenses (e.g., insurance premiums, warranty service contracts, taxes, government permits and licenses, software maintenance) to deducting when paid using the “12-month rule.”
Deducting eligible accrued compensation liabilities (such as bonuses and severance payments) that are paid within 2.5 months of year end.
Accelerating deductions of liabilities such as warranty costs, rebates, allowances and product returns under the “recurring item exception.”
Purchasing qualifying property and equipment before the end of 2021 to take advantage of the 100% bonus depreciation provisions and the Section 179 expensing rules.
Deducting “catch-up” depreciation (including bonus depreciation, if applicable) by changing to shorter recovery periods or changing from non-depreciable to depreciable.
Optimizing the amount of uniform capitalization costs capitalized to ending inventory, including changing to simplified methods available under Section 263A.
Electing to fully deduct (rather than capitalize and amortize) qualifying research and experimental (R&E) expenses attributable to new R&E programs or projects that began in 2021. Similar planning may apply to the deductibility of software development costs attributable to new software projects that began in 2021. (Note that capitalization and amortization of R&E expenditures is required beginning in 2022, although the proposed Build Back Better Act would delay the effective date until after 2025).
Electing to write-off 70% of success-based fees paid or incurred in 2021 in connection with certain acquisitive transactions under Rev. Proc. 2011-29.
Electing the de minimis safe harbor to deduct small-dollar expenses for the acquisition or production of property that would otherwise be capitalizable under general rules.

Is “reverse” planning better for your situation?

Depending on their facts and circumstances, some businesses may instead want to accelerate taxable income into 2021 if, for example, they believe tax rates will increase in the near future or they want to optimize usage of NOLs. These businesses may want to consider “reverse” planning strategies, such as:

Selling and leasing back appreciated property before the end of 2021, creating gain that is taxed currently offset by future deductions of lease expense, being careful that the transaction is not recharacterized as a financing transaction.
Accelerating taxable capital gain into 2021.
Electing out of the installment sale method for installment sales closing in 2021.
Delaying payments of liabilities whose deduction is based on when the amount is paid, so that the payment is deductible in 2022 (e.g., paying year-end bonuses after the 2.5-month rule).

Tax accounting method changes – is a Form 3115 required and when?

Some of the opportunities listed above for changing the timing of income recognition and deductions require taxpayers to submit a request to change their method of tax accounting for the particular item of income or expense. Generally, tax accounting method change requests require taxpayers to file a Form 3115, Application for Change in Accounting Method, with the IRS under one of the following two procedures:

The “nonautomatic” change procedure, which applies when a change is not listed as automatic and requires the Form 3115 (including a more robust discussion of the legal authorities than an automatic Form 3115 would include) to be filed with the IRS National Office during the year of change along with an IRS user fee. Calendar year taxpayers that want to make a nonautomatic change for the 2021 taxable year should be cognizant of the accelerated December 31, 2021 due date for filing Form

Only certain changes may be implemented without a Form 3115.

Write-off bad debts and worthless stock

Given the economic challenges brought on by the COVID-19 pandemic, businesses should evaluate whether losses may be claimed on their 2021 returns related to worthless assets such as receivables, property, 80% owned subsidiaries or other investments.

Losses related to worthless, damaged or abandoned property can generate ordinary losses for specific assets.
Businesses should consider claiming losses for investments in insolvent subsidiaries that are at least 80% owned and for certain investments in insolvent entities taxed as partnerships (also see Partnerships and S corporations, below).
Certain losses attributable to COVID-19 may be eligible for an election under Section 165(i) to be claimed on the preceding taxable year’s return, possibly reducing income and tax in the earlier year or creating an NOL that may be carried back to a year with a higher tax rate.

Maximize interest expense deductions
The TCJA significantly expanded Section 163(j) to impose a limitation on business interest expense of many taxpayers, with exceptions for small businesses (those with three-year average annual gross receipts not exceeding $26 million ($27 million for 2022), electing real property trades or businesses, electing farming businesses and certain utilities.

Beginning with 2022 taxable years, taxpayers will no longer be permitted to add back deductions for depreciation, amortization and depletion in arriving at adjusted taxable income (the principal component of the limitation).
The Build Back Better Act proposes to modify the rules with respect to business interest expense paid or incurred by partnerships and S corporations (see Partnerships and S corporations, below).

Maximize tax benefits of NOLs
Net operating losses (NOLs) are valuable assets that can reduce taxes owed during profitable years, thus generating a positive cash flow impact for taxpayers. Businesses should make sure they maximize the tax benefits of their NOLs.

Corporations should monitor their equity movements to avoid a Section 382 ownership change that could limit annual NOL deductions.
Losses of pass-throughs entities must meet certain requirements to be deductible at the partner or S corporation owner level (see Partnerships and S corporations, below).

Defer tax on capital gains
Tax planning for capital gains should consider not only current and future tax rates, but also the potential deferral period, short and long-term cash needs, possible alternative uses of funds and other factors.

Noncorporate shareholders are eligible for exclusion of gain on dispositions of Qualified Small Business Stock (QSBS). The Build Back Better Act would limit the gain exclusion to 50% for sales or exchanges of QSBS occurring after September 13, 2021 for high-income individuals, subject to a binding contract exception. For other sales, businesses should consider potential long-term deferral strategies, including:

Reinvesting proceeds from sales of real property in other “like-kind” real property.
Selling shares of a privately held company to an Employee Stock Ownership Plan.
Businesses engaging in reverse planning strategies (see Is “reverse” planning better for your situation? above) may instead want to move capital gain income into 2021 by accelerating transactions (if feasible) or, for installment sales, electing out of the installment method.

Claim available tax credits
The U.S. offers a variety of tax credits and other incentives to encourage employment and investment, often in targeted industries or areas such as innovation and technology, renewable energy and low-income or distressed communities. Many states and localities also offer tax incentives. Businesses should make sure they are claiming all available tax credits for 2021 and begin exploring new tax credit opportunities for 2022.

Businesses that incur expenses related to qualified research and development (R&D) activities are eligible for the federal R&D credit.
Taxpayers that reinvest capital gains in Qualified Opportunity Zones may be able to defer the federal tax due on the capital gains. An additional 10% gain exclusion also may apply if the investment is made by December 31, 2021. The investment must be made within a certain period after the disposition giving rise to the gain.
The New Markets Tax Credit Program provides federally funded tax credits for approved investments in low-income communities that are made through certified “Community Development Entities.”
Other incentives for employers include the Work Opportunity Tax Credit, the Federal Empowerment Zone Credit, the Indian Employment Credit and credits for paid family and medical leave (FMLA).
There are several federal tax benefits available for investments to promote energy efficiency and sustainability initiatives. In addition, the Build Back Better Act proposes to extend and enhance certain green energy credits as well as introduce a variety of new incentives. The proposals also would introduce the ability for taxpayers to elect cash payments in lieu of certain credits and impose prevailing wage and apprenticeship requirements in the determination of certain credit amounts.

Partnerships and S corporations
The Build Back Better Act contains various tax proposals that would affect partnerships, S corporations and their owners. Planning opportunities and other considerations for these taxpayers include the following:

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income (within certain limitations based on the taxpayer’s taxable income, whether the taxpayer is engaged in a service-type trade or business, the amount of W-2 wages paid by the business and the unadjusted basis of certain property held by the business). Planning opportunities may be available to maximize this deduction.
Certain requirements must be met for losses of pass-through entities to be deductible by a partner or S corporation shareholder. In addition, an individual’s excess business losses are subject to overall limitations. There may be steps that pass-through owners can take before the end of 2021 to maximize their loss deductions. The Build Back Better Act would make the excess business loss limitation permanent (the limitation is currently scheduled to expire for taxable years beginning on or after January 1, 2026) and change the manner in which the carryover of excess business losses may be used in subsequent years.
Under current rules, the abandonment or worthlessness of a partnership interest may generate an ordinary deduction (instead of a capital loss) in cases where no partnership liabilities are allocated to the interest. Under the Build Back Better Act, the abandonment or worthlessness of a partnership interest would generate a capital loss regardless of partnership liability allocations, effective for taxable years beginning after December 31, 2021. Taxpayers should consider an abandonment of a partnership interest in 2021 to be able to claim an ordinary deduction.
Following enactment of the TCJA, deductibility of expenses incurred by investment funds are treated as “investment expenses”—and therefore are limited at the individual investor level— if the fund does not operate an active trade or business (i.e., if the fund’s only activities are investment activities). To avoid the investment expense limitation, consideration should be given as to whether a particular fund’s activities are so closely connected to the operations of its portfolio companies that the fund itself should be viewed as operating an active trade or business.
Under current rules, gains allocated to carried interests in investment funds are treated as long-term capital gains only if the investment property has been held for more than three years. Investment funds should consider holding the property for more than three years prior to sale to qualify for reduced long-term capital gains rates. Although the Build Back Better Act currently does not propose changes to the carried interest rules, an earlier draft of the bill would have extended the current three-year property holding period to five years. Additionally, there are multiple bills in the Senate that, if enacted, would seek to tax all carry allocations at ordinary income rates.
Under the Build Back Better Act, essentially all pass-through income of high-income owners that is not subject to self-employment tax would be subject to the 3.8% Net Investment Income Tax (NIIT). This means that pass-through income and gains on sales of assets allocable to partnership and S corporation owners would incur NIIT, even if the owner actively participates in the business. Additionally, taxpayers that currently utilize a state law limited partnership to avoid self-employment taxes on the distributive shares of active “limited partners” would instead be subject to the 3.8% NIIT. If enacted, this proposal would be effective for taxable years beginning after December 31, 2021. Taxpayers should consider accelerating income and planned dispositions of business assets into 2021 to avoid the possible additional tax.
The Build Back Better Act proposes to modify the rules with respect to business interest expense incurred by partnerships and S corporations effective for taxable years beginning after December 31, 2022. Under the proposed bill, the Section 163(j) limitation with respect to business interest expense would be applied at the partner and S corporation shareholder level. Currently, the business interest expense limitation is applied at the entity level (also see Maximize interest expense deductions, above).
Various states have enacted PTE tax elections that seek a workaround to the federal personal income tax limitation on the deduction of state taxes for individual owners of pass-through entities. See State pass-through entity tax elections, below.

Planning for international operations
The Build Back Better Act proposes substantial changes to the existing U.S. international taxation of non-U.S. income beginning as early as 2022. These changes include, but are not limited to, the following:

Modifying the rules for global intangible low-taxed income (GILTI), including calculating GILTI and the corresponding foreign tax credits (FTCs) on a country-by-country basis, allowing country specific NOL carryforwards for one taxable year and reducing the QBAI reduction to 5%.
Modifying the existing FTC rules for all remaining categories to be calculated on a country-by-country basis.
Modifying the rules for Subpart F, foreign derived intangible income (FDII) and the base erosion anti-abuse tax (BEAT).
Imposing new limits on the applicability of the Section 245A dividends received deduction (DRD) by removing the application of the DRD rules to non-controlled foreign corporations (CFCs).
Modifying the rules under Section 250 to remove the taxable income limitation as well as reduce the GILTI and FDII deductions to 28.5% and 24.8%, respectively.

Businesses with international operations should gain an understanding of the impacts of these proposals on their tax profile by modeling the potential changes and considering opportunities to utilize the favorable aspects of the existing cross-border rules to mitigate the detrimental impacts, including:

Optimizing offshore repatriation and associated offshore treasury aspects while minimizing repatriation costs (e.g., previously taxed earnings and profits and basis amounts, withholding taxes, local reserve restrictions, Sections 965 and 245A, etc.).
Accelerating dividends from non-CFC 10% owned foreign corporations to maximize use of the 100% DRD currently available.
Utilizing asset step-up planning in low-taxed CFCs to utilize existing current year excess FTCs in the GILTI category for other CFCs in different jurisdictions.
Considering legal entity restructuring to maximize the use of foreign taxes paid in jurisdictions with less than a 16% current tax rate to maximize the GILTI FTC profile of the company.
If currently in NOLs, considering methods to defer income or accelerate deductions to minimize detrimental impacts of existing Section 250 deduction taxable income limitations in favor of the proposed changes that will allow a full Section 250 deduction without a taxable income limitation.
In combination with the OECD Pillar One/Two advancements coupled with U.S. tax legislation, reviewing the transfer pricing and value chain structure of the organization to consider ways to adapt to such changes and minimize the future effective tax rate of the organization.

Review transfer pricing compliance
Businesses with international operations should review their cross-border transactions among affiliates for compliance with relevant country transfer pricing rules and documentation requirements. They should also ensure that actual intercompany transactions and prices are consistent with internal transfer pricing policies and intercompany agreements, as well as make sure the transactions are properly reflected in each party’s books and records and year-end tax calculations. Businesses should be able to demonstrate to tax authorities that transactions are priced on an arm’s-length basis and that the pricing is properly supported and documented. Penalties may be imposed for non-compliance. Areas to consider include:

Have all cross-border transactions been identified, priced and properly documented, including transactions resulting from merger and acquisition activities (as well as internal reorganizations)?
Do you know which entity owns intellectual property (IP), where it is located and who is benefitting from it? Businesses must evaluate their IP assets — both self-developed and acquired through transactions — to ensure compliance with local country transfer pricing rules and to optimize IP management strategies.
If transfer pricing adjustments need to be made, they should be done before year end, and for any intercompany transactions involving the sale of tangible goods, coordinated with customs valuations.
Multinational businesses should begin to monitor and model the potential effects of the recent agreement among OECD countries on a two pillar framework that addresses distribution of profits among countries and imposes a 15% global minimum tax.

Considerations for employers
Employers should consider the following issues as they close out 2021 and head into 2022:

Contributions made to a qualified retirement plan by the extended due date of the 2021 federal income tax return may be deductible for 2021; contributions made after this date are deductible for 2022.
The amount of any PPP loan forgiveness is excluded from the federal gross income of the business, and qualifying expenses for which the loan proceeds were received are deductible.
The CARES Act permitted employers to defer payment of the employer portion of Social Security (6.2%) payroll tax liabilities that would have been due from March 27 through December 31, 2020. Employers are reminded that half of the deferred amount must be paid by December 31, 2021 (the other half must be paid by December 31, 2022). Notice CP256-V is not required to make the required payment.
Employers should ensure that common fringe benefits are properly included in employees’ and, if applicable, 2% S corporation shareholders’ taxable wages. Partners should not be issued W-2s.
Publicly traded corporations may not deduct compensation of “covered employees” — CEO, CFO and generally the three next highest compensated executive officers — that exceeds $1 million per year. Effective for taxable years beginning after December 31, 2026, the American Rescue Plan Act of 2021 expands covered employees to include five highest paid employees. Unlike the current rules, these five additional employees are not required to be officers.
Generally, for calendar year accrual basis taxpayers, accrued bonuses must be fixed and determinable by year end and paid within 2.5 months of year end (by March 15, 2022) for the bonus to be deductible in 2021. However, the bonus compensation must be paid before the end of 2021 if it is paid by a Personal Service Corporation to an employee-owner, by an S corporation to any employee-shareholder, or by a C corporation to a direct or indirect majority owner.
Businesses should assess the tax impacts of their mobile workforce. Potential impacts include the establishment of a corporate tax presence in the state or foreign country where the employee works; dual tax residency for the employee; and payroll tax, benefits, and transfer pricing issues.

State and local taxes
Businesses should monitor the tax rules in the states in which they operate or make sales. Taxpayers that cross state borders—even virtually—should review state nexus and other policies to understand their compliance obligations, identify ways to minimize their state tax liabilities and eliminate any state tax exposure. The following are some of the state-specific areas taxpayers should consider when planning for their tax liabilities in 2021 and 2022:

Has the business claimed all state NOL and state tax credit carrybacks and carryforwards? Most states apply their own NOL/credit computation and carryback/forward provisions. Has the business considered how these differ from federal and the effect on its state taxable income and deductions?
Has the business amended any federal returns? Businesses should make sure state amended returns are filed on a timely basis to report the federal changes. If a federal amended return is filed, amended state returns may still be required even there is no change to state taxable income or deductions.
Has a state adopted economic nexus for income tax purposes, enacted NOL deduction suspensions or limitations, increased rates or suspended or eliminated some tax credit and incentive programs to deal with lack of revenues due to COVID-19 economic issues?
The majority of states now impose single-sales factor apportionment formulas and require market-based sourcing for sales of services and licenses/sales of intangibles using disparate sourcing methodologies. Has the business recently examined whether its multistate apportionment of income is consistent with or the effect of this trend?
Consider the state and local tax treatment of merger, acquisition and disposition transactions, and do not forget that internal reorganizations of existing structures also have state tax impacts. There are many state-specific considerations when analyzing the tax effects of transactions.
Is the business claiming all available state and local tax credits, e.g., for research activities, employment or investment?
For businesses selling remotely and that have been protected by P.L. 86-272 from state income taxes in the past, how is the business responding to changing state interpretations of those protections with respect to businesses engaged in internet-based activities?
Has the business considered the state tax impacts of its mobile workforce? Most states that provided temporary nexus and/or withholding relief relating to teleworking employees lifted those orders during 2021 (also see Considerations for employers, above).
Has the state introduced (or is it considering introducing) a tax on digital services? The definition of digital services can potentially be very broad and fact specific. Taxpayers should understand the various state proposals and plan for potential impacts.
Remote retailers, marketplace sellers and marketplace facilitators (i.e., marketplace providers) should be sure they are in compliance with state sales and use tax laws and marketplace facilitator rules.
Assessed property tax values typically lag behind market values. Consider challenging your property tax assessment.

State pass-through entity elections
The TCJA introduced a $10,000 limit for individuals with respect to federal itemized deductions for state and local taxes paid during the year ($5,000 for married individuals filing separately). At least 20 states have enacted potential workarounds to this deduction limitation for owners of pass-through entities, by allowing a pass-through entity to make an election (PTE tax election) to be taxed at the entity level. PTE tax elections present state and federal tax issues for partners and shareholders. Before making an election, care needs to be exercised to avoid state tax traps, especially for nonresident owners, that could exceed any federal tax savings. (Note that the Build Back Better Act proposes to increase the state and local tax deduction limitation for individuals to $80,000 ($40,000 for married individuals filing separately) retroactive to taxable years beginning after December 31, 2020. In addition, the Senate has begun working on a proposal that would completely lift the deduction cap subject to income limitations.)

Accounting for income taxes – ASC 740 considerations
The financial year-end close can present unique and challenging issues for tax departments. Further complicating matters is pending U.S. tax legislation that, if enacted by the end of the calendar year, will need to be accounted for in 2021. To avoid surprises, tax professionals can begin now to prepare for the year-end close:

Know where there is pending tax legislation and be prepared to account for the tax effects of legislation that is “enacted” before year end. Whether legislation is considered enacted for purposes of ASC 740 depends on the legislative process in the particular jurisdiction.
Document whether and to what extent a valuation allowance should be recorded against deferred tax assets in accordance with ASC 740. Depending on the company’s situation, this process can be complex and time consuming and may require scheduling deferred tax assets and liabilities, preparing estimates of future taxable income and evaluating available tax planning strategies.
Determine and document the tax accounting effects of business combinations, dispositions and other unique transactions.
Review the intra-period tax allocation rules to ensure that income tax expense/(benefit) is correctly recorded in the financial statements. Depending on a company’s activities, income tax expense/(benefit) could be recorded in continuing operations as well as other areas of the financial statements.
Evaluate existing and new uncertain tax positions and update supporting documentation.
Make sure tax account reconciliations are current and provide sufficient detail to prove the year-over-year change in tax account balances.
Understand required tax footnote disclosures and build the preparation of relevant documentation and schedules into the year-end close process.

Begin Planning for the Future
Future tax planning will depend on final passage of the proposed Build Back Better Act and precisely what tax changes the final legislation contains. Regardless of legislation, businesses should consider actions that will put them on the best path forward for 2022 and beyond. Business can begin now to:

Evaluate global value chain and cross-border transactions to optimize transfer pricing and minimize global tax liabilities.
Review available tax credits and incentives for relevancy to leverage within applicable business lines.
Consider the benefits of an ESOP as an exit or liquidity strategy, which can provide tax benefits for both owners and the company.
Perform a cost segregation study with respect to investments in buildings or renovation of real property to accelerate taxable deductions, and identify other discretionary incentives to reduce or defer various taxes.
Perform a state-by-state analysis to ensure the business is properly charging sales taxes on taxable items, but not exempt or non-taxable items, and to determine whether the business needs to self-remit use taxes on any taxable purchases (including digital products or services).
Evaluate possible co-sourcing or outsourcing arrangements to assist with priority projects as part of an overall tax function transformation.

Need Help?

If you think your business can benefit or is interested in any of the above Year-End Planning for Businesses opportunities, BOOS & ASSOCIATES is here to help! To inquire more information please email us at askboos@booscpa.com.

2021 Year-End Tax Planning for Individuals

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Posted by BOOSCPA Strategic Tax Services Group Posted on Dec 20 2021

2021 Year-End Tax Planning for Individuals

As we approach year end, now is the time for individuals, business owners, and family offices to review their 2021 and 2022 tax situations and identify opportunities for reducing, deferring, or accelerating tax obligations. Areas potentially impacted by proposed tax legislation still in play should be reviewed, as well as applicable opportunities and relief granted under legislation enacted during the past year.

The information contained within this article is based on tax proposals as presented in the November 3, 2021, version of the Build Back Better Act. Our guidance is subject to change when final legislation is passed. Taxpayers should consult with a trusted advisor when making tax and financial decisions regarding any of the items below.

Individual Tax Planning Highlights

2021 Federal Income Tax Rate Brackets

Tax Rate	Joint/Surviving Spouse	Single	Head of Household	Married Filing Separately	Estate & Trusts
10%	$0 - $19,900	$0 - $9,950	$0 - $14,200	$0 - $9,950	$0 - $2,650
12%	$19,901 - $81,050	$9,951 - $40,525	$14,201 - $54,200	$9,951 - $40,525	-
22%	$81,051 - $172,750	$40,526 - $86,375	$54,201 - $86,350	$40,526 - $86,375	-
24%	$172,751 $329,850	$86,376 - $164,925	$86,351 - $164,900	$86,376 - $164,925	$2,651 - $9,550
32%	$329,851 - $418,850	$164,926 - $209,425	$164,901 - $209,400	$164,926 - $209,425	-
35%	$418,851 - $628,300	$209,426 - $523,600	$209,401 - $523,600	$209,426 - $314,150	$9,551 - $13,050
37%	Over $628,300	Over $523,600	Over $523,600	Over $314,150	Over $13,050

2022 Federal Income Tax Rate Brackets

Tax Rate	Joint/Surviving Spouse	Single	Head of Household	Married Filing Separately	Estates & Trusts
10%	$0 - $20,550	$0 - $10,275	$0 - $14,650	$0 - $10,275	$0 - $2,750
12%	$20,551 - $83,550	$10,276 - $41,775	$14,651 - $55,900	$10,276 - $41,775	-
22%	$83,551 - $178,150	$41,776 - $89,075	$55,901 - $89,050	$41,776 - $89,075	-
24%	$178,151 - $340,100	$89,076 - $170,050	$89,051 - $170,050	$89,076 - $170,050	$2,751 - $9,850
32%	$340,101 - $431,900	$170,051 - $215,950	$170,051 - $215,950	$170,051 - $215,950	-
35%	$431,901 - $647,850	$215,951 - $539,900	$215,951 - $539,900	$215,951 - $323,925	$9,851 - $13,450
37%	Over $647,850	Over $539,900	Over $539,900	Over $323,925	Over $13,450

Proposed Surcharge on High-Income Individuals, Estates and Trusts

The draft Build Back Better Act released on November 3, 2021 would impose a 5% surcharge on modified adjusted gross income that exceeds $5 million for married individuals filing separately, $200,000 for estates and trusts and $10 million for all other individuals. An additional 3% surcharge would be imposed on modified adjusted gross income in excess of $12.5 million for married individuals filing separately, $500,000 for estates and trusts and $25 million for all other individuals. The proposal would be effective for taxable years beginning after December 31, 2021 (i.e., beginning in 2022).

While keeping the proposed surcharges in mind, taxpayers should consider whether they can minimize their tax bills by shifting income or deductions between 2021 and 2022. Ideally, income should be received in the year with the lower marginal tax rate, and deductible expenses should be paid in the year with the higher marginal tax rate. If the marginal tax rate is the same in both years, deferring income from 2021 to 2022 will produce a one-year tax deferral and accelerating deductions from 2022 to 2021 will lower the 2021 income tax liability.

Actions to consider that may result in a reduction or deferral of taxes include:

Considering whether to trigger capital losses before the end of 2021 to offset 2021 capital gains.
Delaying interest or dividend payments from closely held corporations to individual business-owner taxpayers.
Deferring commission income by closing sales in early 2022 instead of late 2021.
Accelerating deductions for expenses such as mortgage interest and charitable donations (including donations of appreciated property) into 2021 (subject to AGI limitations).
Evaluating whether non-business bad debts are worthless by the end of 2021 and should be recognized as a short-term capital loss.
Shifting investments to municipal bonds or investments that do not pay dividends to reduce taxable income in future years.

Accelerating capital gains into 2021 or deferring capital losses until 2022.
Electing out of the installment sale method for 2021 installment sales.
Deferring deductions such as large charitable contributions to 2022.

Long-Term Capital Gains
The long-term capital gains rates for 2021 and 2022 are shown below. The tax brackets refer to the taxpayer's taxable income. Capital gains also may be subject to the 3.8% Net Investment Income Tax.

2021 Long-Term Capital Gains Rate Brackets

Long-Term Capital Gains Tax Rate	Joint/Surviving Spouse	Single	Head of Household	Married Filing Separately	Estates & Trusts
0%	$0 - $80,800	$0 - $40,400	$0 - $54,100	$0 - $40,400	$0 - $2,700
15%	$80,801 - $501,600	$40,401 - $445,850	$54,101 - $473,750	$40,401 - $250,800	$2,701 - $13,250
20%	Over $501,600	Over $445,850	Over $473,750	Over $250,800	Over $13,250

2022 Long-Term Capital Gains Rate Brackets

Long-Term Capital Gains Tax Rate	Joint/Surviving Spouse	Single	Head of Household	Married Filing Separately	Estates & Trusts
0%	$0 - $83,350	$0 - $41,675	$0 - $55,800	$0 - $41,675	$0 - $2,800
15%	$83,351 - $517,200	$41,676 - $459,750	$55,801 - $488,500	$41,676 - $258,600	$2,801 - $13,700
20%	Over $517,200	Over $459,750	Over $448,500	Over $258,600	Over $13,700

Long-term capital gains (and qualified dividends) are subject to a lower tax rate than other types of income. Investors should consider the following when planning for capital gains:

Considering long-term deferral strategies for capital gains such as reinvesting capital gains into designated qualified opportunity zones.
Investing in, and holding, "qualified small business stock" for at least five years. (Note that the November 3 draft of the Build Back Better Act would limit the 100% and 75% exclusion available for the sale of qualified small business stock for dispositions after September 13, 2021.)
Donating appreciated property to a qualified charity to avoid long term capital gains tax (also see Charitable Contributions, below).

Net Investment Income Tax
An additional 3.8% net investment income tax (NIIT) applies on net investment income above certain thresholds. For 2021, net investment income does not apply to income derived in the ordinary course of a trade or business in which the taxpayer materially participates. Similarly, gain on the disposition of trade or business assets attributable to an activity in which the taxpayer materially participates is not subject to the NIIT.

The November 3 version of the Build Back Better Act would broaden the application of the NIIT. Under the proposed legislation, the NIIT would apply to all income earned by high income taxpayers unless such income is otherwise subject to self-employment or payroll tax. For example, high income pass-through entity owners would be subject to the NIIT on their distributive share income and gain that is not subject to self-employment tax. In conjunction with other tax planning strategies that are being implemented to reduce income tax or capital gains tax, impacted taxpayers may want to consider the following tax planning to minimize their NIIT liabilities:

Accelerating into 2021 income from pass-through entities that would be subject to the expanded definition of net investment income under the proposed tax legislation.

Social Security Tax
The Old-Age, Survivors, and Disability Insurance (OASDI) program is funded by contributions from employees and employers through FICA tax. The FICA tax rate for both employees and employers is 6.2% of the employee's gross pay, but only on wages up to $142,800 for 2021 and $147,000 for 2022. Self-employed persons pay a similar tax, called SECA (or self-employment tax), based on 12.4% of the net income of their businesses.

Employers, employees, and self-employed persons also pay a tax for Medicare/Medicaid hospitalization insurance (HI), which is part of the FICA tax, but is not capped by the OASDI wage base. The HI payroll tax is 2.9%, which applies to earned income only. Self-employed persons pay the full amount, while employers and employees each pay 1.45%. An extra 0.9% Medicare (HI) payroll tax must be paid by individual taxpayers on earned income that is above certain adjusted gross income (AGI) thresholds, i.e., $200,000 for individuals, $250,000 for married couples filing jointly and $125,000 for married couples filing separately. However, employers do not pay this extra tax.

Long-Term Care Insurance and Services
Premiums an individual pays on a qualified long-term care insurance policy are deductible as a medical expense. The maximum deduction amount is determined by an individual's age. The following table sets forth the deductible limits for 2021 and 2022 (the limitations are per person, not per return):

Age	Deduction Limitation 2021	Deduction Limitation 2022
40 or under	$450	$450
Over 40 but not over 50	$850	$850
Over 50 but not over 60	$1,690	$1,690
Over 60 but not over 70	$4,520	$4,510
Over 70	$5,640	$5,640

Retirement Plan Contributions
Individuals may want to maximize their annual contributions to qualified retirement plans and Individual Retirement Accounts (IRAs) while keeping in mind the current proposed tax legislation that would limit contributions and conversions and require minimum distributions beginning in 2029 for large retirement funds without regard to the taxpayer's age.

The SECURE Act permits a penalty-free withdrawal of up to $5,000 from traditional IRAs and qualified retirement plans for qualifying expenses related to the birth or adoption of a child after December 31, 2019. The $5,000 distribution limit is per individual, so a married couple could each receive $5,000.
Under the SECURE Act, individuals are now able to contribute to their traditional IRAs in or after the year in which they turn 70½.
The SECURE Act changes the age for required minimum distributions (RMDs) from tax-qualified retirement plans and IRAs from age 70½ to age 72 for individuals born on or after July 1, 1949. Generally, the first RMD for such individuals is due by April 1 of the year after the year in which they turn 72.
Individuals age 70½ or older can donate up to $100,000 to a qualified charity directly from a taxable IRA.
The SECURE Act generally requires that designated beneficiaries of persons who die after December 31, 2019, take inherited plan benefits over a 10-year period. Eligible designated beneficiaries (i.e., surviving spouses, minor children of the plan participant, disabled and chronically ill beneficiaries and beneficiaries who are less than 10 years younger than the plan participant) are not limited to the 10-year payout rule. Special rules apply to certain trusts.
Small businesses can contribute the lesser of (i) 25% of employees' salaries or (ii) an annual maximum set by the IRS each year to a Simplified Employee Pension (SEP) plan by the extended due date of the employer's federal income tax return for the year that the contribution is made. The maximum SEP contribution for 2021 is $58,000. The maximum SEP contribution for 2022 is $61,000. The calculation of the 25% limit for self-employed individuals is based on net self-employment income, which is calculated after the reduction in income from the SEP contribution (as well as for other things, such as self-employment taxes).
2021 could be the final opportunity to convert non-Roth after-tax savings in qualified plans and IRAs to Roth accounts if legislation passes in its current form. Proposed legislation would prohibit all taxpayers from funding Roth IRAs or designated Roth accounts with after-tax contributions starting in 2022, and high-income taxpayers from converting retirement accounts attributable to pre-tax or deductible contributions to Roths starting in 2032.
Proposed legislation would require wealthy savers of all ages to substantially draw down retirement balances that exceed $10 million after December 31, 2028, with potential income tax payments on the distributions. As account balances approach the mandatory distribution level, extra consideration should be given before making an annual contribution.

Foreign Earned Income Exclusion
The foreign earned income exclusion is $108,700 in 2021, to be increased to $112,000 in 2022.

Alternative Minimum Tax
A taxpayer must pay either the regular income tax or the alternative minimum tax (AMT), whichever is higher. The established AMT exemption amounts for 2021 are $73,600 for unmarried individuals and individuals claiming head of household status, $114,600 for married individuals filing jointly and surviving spouses, $57,300 for married individuals filing separately and $25,700 for estates and trusts. For 2022, those amounts are $75,900 for unmarried individuals and individuals claiming the head of household status, $118,100 for married individuals filing jointly and surviving spouses, $59,050 for married individuals filing separately and $26,500 for estates and trusts.

Kiddie Tax
The unearned income of a child is taxed at the parents' tax rates if those rates are higher than the child's tax rate.

Limitation on Deductions of State and Local Taxes (SALT Limitation)
For individual taxpayers who itemize their deductions, the Tax Cuts and Jobs Act (TCJA) introduced a $10,000 limit on deductions of state and local taxes paid during the year ($5,000 for married individuals filing separately). The limitation applies to taxable years beginning on or after December 31, 2017 and before January 1, 2026. Various states have enacted new rules that allow owners of pass-through entities to avoid the SALT deduction limitation in certain cases.

The November 3 draft of the Build Back Better Act would extend the TCJA SALT deduction limitation through 2031 and increase the deduction limitation amount to $72,500 ($32,250 for estates, trusts and married individuals filing separately). An amendment currently on the table proposes increasing the deduction limitation amount to $80,000 ($40,000 for estates, trusts and married individuals filing separately). The proposal would be effective for taxable years beginning after December 31, 2020, therefore applying to the 2021 calendar year.

Charitable Contributions
The Taxpayer Certainty and Disaster Relief Act of 2020 extended the temporary suspension of the AGI limitation on certain qualifying cash contributions to publicly supported charities under the CARES Act. As a result, individual taxpayers are permitted to take a charitable contribution deduction for qualifying cash contributions made in 2021 to the extent such contributions do not exceed the taxpayer's AGI. Any excess carries forward as a charitable contribution that is usable in the succeeding five years. Contributions to non-operating private foundations or donor-advised funds are not eligible for the 100% AGI limitation. The limitations for cash contributions continue to be 30% of AGI for non-operating private foundations and 60% of AGI for donor advised funds. The temporary suspension of the AGI limitation on qualifying cash contributions will no longer apply to contributions made in 2022. Contributions made in 2022 will be subject to a 60% AGI limitation. Tax planning around charitable contributions may include:

Deferring large charitable contributions to 2022 if the taxpayer would be subject to the proposed individual surcharge tax.
Creating and funding a private foundation, donor advised fund or charitable remainder trust.
Donating appreciated property to a qualified charity to avoid long term capital gains tax.

Estate and Gift Taxes
The November 3 draft of the Build Back Better Act does not include any changes to the estate and gift tax rules. For gifts made in 2021, the gift tax annual exclusion is $15,000 and for 2022 is $16,000. For 2021, the unified estate and gift tax exemption and generation-skipping transfer tax exemption is $11,700,000 per person. For 2022, the exemption is $12,060,000. All outright gifts to a spouse who is a U.S. citizen are free of federal gift tax. However, for 2021 and 2022, only the first $159,000 and $164,000, respectively, of gifts to a non-U.S. citizen spouse are excluded from the total amount of taxable gifts for the year. Tax planning strategies may include:

Making larger gifts to the next generation, either outright or in trust.
Creating a Spousal Lifetime Access Trust (SLAT) or a Grantor Retained Annuity Trust (GRAT) or selling assets to an Intentionally Defective Grantor Trust (IDGT).

Net Operating Losses
The CARES Act permitted individuals with net operating losses generated in taxable years beginning after December 31, 2017, and before January 1, 2021, to carry those losses back five taxable years. The unused portion of such losses was eligible to be carried forward indefinitely and without limitation. Net operating losses generated beginning in 2021 are subject to the TCJA rules that limit carryforwards to 80% of taxable income and do not permit losses to be carried back.

Excess Business Loss Limitation
A non-corporate taxpayer may deduct net business losses of up to $262,000 ($524,000 for joint filers) in 2021. The limitation is $270,000 ($540,000 for joint filers) for 2022. The November 3 draft of the Build Back Better Act would make permanent the excess business loss provisions originally set to expire December 31, 2025. The proposed legislation would limit excess business losses to $500,000 for joint fliers ($250,000 for all other taxpayers) and treat any excess as a deduction attributable to a taxpayer's trades or businesses when computing excess business loss in the subsequent year.

Need Help?

If you think you can benefit or are interested in any of the above Year-End Planning for Individual opportunities, BOOS & ASSOCIATES is here to help! To inquire more information please email us at askboos@booscpa.com.

$2 Million SBA COVID-19 Economic Injury Disaster Loan (EIDL)

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Posted by BOOSCPA Strategic Tax Services Group Posted on Nov 29 2021

$2 Million SBA COVID-19 Economic Injury Disaster Loan (EIDL)

The U.S. Small Business Administration recently quadrupled the Covid-19 EIDL limit to $2 million and added business debt payments to the ways businesses can use the loan proceeds. This program ends December 31, 2021, or when funds are exhausted, if sooner.

Loan Details

$2 million maximum loan amount
3.75 % fixed interest rate (2.75% nonprofit interest rate)
30-year term
Loan proceeds can be used for ordinary and necessary operating expenses, and past, present, or future business debt payments
Payments deferred for the first two years
Minimal paperwork for approval
Collateral required for loans > $25,000
Personal guaranty required for loans > $200,000

General Requirements:

Minimum Credit Score of 570 (625 for loans > $500,000)
In business before April 2020
If already received Covid financing from the SBA, this is an opportunity to receive additional financing up to $2 million
If previously declined, you can now reapply

Additional Aspects of the EIDL Program:

Targeted EIDL Advance - provides up to a $10,000 grant to applicants who qualify
Supplemental Target Advance - provides a supplemental $5,000 grant to applicants who qualify

Need Help?
If you think your business may benefit from the EIDL, please contact us: askboos@booscpa.com

2021 Main Street Small Business Tax Credit II

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Posted by BOOSCPA Strategic Tax Services Group Posted on Nov 16 2021

2021 Main Street Small Business Tax Credit II

The Main Street Small Business Tax Credit II provides qualified small business employers in California with COVID-19 financial relief by allowing them to offset their income taxes or sales and use taxes with the credit when filing returns.

Qualified small business employers may apply to reserve $1,000 per net increase in qualified employees, not to exceed $150,000.

The credit will be allocated on a reservation basis to qualified small business employers on a first-come, first-served basis.

The reservation system will be available from November 1, 2021, through November 30, 2021, or an earlier date if the allocation limit is reached.

Qualifications

500 or fewer employees
20% or greater decrease in gross receipts (as reported to Franchise Tax Board (FTB) – 2019 vs. 2020, or fiscal year equivalent, as defined by FTB)
Net increase in number of qualified employees, as defined by FTB (see below)

Credit Calculation
The credit is calculated based on monthly, full-time equivalent (FTE) qualified employees. The net increase in qualified employees will be the amount equal to B minus A.

A. The average monthly FTE employed during the three-month period April 1, 2020, through June 30, 2020.
B. The lesser of either the following:

1. The average monthly FTE employees employed during the 12-month period July 1, 2020, through June 30, 2021.
2. The average monthly FTE employees employed during the three-month period April 1, 2021, through June 30, 2021.

Need Help?
This may provide significant opportunities for your company. However, the interplay between the Consolidated Appropriations Act, the CARES Act, the American Rescue Plan Act, and various Internal Revenue Code sections is nuanced and complicated so professional advice may be needed.

If you think your business may qualify and is potentially interested in claiming this Main Street Small Business Tax Credit, please email us at askboos@booscpa.com.

Notice 2021-43: Work Opportunity Tax Credit (WOTC) 28-Day Deadline Extension

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Posted by BOOSCPA Strategic Tax Services Group Posted on Oct 15 2021

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Current Opportunity

Let’s talk about the Work Opportunity Tax Credit (WOTC). This is a Federal Tax Credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment. Currently, the WOTC can range between $1,200 and $9,600 (or more under certain circumstances) per qualified employee and the credit is available to all companies regardless of business location.

On August 10, 2021, the Department of the Treasury, and the Internal Revenue Service (IRS) issued Notice 2021-43. This notice provides transition relief by extending the 28-day deadline for employers hiring individuals who are Designated Community Residents or Qualified Summer Youth Employees who begin work on or after January 1, 2021, and before October 9, 2021, to submit a completed Form 8850 to the designated local agency (DLA) no later than November 8, 2021.

This means your business can now retroactively qualify employees that are a member of the designated community resident targeted group or the qualified summer youth employee targeted group who begin work on or after the beginning of the year until now.

Designated Community Resident (DCR)

A DCR is an individual who, on the date of hiring,
Is at least 18 years old and under 40, resides within one of the following:

An Empowerment zone
An Enterprise community
A Renewal community

AND continues to reside at the locations after employment.

Summer Youth Employee

A “qualified summer youth employee” is one who:

Is at least 16 years old, but under 18 on the date of hire or on May 1, whichever is later, AND is only employed between May 1 and September 15 (was not employed prior to May 1st) AND resides in an Empowerment Zone (EZ), enterprise community or renewal community.

The opportunity to retroactively qualify employees ends November 8, 2021. If your business has not taken advantage of the WOTC and would like to start, now is the time. Get caught up today and let our team of experts assist you in claiming this potentially significant tax credit opportunity.

Future Opportunity

After you take advantage of this current opportunity, our team at Boos & Associates will help you make sure your business continues to claim the WOTC. After November 8, 2021, businesses will only have a 28-day window to submit a completed Form 8850 to the designated local agency after a new hire’s start date. Our team will work closely with your management group to make sure that as your business expands with every new hire, we proactively assist you in determining whether the new hire qualifies you to receive the WOTC.

Note: the Consolidated Appropriation Act, 2021 (Section 113 of Division EE P.L. 116-260) authorized the extension of the WOTC until December 31, 2025.

Additionally, on September 12, 2021, the Congressional Committee released some of its proposed legislative language that is to be included in Biden’s “Build Back Better Act,” a $3.5 trillion reconciliation bill. Among many of the proposals is Section 138513 “Enhancement of Work Opportunity Credit During COVID-19 Recovery Period.” This proposal would:

1) eliminate the restriction against claiming the WOTC for rehired employees,
2) increase the amount of tax credit from 40% of $6,000 in qualified wages to 50% of $10,000, and
3) provide a similar credit for the second year of employment of qualified employees

This bill has not yet been signed into law; however, stay tuned as we are focused on and current with opportunities coming out of Washington.

Need Help?

If you think your business can benefit from the WOTC, please contact us:askboos@booscpa.com.

Act Quick - Apply For Final Round 9 COVID-19 Relief Grant

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Posted by BOOSCPA Strategic Tax Services Group Posted on Sept 29 2021

Last Chance To Apply For Final Round 9 COVID-19 Relief Grant

The FINAL round of funding for the California Small Business COVID-19 Relief Grant is now open! The online application is quick and only requires a few documents.

Last chance for up to $25,000 California COVID-19 Small business relief grant funding-open until Thursday, September 30 at 5pm.

Eligible Businesses Annual Revenue	Grant Amount Available Per Business
$1,000 to $100,000	$5,000
Greater than $100,000 up to 1,000,000	$15,000
Greater than $1,000,000 up to $2,500,000	$25,000

How to apply?

Applications now open at www.CAReliefGrant.com. Apply here.

Need Help?
For more information, please email us at askboos@booscpa.com.

Expansion of the Employee Retention Credit

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Posted by BOOSCPA Strategic Tax Services Group Posted on Apr 06 2021

-You may be eligible for a credit up to $33,000 per employee

The ERC provides an opportunity you don’t want to pass up! The qualifications and calculations are complex, and the new interplay with the PPP only adds to that complexity, but Boos & Associates, PC is here to help! Our dedicated ERC and PPP teams are always up to date on the latest guidance and are experienced in helping businesses achieve the best possible benefit(s).

In a recent news release, the IRS implored businesses to take advantage of the newly enhanced and highly advantageous Employee Retention Credit (ERC), designed to provide direct aid and incentive to businesses that keep their employees on payroll during the pandemic. If your business has been impacted by the government shutdowns or taken a financial hit during 2020 or 2021, you may be eligible for a credit of up to $33,000 per employee! Do not miss out on this opportunity!

What is the ERC?

The ERC is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19-related governmental order or that experienced a significant reduction in gross receipts. The ERC can be claimed quarterly to help offset the cost of retaining employees. Employers may use ERCs to offset federal payroll tax deposits, including the employee FICA and income tax withholding components of the employer’s federal payroll tax deposits. Unlike the PPP, which was on a first-come first-serve basis, the ERC can be claimed up to three years from the date in which your quarterly payroll return was filed.

Who is eligible for the ERC?

To claim the ERC in any given calendar quarter, organizations must meet one of the following criteria during that quarter:

Operations were fully or partially suspended as a result of orders from a governmental authority limiting commerce, travel or group meetings due to COVID-19; or
The organization experienced a significant decline in gross receipts during the calendar quarter compared to 2019. Specifically, for 2020, gross receipts for the 2020 quarter decline more than 50% when compared to the same 2019 quarter. Eligibility for the credit continues through the 2020 quarter in which gross receipts are greater than 80% of gross receipts in the same 2019 quarter.
For 2021, the gross receipts eligibility threshold for employers is reduced from a 50% decline to a 20% decline in gross receipts for the same calendar quarter in 2019, and a safe harbor is provided allowing employers to use prior quarter gross receipts compared to the same quarter in 2019 to determine eligibility.
Employers not in existence in 2019 may compare 2021 quarterly gross receipts to 2020 quarters to determine eligibility.

Can you claim the ERC if you receive a PPP loan?

Yes! As described above, one of the most favorable provisions in the new law allows taxpayers to receive PPP loans and claim the ERC. This overlap was not permitted when the CARES Act was originally enacted, and organizations in need of cash infusions during 2020 more frequently turned to PPP loans as a source of funds rather than the ERC. Importantly, the Relief Act makes the ability to claim the ERC and receive PPP loans retroactive to March 12, 2020. As a result, organizations that received PPP loans in 2020 (and/or will receive new loans in 2021) can now explore potential ERC credits for 2020 and 2021.

Which wages qualify for the ERC?

The answer depends on an organization’s employee count. Eligible organizations that are considered “Large Employers” can only claim the ERC for wages paid to employees for the time the employees are not providing services. This aligns with the purpose of the ERC, which is to encourage employers to retain and compensate employees during periods in which businesses are not fully operational.

Smaller eligible organizations may claim a credit for all wages paid to employees. The Relief Act increases the threshold used to determine Large Employer status for 2021 claims to an employee count of more than 500 (for 2020, it is more than 100). This favorable change broadens the number of eligible organizations that can claim the ERC for all wages paid to employees, including wages paid to employees who are providing services. Importantly, qualified healthcare expenses count as wages.

Boos Insight: If you furloughed your employees but continue to pay their health insurance, you can claim the ERC. Furloughed employees do not have to receive wages—health care expenses alone qualify as wages for purposes of the ERC.

How is the determination of Large Employer status made?

Large Employer status is determined by counting the average number of full-time employees employed during 2019.

For this purpose, “full-time employee” means an employee who, with respect to any calendar month in 2019, worked an average of at least 30 hours per week or 130 hours in the month. This is the same definition used for purposes of the Affordable Care Act. Importantly, aggregation rules apply when determining the number of full-time employees. In general, all entities are considered a single employer if they are a controlled group of corporations, are under common control or are aggregated for benefit plan purposes.

Organizations that operated for the entire 2019 year compute the average number of full-time employees employed during 2019 by following the steps below:

Step 1: Count the number of full-time employees in each calendar month in 2019. Include only those employees that worked an average of at least 30 hours per week or 130 hours in the month.

Step 2: Add up each month’s employee count from Step 1 and divide by 12.

Boos Insight: Part-time employees that work, on average, less than 30 hours per week are not counted in the determination of Large Employer status. Omitting part-time employees from the computation should result in more organizations having 500 or fewer full-time employees and, therefore, being able to claim the ERC for all wages paid to employees in the first two quarters of 2021 (assuming eligibility criteria are met).

Can the same wages be used for the computation of both the ERC and the amount of PPP loan forgiveness?

No. Simply put, there is no double dipping. Wages used to claim the ERC cannot also be counted as “payroll costs” for purposes of determining the amount of PPP loan forgiveness, and organizations that want to benefit from the ERC and have their PPP loans fully forgiven will need to have sufficient wages to cover both. To the extent an organization does not have sufficient wages, strategic planning will be needed to generate maximum benefits.

Summary of ERC Changes	Prior Law: 3/13/20 – 12/31/20	New Law: 3/13/20 – 12/31/20	New Law: 1/1/21-12/31/21
Interplay with PPP Loan	No ERC if a forgiven PPP loan was received	Taxpayers that receive a PPP loan can claim the ERC, but double dipping is not allowed
Maximum Creditable Wages per Employee	$10,000 per year	$10,000 per year	$10,000 per quarter
Maximum Credit	50% of eligible wages, up to $5,000 per employee	50% of eligible wages, up to $5,000 per employee	70% of eligible wages, up to $14,000 per employee
Threshold to be Considered a “Large Employer” (based on average full-time employees in 2019 and considering aggregation rules)	More than 100	More than 100	More than 500

Boos Insight:

Employers that previously reached the credit limit on some of their employees in 2020 can continue to claim the ERC for those employees in 2021 to the extent the employer remains eligible for the ERC.
Qualification for employers in 2021 based on the reduction in gross receipts test may provide new opportunities for businesses in impacted industries.
Eligible employers with 500 or fewer employees may now claim up to $7,000 in credits per quarter, paid to all employees, regardless of the extent of services performed. This rule previously was applicable to employers with 100 or fewer employees and a maximum of $5,000 in credit per employee per year. Aggregation rules apply to determine whether entities under common control are treated as a single employer.

Need Help?

This may provide significant opportunities for your company. However, the interplay between the Consolidated Appropriations Act, the CARES Act, the American Rescue Plan Act, and various Internal Revenue Code sections is nuanced and complicated so professional advice may be needed.

If you think your business can benefit or is interested in claiming the Employee Retention Credit, BOOS & ASSOCIATES is here to help! To inquire more information please email us at askboos@booscpa.com.

Applying for PPP Funds and Forgiveness

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Posted by BOOSCPA Strategic Tax Services Group Posted on Jan 22 2021

The US Department of Treasury and the Small Business Administration have reauthorized the Paycheck Protection Program (PPP) and PPP applications are now open for eligible first- and second-time borrowers.

First Draw Loans
First draw PPP applicants should submit to any participating lender on SBA Form 2483 – available here (https://home.treasury.gov/system/files/136/PPP-Borrower-Application-Form.pdf).

These loans continue to use the original formulas under the CARES Act to determine the loan size, i.e., 2.5 times the average monthly payroll costs up to $10 million per borrower with an overall limit of $20 million when including loans to members of the same corporate group.

Second Draw Loans
Second draw applicants should submit to its participating lender on SBA Form 2483-SD – available here (https://home.treasury.gov/system/files/136/PPP-Second-Draw-Borrower-Application-Form.pdf).

Second draw loans use the same 2.5 times average monthly payroll costs for most borrowers, but restaurants, hotels and other establishments that provide lodging and/or food for immediate consumption (NAICS code 72 entities) are allowed a factor of 3.5 times the average monthly payroll costs. All second draw PPP loans are capped at a maximum of $2 million per borrower (per location for NAICS code 72, 511110 or 5151) up to an overall limit of $4 million when including loans to members of the same corporate group.

Finding a Lender
Applicants may use the SBA Lender Match Portal to find participating PPP lenders – available here (https://www.sba.gov/funding-programs/loans/lender-match). If you need additional assistance finding a participating PPP lender, Boos & Associates can help you with that.

HOW TO APPLY FOR PPP LOAN FORGIVENESS

Form 3508S - Simplified Rules for $150,000 or Less:
The SBA has updated the simplified PPP loan Forgiveness Application Form 3508S to include loans of $150,000 or less – available here (PPP Loan Forgiveness Form 3508S (sba.gov)).

You (the Borrower) can apply for forgiveness of your First or Second Draw PPP Loan using this SBA Form 3508S only if the loan amount you received from your Lender was $150,000 or less for an individual First or Second Draw PPP Loan. If you are not eligible to use this form, you must apply for forgiveness of your PPP loan using SBA Form 3508 or 3508EZ (or lender’s equivalent form). Each PPP loan must use a separate loan forgiveness application form. You cannot use one form to apply for forgiveness of both a First and Second Draw PPP loan.

SBA Form 3508S requires fewer calculations and less documentation for eligible borrowers. SBA Form 3508S does not require borrowers to show the calculations used to determine their loan forgiveness amount. However, the SBA may request information and documents to review those calculations as part of its loan review or audit processes. Complete this SBA Form 3508S in accordance with the instructions below, and submit it to your Lender (or the Lender that is servicing your loan). Borrowers may also complete this application electronically through their Lender.

It is estimated that approximately 75% of PPP loans should qualify for this simplified forgiveness process.

FORM 3508EZ:
If you do not qualify for 3508S, you will want to use the 3508EZ form – available here (https://www.sba.gov/sites/default/files/2020-06/PPP%20Forgiveness%20Application%203508EZ%20%28%20Revised%2006.16.2020%29%20Fillable-508.pdf), but to do so you must be able to answer affirmative to one of the following three questions:

1. The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).

2. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);

AND

The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (ignore reductions: 1) that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, and 2) in an employee’s hours that the Borrower offered to restore and the employee refused). See 85 FR 33004, 33007 (June 1, 2020) for more details.

3. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);

AND

The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

Form 3508:
If you do not qualify for either Form 3508S or Form 3508EZ, you will need to fill out the standard 3508 form – available here (https://www.sba.gov/sites/default/files/2020-06/PPP%20Loan%20Forgiveness%20Application%20%28Revised%206.16.2020%29-fillable_0-508.pdf).

Need Help?
If you are interested in obtaining a Payroll Protection Program first or second draw loan, or are in need of additional guidance related to your forgiveness application, Boos & Associates is happy to assist – please email us at askboos@booscpa.com.

Expansion of the Employee Retention Credit

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Posted by BOOSCPA Strategic Tax Services Group Posted on Jan 18 2021

Expansion of the Employee Retention Credit

The Consolidated Appropriations Act of 2021 (Act), signed into law on December 27, 2020, contains significant enhancements and improvements to the Employee Retention Credit (ERC). The ERC, which was created by the CARES Act on March 27, 2020, is designed to encourage employers (including tax-exempt entities) to keep employees on their payroll and continue providing health benefits during the coronavirus pandemic. The ERC is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19-related governmental order or that experienced a significant reduction in gross receipts.

Employers may use ERCs to offset federal payroll tax deposits, including the employee FICA and income tax withholding components of the employer’s federal payroll tax deposits.

ERC for 2020
The Act makes the following retroactive changes to the ERC, which apply during the period March 13, 2020 through December 31, 2020:

Employers that received PPP loans may qualify for the ERC with respect to wages that are not paid with proceeds from a forgiven PPP loan.

The Act clarifies how tax-exempt organizations determine “gross receipts.”

Group health care expenses are considered “qualified wages” even when no other wages are paid to the employee.

Insights

Employers that received a PPP loan and that were previously prohibited from claiming the ERC may now retroactively claim the ERC for 2020.

With respect to the retroactive measures in the Act, employers that paid qualified wages in Q1 through Q3 2020 may elect to treat the qualified wages as being paid in Q4 2020. This should allow employers to claim the ERC in connection with such qualified wages via a timely filed IRS Form 7200 or Form 941, as opposed to requiring an amended return (IRS Form 941-X) for the prior quarter(s) in 2020.

ERC for 2021 (January 1 – June 30, 2021)
In addition to the retroactive changes listed above, the following changes to the ERC apply from January 1 to June 30, 2021:

Increased Credit Amount

The ERC rate is increased from 50% to 70% of qualified wages and the limit on per-employee wages is increased from $10,000 for the year to $10,000 per quarter.

Broadened Eligibility Requirements

The gross receipts eligibility threshold for employers is reduced from a 50% decline to a 20% decline in gross receipts for the same calendar quarter in 2019.

A safe harbor is provided allowing employers to use prior quarter gross receipts compared to the same quarter in 2019 to determine eligibility.

Employers not in existence in 2019 may compare 2021 quarterly gross receipts to 2020 quarters to determine eligibility.

The credit is available to certain government instrumentalities, including colleges, universities, organizations providing medical or hospital care, and certain organizations chartered by Congress.

Determination of Qualified Wages

The 100-full time employee threshold for determining “qualified wages” based on all wages paid to employees is increased to 500 or fewer full-time employees.

The Act strikes the limitation that qualified wages paid or incurred by an eligible employer with respect to an employee may not exceed the amount that employee would have been paid for working during the 30 days immediately preceding that period (which, for example, allows employers to take the ERC for bonuses paid to essential workers).

Advance Payments

Under rules to be drafted by Treasury, employers with less than 500 full-time employees will be allowed advance payments of the ERC during a calendar quarter in which qualifying wages are paid. Special rules for advance payments are included for seasonal employees and employers that were not in existence in 2019.

Insights

Employers that previously reached the credit limit on some of their employees in 2020 can continue to claim the ERC for those employees in 2021 to the extent the employer remains eligible for the ERC.

Qualification for employers in 2021 based on the reduction in gross receipts test may provide new opportunities for businesses in impacted industries.

Eligible employers with 500 or fewer employees may now claim up to $7,000 in credits per quarter, paid to all employees, regardless of the extent of services performed. Previously this rule was applicable to employers with 100 or fewer employees and a maximum of $5,000 in credit per employee per year. Aggregation rules apply to determine whether entities under common control are treated as a single employer.

The Act may provide significant opportunities for your company. However, the interplay between the Act, the CARES Act and various Internal Revenue Code sections is nuanced and complicated so professional advice may be needed.

Need Help?
If you think your business can benefit or is interested in claiming the Employee Retention Credit, BOOS & ASSOCIATES is here to help! To inquire more information please email us at askboos@booscpa.com.

Notice 2020-78: Work Opportunity Tax Credit (WOTC) Transition Relief

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Posted by BOOSCPA Strategic Tax Services Group Posted on Jan 14 2021

Questions Can be Very Powerful

Here's a true story about a Fresno business owner making a routine delivery. Recently, an owner of a local restaurant delivered lunch to our office and commented on how busy we looked. At that time, our firm was working on a tax credit deadline and so we asked the owner a simple question: “Have you submitted all your work opportunity tax credits (WOTC)?” To our surprise, the owner told us that they just came from their accountant and this topic had not come up in the five years they’d been a client. Saving on taxes sparked the business owner’s interest. During a meeting with the owner the next day, we discussed the WOTC Federal tax credit. Based on their previous hires, this routine lunch delivery ultimately saved their business $25,000 in Federal taxes. Don't miss out on your opportunity to benefit from these powerful tax credits and incentives. Keep reading to find out more about how they may be able to work for you.

On December 11, 2020, the Department of the Treasury and the Internal Revenue Service (IRS) issued Notice 2020-78. This notice provided transition relief to employers that otherwise would be required to submit IRS Form 8850 to a State Workforce Agency no later than 28 days after an individual begins working for the employer. As a result, under this notice, employers that hired designated community resident(s) or summer youth employee(s) between January 1, 2018, and December 31, 2020, have until January 28, 2021, to submit a completed Form 8850 to a Designated Local Agency (DLA) to request certification.

About the Work Opportunity Tax Credit (WOTC)

The WOTC is a Federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment.

WOTC Federal tax credits can range between $1,200 and $9,600 (or more under certain circumstances) per qualified employee and credit is available to all companies regardless of their business location.

Extension

Specifically, Notice 2020-78 provides transition relief by extending the 28-day deadline for employers to request certification from a DLA that an individual hired on or after January 1, 2018, and before January 1, 2021, and is a member of the designated community resident targeted group or the qualified summer youth employee targeted group.

Designated Community Resident (DCR)

A DCR is an individual who, on the date of hiring,

Is at least 18 years old and under 40, resides within one of the following:

• An Empowerment zone

• An Enterprise community

• A Renewal community

AND continues to reside at the locations after employment.

Summer Youth Employee

A “qualified summer youth employee” is one who:

Is at least 16 years old, but under 18 on the date of hire or on May 1, whichever is later, AND Is only employed between May 1 and September 15 (was not employed prior to May 1st) AND Resides in an Empowerment Zone (EZ), enterprise community or renewal community.

Opportunity

The IRS has given employers a unique opportunity to retroactively qualify employees that are a member of the designated community resident targeted group or the qualified summer youth employee targeted group. This opportunity ends on January 28, 2021! If your business has not taken advantage of claiming tax credits in the past, use this lifeline from the IRS to catch up and claim what your business is entitled to under the law.

Need Help?

If you think your business can benefit or is interested in claiming the WOTC Federal tax credit, BOOS & ASSOCIATES is here to help! For more information, please email us at askboos@booscpa.com.

California Small Business COVID-19 Relief Grant Program

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Posted by BOOSCPA Strategic Tax Services Group Posted on Dec 29 2020

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California Small Business COVID-19 Relief Grant Program

The State of California has enacted a grant program that can provide up to $25,000 to qualifying small businesses. Applications will begin to be accepted on December 30, 2020 and as of January 4^th the closing date has been extended to January 13^th, 2021

Grant Amounts:

The amount of grant funding ranges from $5,000 to $25,000. The eligible amount is based on the revenue documented in your businesses most recent tax return:

Eligible Business Revenue	Grant Amount Available Per Business
$1,000 to $100,000	$5,000
Greater than $100,000 up to $1,000,000	$15,000
Greater than $1,000,000 up to $2,500,000	$25,000

Eligibility:

A small business or small nonprofit must satisfy the following criteria to be eligible to receive a grant award:

Must meet the definition of an “eligible small business”. An “eligible small business” means (i) a “small business” (sole proprietor, independent contractor, 1099 work, and or registered “for-profit” business entity (e.g., C-corporation, S-corporation, limited liability company, partnership) that has yearly gross revenue of $2.5 million or less (but at least $1,000 in yearly gross revenue) based on most recently filed tax return) or (ii) a “small nonprofit” (registered 501(c)(3) or 501(c)(6) nonprofit entity having yearly gross revenue of $2.5 million or less (but at least $1,000 in yearly gross revenue) based on most recently filed Form 990)

Active businesses or nonprofits operating since at least June 1, 2019

Businesses must currently be operating or have a clear plan to re-open once the State of California permits re-opening of the business

Business must be impacted by COVID-19 and the health and safety restrictions such as business interruptions or business closures incurred as a result of the COVID-19 pandemic

Business must be able to provide organizing documents including 2018 or 2019 tax returns or Form 990s, copy of official filing with the California Secretary of State, if applicable, or local municipality for the business such as one of the following: Articles of Incorporation, Certificate of Organization, Fictitious Name of Registration or Government-Issued Business License

Business must be able to provide acceptable form of government-issued photo ID

Applicants with multiple business entities, franchises, locations, etc. are not eligible for multiple grants and are only allowed to apply once using their eligible small business with the highest revenue

Required Documents:

Application Certification: Signed certification used to certify your business

Business Financial Information:

Most recent tax return filed (2019 or 2018) – provided in an electronic form for online upload, such as PDF/JPEG or other approved upload format.

Copy of official filing with the California Secretary of State, if applicable, or local municipality for the business such as one of the following: Articles of Incorporation, Certificate of Organization, Fictitious Name of Registration or Government-Issued Business License.

Government Issued Photo ID: Such as a Driver’s License or Passport

To learn more about the program: California Small Business COVID-19 Relief Grant Program (careliefgrant.com)

As always, our team of experts are more than happy to walk you through the application process if needed. Please email us at askoos@booscpa.com and let us know how we can help!

NEW STIMULUS PACKAGE SIGNED DECEMBER 27, 2020

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Posted by BOOSCPA Strategic Tax Services Group Posted on Dec 29 2020

NEW STIMULUS PACKAGE SIGNED DECEMBER 27, 2020

On Sunday December 27^th, President Trump signed a $2.3 trillion-dollar COVID-19 relief and government funding bill called the Consolidated Appropriations Act, 2021. Over 5,500 pages, this massive tax, funding, and spending package contains nearly $900 billion in coronavirus aid. The emergency coronavirus relief package aims to bolster the economy, provide relief to small businesses and the unemployed, deliver checks to individuals and provide funding for COVID-19 testing and the administration of vaccines.

The coronavirus relief package contains another round of financial relief for individuals in the form of cash payments and enhanced federal unemployment benefits. Individuals who earn $75,000 or less annually generally will receive a direct payment of $600. Qualifying families will receive an additional $600 for each child. According to Treasury Secretary Mnuchin, these checks could be distributed before the end of 2020. To provide emergency financial assistance to the unemployed, federal unemployment insurance benefits that expire at the end of 2020 will be extended for 11 weeks through mid-March 2021, and unemployed individuals will receive a $300 weekly enhancement in unemployment benefits from the end of December 2020 through mid-March. The CARES Act measure that provided $600 in enhanced weekly unemployment benefits expired on July 31, 2020.

This stimulus package earmarks an additional $284 billion for a new round of forgivable small-business loans under the Paycheck Protection Program (PPP) and contains several important changes to the PPP. It expands eligibility for loans, allows certain particularly hard-hit businesses to request a second loan, and provides that PPP borrowers may deduct PPP expenses attributable to forgiven PPP loans in computing their federal income tax liability and that such borrowers need not include loan forgiveness in income.

This stimulus package allocates $15 billion in dedicated funding to shuttered live venues, independent movie theaters and cultural institutions, with $12 billion allocated to help business in low-income and minority communities.

This stimulus package also extends and expands the employee retention credit (ERC) and extends a number of tax deductions, credits and incentives that are set to expire on December 31, 2020.

This alert highlights the main tax provisions included in the This stimulus package.

Paycheck Protection Program
The PPP, one of the stimulus measures created by the CARES Act, provides for the granting of federally guaranteed loans to small businesses, nonprofit organizations, veterans organizations and tribal businesses in an effort to keep businesses operating and retain staff during the COVID-19 pandemic. (PPP loans are administered by the Small Business Administration (SBA)).

A recipient of a PPP loan under the CARES Act (the first round) could use the funds to meet payroll costs, certain employee healthcare costs, interest on mortgage obligations, rent and utilities. At least 60% of the loan funds were required to be spent on payroll costs for the loan to be forgiven.

Eligible businesses

Business are eligible for the second round of PPP loans regardless of whether a loan was received in the first round. This stimulus package changes the definition of a “small business.” Small businesses are defined as businesses with no more than 300 employees and whose revenues dropped by 25% during one of the first three quarters of 2020 (or the fourth quarter if the business is applying after January 1, 2021). The decrease is determined by comparing gross receipts in a quarter to the same in the prior year. Businesses with more than 300 employees must meet the SBA’s usual criteria to qualify as a small business.

Borrowers may receive a loan amount of up to 2.5 (3.5 for accommodation and food services sector businesses) times their average monthly payroll costs in 2019 or the 12 months before the loan application, capped at $2 million per borrower, reduced from a limit of $10 million in the first round of PPP loans.

This stimulus package also expands the types of organizations that may request a PPP loan. Eligibility for a PPP loan is extended to:

Tax-exempt organizations described in Internal Revenue Code (IRC) Section 501(c)(6) that have no more than 300 employees and whose lobbying activities do not comprise more than 15% of the organization’s total activities (but the loan proceeds may not be used for lobbying activities)

“Destination marketing organizations” that do not have more than 300 employees

Housing cooperatives that do not have more than 300 employees

Stations, newspapers, and public broadcasting organizations that do not have more than 500 employees

The following businesses, inter alia, are not eligible for a PPP loan:

Publicly-traded businesses and entities created or organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong that hold directly or indirectly at least 20% of the economic interest of the business or entity, including as equity shares or a capital or profit interest in a limited liability company or partnership, or that retain as a member of the entity’s board of directors a China-resident person

Persons required to submit a registration statement under the Foreign Agents Registration Act

Persons that receive a grant under the Economic Aid to Hard Hit Small Businesses, Nonprofits and Venues Act

Uses of loan proceeds

This stimulus package adds four types of non-payroll expenses that can be paid from and submitted for forgiveness, for both round 1 and round 2 PPP loans, but it is unclear whether borrowers that have already been approved for partial forgiveness can resubmit an application to add these new expenses:

Covered operational expenditures, i.e., payments for software or cloud computing services that facilitate business operations, product or service delivery, the processing, payment or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses

Covered property damage, i.e., costs related to property damage and vandalism or looting due to public disturbances that took place in 2020, which were not covered by insurance or other compensation

Covered supplier costs, i.e., expenses incurred by a borrower under a contract or order in effect before the date the PPP loan proceeds were disbursed for the supply of goods that are essential to the borrower’s business operations

Covered worker protection equipment, i.e., costs of personal protective equipment incurred by a borrower to comply with rules or guidance issued by the Department of Health & Human Services, the Occupational Safety and Health Administration or the Centers for Disease Control, or a state or local government

To qualify for full forgiveness of a PPP loan, the borrower must use at least 60% of the funds for payroll-related expenses over the relevant covered period (eight or 24 weeks).

Increase in loan amount

This stimulus package contains a provision that allows an eligible recipient of a PPP loan to request an increased amount, even if the initial loan proceeds were returned in part or in full, and even if the lender of the original loan has submitted a Form 1502 to the SBA (the form sets out the identity of the borrower and the loan amount).

Expense deductions

This stimulus package confirms that business expenses (that normally would be deductible for federal income tax purposes) paid out of PPP loans may be deducted for federal income tax purposes and that the borrower’s tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. This has been an area of uncertainty because, while the CARES Act provides that any amount of PPP loan forgiveness that normally would be includible in gross income will be excluded from gross income, it is silent on whether eligible business expenses attributable to PPP loan forgiveness are deductible for tax purposes. The IRS took the position in guidance that because the proceeds of a forgiven PPP loan are not considered taxable income, expenses paid with forgiven PPP loan proceeds may not be deducted. This stimulus package clarifies that such expenses are fully deductible—welcome news for struggling businesses. Importantly, the effective date of this provision applies to taxable years ending after the date of the enactment of the CARES Act. Thus, taxpayers that filed tax returns without deducting PPP-eligible deductions should consider amending such returns to claim the expenses.

Loan forgiveness covered period

This stimulus package clarifies the rules relating to the selection of a PPP loan forgiveness covered period. Under the current rules, only borrowers that received PPP proceeds before June 5, 2020 could elect an eight-week covered period. This stimulus package provides that the covered period begins on the loan origination date but allows all loan recipients to choose the ending date that is eight or 24 weeks later.

Loan forgiveness

PPP loan recipients generally are eligible for loan forgiveness if they apply at least 60% of the loan proceeds to payroll costs (subject to the newly added eligible expenditures, as described above), with partial forgiveness available where this threshold is not met. Loans that are not forgiven must be repaid.

Currently, PPP loan recipients apply for loan forgiveness on either SBA Form 3508, Form 3508 EZ or Form 3508S, all of which required documentation that demonstrates that the claimed amounts were paid during the applicable covered period, subject to reduction for not maintaining the workforce or wages at pre-COVID levels.

This stimulus package provides a new simplified forgiveness procedure for loans of $150,000 or less. Instead of the documentation summarized above, these borrowers cannot be required to submit to the lender any documents other than a one-page signed certification that sets out the number of employees the borrower was able to retain because of the PPP loan, an estimate of the amounts spent on payroll-related costs, the total loan value and that the borrower has accurately provided all information required and retains all relevant documents. The SBA will be required to develop the simplified loan forgiveness application form within 24 days of the enactment of this stimulus package and generally may not require additional documentation. Lenders will need to modify their systems used for applications to make an electronic version of the new forgiveness application available to eligible borrowers.

Employment Retention Credit and Families First Coronavirus Response Credit

This stimulus package extends and expands the ERC and the paid leave credit under the Families First Coronavirus Response Act (FFCRA).

ERC

The ERC, introduced under the CARES Act, is a refundable tax credit equal to 50% of up to $10,000 in qualified wages (i.e., a total of $5,000 per employee) paid by an eligible employer whose operations were suspended due to a COVID-19-related governmental order or whose gross receipts for any 2020 calendar quarter were less than 50% of its gross receipts for the same quarter in 2019.

This stimulus package makes the following changes to the ERC, which will apply from January 1 to June 30, 2021:

The credit rate is increased from 50% to 70% of qualified wages and the limit on per-employee wages is increased from $10,000 for the year to $10,000 per quarter.

The gross receipts eligibility threshold for employers is reduced from a 50% decline to a 20% decline in gross receipts for the same calendar quarter in 2019, a safe harbor is provided allowing employers to use prior quarter gross receipts to determine eligibility and the ERC is available to employers that were not in existence during any quarter in 2019. The 100-employee threshold for determining “qualified wages” based on all wages is increased to 500 or fewer employees.

The credit is available to certain government instrumentalities.

This stimulus package clarifies the determination of gross receipts for certain tax-exempt organizations and that group health plan expenses can be considered qualified wages even when no wages are paid to the employee.

New, expansive provisions regarding advance payments of the ERC to small employers are included, such as special rules for seasonal employees and employers that were not in existence in 2019. This stimulus package also provides reconciliation rules and provides that excess advance payments of the credit during a calendar quarter will be subject to tax that is the amount of the excess.

Treasury and the SBA will issue guidance providing that payroll costs paid during the PPP covered period can be treated as qualified wages to the extent that such wages were not paid from the proceeds of a forgiven PPP loan. Further, this stimulus package strikes the limitation that qualified wages paid or incurred by an eligible employer with respect to an employee may not exceed the amount that employee would have been paid for working during the 30 days immediately preceding that period (which, for example, allows employers to take the ERC for bonuses paid to essential workers).

This stimulus package makes three retroactive changes that are effective as if they were included the CARES Act. Employers that received PPP loans may still qualify for the ERC with respect to wages that are not paid for with proceeds from a forgiven PPP loan. This stimulus package also clarifies how tax-exempt organizations determine “gross receipts” and that group health care expenses can be considered “qualified wages” even when no other wages are paid to the employee.

FFCRA

The FFCRA paid emergency sick and child-care leave and related tax credits are extended through March 31, 2021 on a voluntary basis. In other words, FFCRA leave is no longer mandatory, but employers that provide FFCRA leave from January 1 to March 31, 2021 may take a federal tax credit for providing such leave. Some clarifications have been made for self-employed individuals as if they were included in the FFCRA.

Other Tax Provisions in the CAA

This stimulus package includes changes to some provisions in the IRC:

Charitable donation deduction: For taxable years beginning in 2021, taxpayers who do not itemize deductions may take a deduction for cash donations of up to $300 made to qualifying organizations. The CARES Act revised the charitable donation deduction rules to encourage donations following a decline after the enactment of the Tax Cuts and Jobs Act in 2017.

Medical expense deduction: The income threshold for unreimbursed medical expense deductions is permanently reduced from 10% to 7.5% so that more expenses may be deducted.

Business meal deduction: Businesses may deduct 100% of business-related restaurant meals during 2021 and 2022 (the deduction currently is available only for 50% of those expenses).

Extenders: This stimulus package provides for a five-year extension of the following tax provisions that are scheduled to sunset on December 31, 2020:

The look-through rule for certain payments from related controlled foreign corporations in IRC Section 954(c)(6), which was extended to apply to taxable years of foreign corporations beginning before January 1, 2026 and to taxable years of U.S. shareholders with or within which such taxable years of foreign corporations end

New Markets Tax Credit

Work Opportunity Tax Credit

Health Coverage Tax Credit

Carbon Oxide Sequestration Credit

Employer credit for paid family and medical leave

Empowerment zone tax incentives

Exclusion from gross income of discharge of qualified principal residence indebtedness

Seven-year recovery period for motorsports entertainment complexes

Expensing rules for certain productions

Oil spill liability trust fund rate

Incentive for certain employer payments of student loans (notably, this stimulus package does not include other student loan relief so that borrowers will need to resume payments on such loans and interest will begin to accrue).

Permanent changes: This stimulus package makes several tax provisions permanent that were scheduled to expire in the future, in addition to the medical expense deduction threshold mentioned above:

The deduction of the costs of energy-efficient commercial building property (now subject to inflation adjustments)

The gross income deduction provided to volunteer firefighters and emergency medical responders for state and local tax benefits and certain qualified payments

The transition from a deduction for qualified tuition and related expenses to an increased income limitation on the lifetime learning credit

The railroad track maintenance credit

Certain provisions, refunds and reduced rates related to beer, wine, and distilled spirits, as well as minimum processing requirements for certain craft beverages produced outside the U.S.

Need Help?

If you think you can benefit or are interested in any of the above items within the new stimulus package, BOOS & ASSOCIATES is here to help! To inquire more information please email us at askboos@booscpa.com.

2020 Year-End Tax Planning for Individuals

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Posted by BOOSCPA Strategic Tax Services Group Posted on Dec 11 2020

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2020 Year-End Tax Planning for Individuals

As the year-end approaches, individuals, business owners and family offices should be reviewing their situations to identify any opportunities for reducing, deferring, or accelerating tax obligations. Areas that should be looked at include tax reform provisions that remain in play, as well as new opportunities and relief granted earlier in 2020 under the CARES and SECURE Acts.

Individual’s Tax Planning Highlights

Long-Term Capital Gains

The brackets for long-term capital gains for 2020 and the projected 2021 rates are shown below. Long-term capital gains are subject to a lower tax rate, so investors may wish to consider holding on to assets for over a year to qualify for those rates.

Long-Term Capital Gains Tax Rate	Single		Joint		Head of Household
Long-Term Capital Gains Tax Rate	2020	Projected 2021	2020	Projected 2021	2020	Projected 2021
0%	$0 - $40,000	$0 - $40,400	$0 - $80,000	$0 - $80,800	$0 - $53,600	$0 - $54,100
15% minimum income	$40,001 - $441,450	$40,401 - $445,850	$80,001 - $496,600	$80,801 - $501,600	$53,601 - $469,050	$54,101 - $473,750
20% minimum income	Over $441,450	Over $445,850	Over $496,600	Over $501,600	Over $469,050	Over $473,750

Social Security Tax (click for more information)

Long-Term Care Insurance and Services

Premiums an individual pays on a qualified long-term care insurance policy are deductible as a medical expense. The maximum amount of a deduction is determined by an individual’s age. The following table sets forth the deductible limits for 2020 and 2021:

Age	Deduction Limitation 2020	Projected Deduction Limitation 2021
40 or under	$430	$450
Over 40 but not over 50	$810	$850
Over 50 but not over 60	$1,630	$1,690
Over 60 but not over 70	$4,350	$4,520
Over 70	$5,430	$5,650

These limitations are per person, not per return. Thus, a married couple, both spouses over 70 years old, has a combined maximum deduction of $10,860 ($11,300 projected for 2021), subject to the applicable AGI limit.

Retirement Plan Contributions (Click for more information)

Foreign Earned Income Exclusion

The foreign earned income exclusion is $107,600 in 2020, projected to increase to $108,700 in 2021.

Alternative Minimum Tax

A taxpayer must pay either the regular income tax or the alternative minimum tax, whichever is higher. The established exemption amounts for 2020 are $72,900 for unmarried individuals and individuals claiming head of household status, $113,400 for married individuals filing jointly and surviving spouses, and $56,700 for married individuals filing separately. For 2021, those amounts are projected to increase to $73,600 for unmarried individuals and individuals claiming the head of household status, $114,600 for married individuals filing jointly and surviving spouses, and $57,300 for married individuals filing separately.

Kiddie Tax

The SECURE Act reinstates the kiddie tax previously suspended by the Tax Cuts and Jobs Act (TCJA). For tax years beginning after December 31, 2019, the unearned income of a child is no longer taxed at the same rates as estates and trusts. Instead, the unearned income of a child will be taxed at the parents’ tax rates if those rates are higher than the child’s tax rate. Taxpayers can elect to apply this provision retroactively to tax years that begin in 2018 or 2019 by filing an amended return.

Charitable Contributions

Currently, individuals who make cash contributions to publicly supported charities are permitted a charitable contribution deduction of up to 60% of their AGI. Contributions in excess of the 60% AGI limitation may be carried forward in each of the succeeding five years. The CARES Act suspends the AGI limitation for qualifying cash contributions and instead permits individual taxpayers to take a charitable contribution deduction for qualifying cash contributions made in 2020 to the extent such contributions do not exceed the taxpayer’s AGI. Any excess carries forward as a charitable contribution that is usable in the succeeding five years. Contributions to non-operating private foundations or donor-advised funds are not eligible for the 100% AGI limitation.

Estate and Gift Taxes

The unified estate and gift tax exclusion and generation-skipping transfer tax exemption is $11,580,000 per person in 2020. For 2021, the exemption is projected to increase to $11,700,000.

All outright gifts to a spouse who is a U.S. citizen are free of federal gift tax. However, for 2020 and 2021, only the first $157,000 and $159,000 (projected), respectively, of gifts to a non-U.S. citizen spouse are excluded from the total amount of taxable gifts for the year.

Simplified Employment Pension Plans

Small businesses can contribute up to 25% of employees’ salaries (up to an annual maximum set by the IRS each year) to a Simplified Employee Pension (SEP) plan. The SEP contribution must be made by the extended due date of the employer’s federal income tax return for the year that the contribution is made. The maximum SEP contribution for 2020 was $57,000. The maximum SEP contribution for 2021 is projected to be $58,000.

The calculation of the 25% limit for self-employed individuals is based on net self-employment income, which is calculated after the reduction in income from the SEP contribution (as well as for other things, such as self-employment taxes).

Net Operating Losses

Under the TCJA, net operating losses generated beginning in 2018 were limited to 80% of taxable income and could not be carried back but could be carried forward indefinitely. The CARES Act permits individuals with net operating losses generated in taxable years beginning after December 31, 2017, and before January 1, 2021, to carry those losses back five taxable years. The CARES Act also eliminates the 80% limitation on such losses.

Excess Business Loss Limitation

Under Section 461(l), a taxpayer will only be able to deduct net business losses of up to $262,000 (projected) in 2021 (joint filers can deduct $524,000 (projected) in 2021) for taxable years beginning after December 31, 2020, and before January 1, 2026. Excess business losses are normally disallowed and added to the taxpayer’s net operating loss carryforward, but the CARES Act suspends the application of this excess business loss rule for 2020, and retroactively suspends the excess business loss limitation rule for 2018 and 2019.

2020 Year-End Tax Planning for Businesses

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Posted by BOOSCPA Strategic Tax Services Group Posted on Dec 11 2020

2020 Year-End Tax Planning for Businesses

Tax Relief Strategies for Resilience

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As the world continues to contend with the COVID-19 pandemic and its economic fallout, businesses are doing all they can to mitigate risks and plan for a recovery that’s anything but certain.

The path forward will likely not be linear. Different regions, industries and business segments may be in different stages of recovery simultaneously.

The tax function plays a critical role in navigating recovery and positioning businesses to emerge from this crisis more resilient than before. Effective tax strategy can preserve liquidity, lower costs and work in tandem with overall business strategy.

Read on to explore the tax relief tactics that can help take your business from reacting to the day-to-day challenges to preparing for the future.

Finding Relief: Tax Strategies to Generate Immediate Cash Flow

During these challenging times, companies must have access to cash to help offset unforeseen costs, whether for buying personal protective equipment (PPE) for on-site employees or investing in the technology needed to keep a remote workforce safely and efficiently connected. Click here to find out more information about finding relief and different tax strategies to generate immediate cash flow!

Optimizing Operations: Uncover Tax Relief Opportunities

Despite the uncertainty, savvy companies can position themselves to outperform their competitors by capitalizing on market shifts and strengthening their core business models. To do so, liquidity will continue to be at a premium, but many companies at this stage should be able to spend a bit in order to reap considerable returns. The tax function is poised to help them do just that.

After taking advantage of tax solutions that are within reach, it’s time to consider low-risk strategies that will plant the seed for future growth. Click here to find out more information about optimizing operations to uncover tax relief opportunities!

Moving Forward: New Tax Strategies to Reimagine the Future

Plans made prior to spring 2020 may no longer make sense in a post-COVID world. To stand apart from competitors, companies need to not only recover from COVID-19, but also integrate the lasting forces of change brought on by the pandemic to emerge more resilient and agile than before.

It’s time to reset vision and strategy—and tax needs to be an integral part of that process. Click here to find out more information about moving forward and setting new tax strategies to reimagine the future!

Planning for What’s Next: Be Prepared to Seize Opportunities

The reality for many is that it may take years to get the phase when a business is meeting or even exceeding market growth. During this stage, a company has fully recovered from the business challenges of the pandemic-recession and is experiencing significant growth. It’s a time when many businesses will be executing the long-term plans they’ve crafted throughout their recovery journey. But companies should consider the tax effects of acting on these plans.

Key Tax Strategies

Use tax transformation to maintain a broad view of your total tax liability.

Leverage automated solutions for manual and error-prone areas, including state and local sales and use taxation, value added tax, etc. as your business executes on tax transformation plans.

Consider the tax benefits of outsourcing non-essential functions to third parties to lower your company’s total tax liability.

Review federal Work Opportunity Credit criteria for eligible new hires.

Consider eligibility for paid family and medical leave. Under the new law, an eligible employer is allowed the paid family and medical leave credit, which is an amount equal to a percentage of wages paid (up to 25%) to qualifying employees during any period in which those employees are on family and medical leave due to a critical illness or the birth (or adoption or foster care) of a child.

The applicable percentage is 12.5%, increased (but not above 25%) by 0.25 percentage points for each percentage point by which the rate of payment exceeds 50%.

Consider alternative legal entity structures to minimize total tax liability and enterprise risk.

Regularly monitor and assess potential regulatory and legislative changes at the federal, state and local levels, as well as in other countries, if applicable.

Continually iterate and adjust tax strategies to align with overall business strategies.

Evaluate global supply chain and cross-border transactions to minimize global tax liability.

Most importantly, companies need to continue to plan for what’s next. While the immediate threat of the pandemic has abated in this stage, new threats are inevitable. But alongside those threats come new opportunities for those businesses poised to seize them.

Need Help?

If you think your business can benefit or is interested in any of the above Year-End Planning for Businesses opportunities, BOOS & ASSOCIATES is here to help! To inquire more information please email us at askboos@booscpa.com.

Tax Credits

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Posted by BOOSCPA Strategic Tax Services Group Posted on Dec 03 2020

As an employer, you give many the opportunity to work. These opportunities created allows you to take advantage of many Federal, State, & Local tax incentives offered. At BOOS & ASSOCIATES, we have a dedicated tax credit team with decades of experience in assisting clients to help maximize these benefits. Due to COVID-19, the IRS and the State of California has offered two new tax credits.

New Credits Available

Employee Retention Credit

Allows for a refundable payroll tax credit for eligible employers harmed by COVID-19. The credit is equal to 50% of up to $10,000 in qualified wages per employee (i.e., a total of $5,000 per employee). Employers generally are not eligible for the Employee Retention Credit if any member of their controlled or affiliated service group obtained a PPP loan.

New Hiring Credit for Small Businesses

The Governor signed bill SB 1447 which allows Businesses to receive a $1,000 credit (up to a $100,000 maximum) for every net increase in full-time equivalent employees. The credit can only be claimed by businesses that reserve the credit and that:

Employed 100 or fewer employees as of December 31, 2019; and

Experienced a 50% decrease in gross receipts when comparing their 2020 second calendar quarter gross receipts with 2019 second calendar quarter gross receipts.

On top of the two new credits available to businesses, our team also offers the following services.

Other Tax Credit Services Offered

California New Employment Credit (“NEC”)

Federal Hiring Tax Credits

Work Opportunity Tax Credit ("WOTC")

Research & Development Tax Credits

Need Help?

If you think your business can benefit or is interested in any of the above tax credits, BOOS & ASSOCIATES is here to help! To inquire more information please email us at askboos@booscpa.com.

California Rebuilding Fund

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Posted by BOOSCPA Strategic Tax Services Group Posted on Dec 02 2020

California Rebuilding Fund

Small businesses are the backbones of their communities. They create millions of jobs annually while catering specifically to the communities surrounding them. Many small businesses still need funding to help them weather today’s environment and ensure they can retain their employees, pay their rent, and survive. Due to this, the state of California has created the California Rebuilding Fund to support California’s small businesses. The experts at Boos can guide you through this process.

The California Rebuilding Fund is a loan program to support California’s small businesses—especially those located in economically disadvantaged and historically under-banked areas of the state. Businesses who employed 50 or less full-time equivalent employees (FTEs) and had gross revenues of less than $2.5 million or below in 2019 are eligible to apply.

The loans are flexible, transparent and are designed to help businesses access the capital and advisory services they need to get through these challenging economic times.

Loan Terms:

LOAN AMOUNT: The maximum available loan amount is $100,000 or up to 100% of your business’ average monthly revenues for three months prior to the COVID pandemic outbreak (in 2019 or early 2020), whichever is less. The maximum loan amount available under this program is $100,000.

INTEREST RATE: 4.25%

REPAYMENT: 36 months or 60 months (first year interest only)

Example:

An example of how your maximum loan amount is calculated:
To determine your business’s average monthly revenue for an estimate of potential loan size, the lender may use the following:

September 2019 Revenues: $10,000

October 2019 Revenues: $15,000

November 2019 Revenues: $20,000

Based on the above-referenced example, the average revenues for the period is $15,000 so 3-months of average revenues would be $45,000. In this example, the maximum loan size would be $45,000

Business Requirements:

The business must have employed 50 or fewer full-time equivalent (FTE) employees prior to March 2020; please note: any and all affiliates are counted in this total, including businesses with shared ownership;

The business must have had gross revenues of less than $2.5 million in 2019;

The business must have suffered a direct economic hardship as a result of COVID-19 which has materially impacted operations (as evidenced by at least a significant reduction in revenues since January 2020);

The business must have returned to or sustained, for at least one-month, at least 30% of pre-COVID revenues relative to a similar period in 2019

The business must have demonstrated positive net income in 2019 (not including depreciation and amortization expenses);

The business must have been in operation since at least June 30, 2019 and be operating at the time of application;

The main office or headquarters for the business must be in California. The loan must be used to support only a business’s California operations

Apply > https://www.connect2capital.com/p/californiarebuildingfund/

Need Help?

If your business is interested in applying for the California Rebuilding Fund loan program, BOOS & ASSOCIATES is here to help! To inquire more information or if you would like assistance with an application please email us at askboos@booscpa.com.

SBA Disaster Loan

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Posted by BOOSCPA Strategic Tax Services Group Posted on Nov 30 2020

As communities continue recovering from the devastating effects of the wildfires, BOOS & ASSOCIATES has established a team to work with impacted businesses and individuals to be able to help provide them with support and make available important resources.

We are here to help – Our staff is prepared to streamline recovery efforts when businesses and individuals are ready to re-establish themselves.

One of the ways BOOS & ASSOCIATES can help individuals and businesses is by assisting them in acquiring a disaster loan from the U.S. Small Business Administration. Individuals and businesses may qualify for a loan up to 2 million dollars! If this interest you, keep reading to find out more.

U.S. SBA – Disaster loans Overview

Businesses, Private Nonprofits, Homeowners, and Renters that are located in the California wildfire disaster area may be eligible for financial assistance from the U.S. Small Business Administration (SBA). This is available for California wildfires occurring from:

August 14 through September 26, 2020 - Counties of: Butte, Lake, Lassen, Mendocino, Monterey, Napa, San Mateo, Santa Clara, Santa Cruz, Solano, Stanislaus, Sonoma, Trinity, Tulare & Yolo

September 4, 2020 and continuing - Counties of: Fresno, Los Angeles, Madera, Mendocino, Napa, San Bernardino, San Diego, Shasta, Siskiyou & Sonoma

Details

What Types of Disaster Loans are Available?

Business Physical Disaster Loans – Loans to businesses and non-profit organizations to repair or replace disaster-damaged property, including real estate, inventories, supplies, machinery, and equipment. The law limits business loans to $2,000,000.

Economic Injury Disaster Loans (EIDL) – Working capital loans available. The law limits EIDLs to $2,000,000 for alleviating economic injury caused by the disaster.

Wildfires occurring August 14 through September 26, 2020 - Economic injury only in the contiguous California counties of: Alameda, Calaveras, Colusa, Contra Costa, Fresno, Glenn, Humboldt, Inyo, Kern, Kings, Marin, Mariposa, Merced, Modoc, Plumas, Sacramento, San Benito, San Francisco, San Joaquin, San Luis Obispo, Shasta, Sierra, Siskiyou, Sutter, Tehama, Tuolumne & Yuba.

Wildfires occurring September 4, 2020 and November 17, 2020 - Economic injury only in the contiguous California counties of: Del Norte, Glenn, Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Marin, Mariposa, Merced, Modoc, Mono, Monterey, Orange, Plumas, Riverside, San Benito, Solano, Tehama, Trinity, Tulare, Tuolumne, Ventura & Yolo.

Home Disaster Loans – Loans to homeowners or renters to repair or replace disaster-damaged real estate and personal property, including automobiles. Limits to $200,000 for the repair or replacement of real estate and $40,000 to repair or replace personal property.

Additional Assistance:

Additional funds are available to cover the cost of improvements that will protect your property against future damage.

Refinancing prior mortgages available for business and homeowners up to the amount of the loan for the repair or replacement.

You may use your SBA disaster loan to relocate. The amount of the relocation loan depends on whether you relocate voluntarily or involuntarily.

Application Deadline for wildfires occurring:

August 14 through September 26, 2020

Physical Damage: November 23, 2020

Economic Injury: May 24, 2021

September 4, 2020 and continuing

Physical Damage: December 15, 2020

Economic Injury: July 16, 2021

Need Help?

If you or your business has been impacted by the wildfires and are in need of a loan from the U.S. Small Business Administration, BOOS & ASSOCIATES is here to help! To inquire more information or if you would like assistance with an application please email us at askboos@booscpa.com .