Paycheck Protection Program Loan Forgiveness

The IRS has a little bad news for small firms that utilize the Paycheck Protection Program (PPP) loans: the businesses can’t deduct the expenses that result in forgiveness of the loan.

The stimulus law says that loans forgiven under the Paycheck Protection Program are nontaxable. But it doesn’t note whether expenses that are funded by the PPP loan proceeds (payroll costs, utilities, rent, etc.) are tax-deductible in cases where the loan is forgiven.

The IRS has answered that question in their public guidance: to prevent a double tax benefit, these expenses are not deductible.

You can read the full text of the IRS notice at: https://www.irs.gov/pub/irs-drop/n-20-32.pdf

Economic Impact Payment by Pre-Paid Debit Card

If you’re still waiting to receive a paper stimulus check from the IRS, you may get a prepaid debit card instead.

Nearly 4 million people are being sent their Economic Impact Payment by prepaid debit card instead of a paper check. These debit cards will arrive in a plain envelope from "Money Network Cardholder Services."

If you have questions about your stimulus payment, your best bet is to check out the IRS’s Frequently Asked Questions (FAQ) page at irs.gov/coronavirus. You can call the IRS instead, but expect a VERY long wait/hold time since their staffing is still quite limited. If you do want to call the IRS, the number is 1-800-919-9835.

Kudos, Jake!

Our Tax Department supervisor, Jacob Baker, has been nominated for a Lagniappe "Nappie Award" as "Best CPA!"
Don't miss your chance to vote: you can vote once per day now through June 28 at www.votenappies.com.

Summer Hours

Lawrence & Lawrence is currently observing summer hours, and will be closing at noon on Fridays.

How to Get Your Economic Impact Payment if You Don't File Taxes

Coronavirus

Economic Impact

Payments

The Internal Revenue Service has just launched a new web tool allowing registration for Economic Impact Payments for people who don’t normally file a tax return.

The non-filer tool, developed in partnership between the IRS and the Free File Alliance, provides a free and easy option for people who don't have a tax return filing obligation, including those with too little income to file. This tool is available ONLY on IRS.gov, here:

Economic Impact Payments will be distributed automatically to most people starting next week (April 13-17). Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically. Automatic payments will also go in the near future to people who receive Social Security retirement, survivors or disability benefits and Railroad Retirement benefits.

For more about this and other Coronavirus topics, go to the IRS's Information page at https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments.

AL Department of Labor Response to COVID-19 Related Job Loss

If your Alabama job/income has been affected by the ongoing COVID-19 pandemic, the Alabama Department of Labor has updated information for you. Go to their page here for details: https://labor.alabama.gov/covid19resources.aspx

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Free Accounting Advice

Tax Season is Rapidly Approaching: Are You Ready for This?

2019 Individual Tax Return Filing Deadline - APRIL 15th

With less than nine weeks until the individual tax return filing deadline this year, are you (and your records) ready to meet with your tax preparer?

Are your receipts and records (A) carefully organized, or (B) stuffed in a shoebox or grocery bag? If your record-keeping system falls closer to the second method, you probably already realize that this can cost you extra time and money, but did you know it could also result in inaccuracies or omissions on your personal return?

Here are a few steps that can go a long way toward helping your tax preparer to maximize the available tax benefits for you.

1.       Organize your records.

Don’t just hand over a jumble of receipts, credit card slips and other paperwork.  Assemble your records logically beforehand, and provide whatever information you can digitally. Arrange a phone call or face-to-face meeting with your accountant to discuss any questions or particular concerns you have before your return is prepared.

2.       Don’t make assumptions.

Your tax preparer knows you, but don’t assume they recall all of your particular tax circumstances. Give him/her a quick reminder if you have an unusual situation. Again, a scheduled phone call or face-to-face meeting is best.

3.       Report any and all securities transactions.

This is vital information your tax preparer will need in order to complete your return. Sometimes, a few trades might “fall between the cracks,” especially if you have multiple transactions involving mutual fund shares. Be sure to provide your tax preparer with a paper or digital copy of ALL the 1099s you receive. If you receive corrected/amended 1099s after turning over your tax records, advise your tax preparer as soon as possible.

4.       Support your basis adjustments.

If you sold securities (stocks, bonds, etc.) in 2019, you owe tax on the difference between the sales price and your basis cost. Make sure you provide any documentation needed for adjusting your basis. Otherwise, you could overpay your tax bill.  If you don’t account for taxes previously paid on mutual fund distributions (or dividends/capital gains) amounts, you’re paying the IRS twice on the same gains or dividends.

5.       Combine business with personal.

If you own a pass-through entity (such as a partnership or S-Corporation) or have other business interests, don’t treat your personal tax return as completely separate. We suggest you use the same tax preparer (or firm) to handle both your business and personal returns so that nothing is overlooked.

If you have any questions, or if we can help you with filing your tax return, give us a call at 251-476-7685.

Remember:

The due date for filing 2019 returns for calendar-year corporations is March 16, 2020, while the deadline for filing individual returns is April 15, 2020.

New Rule for Retirement Plans

The Consolidated Appropriations Act 2020 (CAA), signed by the president 12-20-2019, has created some . Here’s one you may need to know:  effective for tax years beginning after 2019, individuals are no longer prohibited from contributing to traditional IRAs past age 70½.

Under pre-CAA law, no contribution was allowed to a traditional IRA for the benefit of an Individual who was age 70½ before the close of the tax year for which the contribution was made.

Effective for contributions made for tax years beginning after 2019, the CAA provides that individuals may contribute to a traditional IRA after 70½.

In other words, for tax years beginning in 2020, there is no longer an age limitation on contributions to a traditional or Roth IRA.

Year End Tax Savings

With just a couple of weeks left in 2019, consider this tax-saving measure: there’s still time to make a year-end donation to charity.

There are a lot of worthwhile charities you can donate to. If you don’t already have a particular charity in mind, here’s a way to narrow down the field. Ask yourself: “What is particularly important to me?”

You can support organizations whose mission focuses on the environment., education, fighting hunger, animal welfare, supporting children, and many others causes. You can find charities that work locally, regionally, nationally, or internationally.

In order to be deductible, your contributions must have been made to qualified charitable organizations: contributions to individuals are never deductible.

If you’re unsure whether the organization that you’re contributing to qualifies as a charitable organization for income tax deduction purposes, refer to the IRS Tax Exempt Organization Search tool: https://apps.irs.gov/app/eos/

Remember: you can only deduct charitable contributions if you itemize using IRS Schedule A. Also, be sure to keep good records, including written acknowledgement of your donation from the charity.

For more information about charitable donations, visit this IRS page on the topic.: https://www.irs.gov/taxtopics/tc506

WHEN WAS THE LAST TIME you reviewed your beneficiary designations?

If you haven’t done so recently, take a few minutes to review your retirement plan beneficiaries. You can help avoid unwanted results by updating beneficiary designations on your 401(k) plans, annuities, pensions and IRAs to account for life changes such as marriage, divorce or the death of a spouse or other listed beneficiary.

While you’re at it, go ahead and review the beneficiaries listed in your will, insurance policies and taxable accounts, too.

And if you don’t yet have a will, think about drafting one sooner rather than later.

With only a few weeks left before 2019 comes to a close…

With only a few weeks left before 2019 comes to a close, here’s something to think about:

If you contribute to a health flexible spending account, check whether you have a balance remaining. You must generally empty it by December 31, or you will forfeit any money still in your account.

 If you don’t currently have a health FSA, consider electing to contribute one for 2020. You can put up to $2,750 of your pre-tax pay into your employer’s health FSA to cover out-of-pocket medical expenses, and amounts contributed to an FSA escape federal income tax as well as payroll taxes.

If you’re planning to buy health coverage for 2020...

If you’re planning to buy health coverage for 2020 through a marketplace, the enrollment period starts today and runs through December 15.

 Most people who buy a marketplace health insurance qualify for tax credits that can reduce their monthly premiums.

 These tax credits are available for people with household incomes ranging from 100% to 400% of the poverty guidelines.

 Individuals who don’t qualify for this tax credit are those who are eligible for Medicare or other federal insurance, and those who are able to get affordable health coverage through their employers.

 Make sure you correctly report your health insurance premium credits, though. The IRS is on the lookout for people who get subsidies for buying insurance on an exchange and either wrongly report the credit or don’t file at all. The IRS computers will flag any returns that show a modified adjusted gross income above the limit to take the tax break.

 If you didn’t have health coverage in 2019, the repeal of the 2017 tax reform law means that you don’t have to worry about paying the individual health insurance mandate penalty.

 If you want to purchase marketplace health insurance, go to www.healthcare.gov to review your insurance choices and get started.

 If you have questions about health insurance tax credits, give Lawrence & Lawrence a call at 251-476-7685.

WHAT DO YOU KNOW ABOUT Worker Misclassification?

Did you known that the IRS can seek back payroll taxes and penalties from businesses that wrongly treat workers as contractors instead of employees?  Some studies show that between 10 - 20 % of employers misclassify at least one worker. This sort of misclassification occurs when a worker who should be considered a direct EMPLOYEE (and receive a Form W-2 to file with their tax returns) is treated as an INDEPENDENT CONTRACTOR (and receives a Form 1099) instead.

 It may not sound like a big deal, but it is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.

 Generally, employers must withhold income taxes, withhold and pay social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. They do not generally have to withhold or pay any taxes on payments to independent contractors, who are ineligible for such benefits. 

 The IRS looks at three categories of control and independence in the business relationship to determine how workers should be classified:

    1. Behavioral:  Does the company control (or have the right to control) what the worker does and how he/she does the job?

    2. Financial:  How is the worker paid? Are expenses reimbursed? Who provides tools and supplies? Is the worker able to work for more than one firm, etc.?

    3. Type-of-relationship:  Are there written contracts or benefits such as a pension plan, insurance, vacation pay, etc.? Will the work relationship continue indefinitely, or only for a specific project?

 Businesses must look at the entire relationship and weigh all of these aspects when determining whether a worker is an employee or independent contractor; no one factor stands alone in making this determination.

 The costs of worker misclassification to tax and social insurance systems, and to the workers, add up. Businesses that misclassify fail to pay mandatory payroll taxes such as Social Security and Medicare (FICA), unemployment insurance (UI), and workers’ compensation insurance. The independent contractor is made responsible for the full FICA tax, rather than half. The loss of billions of dollars in tax revenue creates a significant financial burden for local, state, and the federal governments, not only due to lost revenue but also because of the added cost of providing social services to uninsured workers. Businesses can also be harmed by the practice of worker misclassification, when law-abiding companies that pay their taxes and properly classify their workers could face a competitive disadvantage.

 If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker.

 Workers who believe they have been improperly classified as independent contractors by an employer can file an IRS Form 8919 to figure and report their share of uncollected Social Security and Medicare taxes due on their compensation. By filing this form, their social security earnings will be credited to their social security record.

 For more information, you can visit this IRS page.

 If you would like our assistance with determining worker classification, give us a call: 251-476-7685.

DO YOU KNOW ABOUT the Rebuild Alabama Act?

The Rebuild Alabama Act (also known as the “Gas Tax Bill”,) was passed earlier this year for the purpose of raising revenue toward maintenance & construction of Alabama roads and bridges by the Alabama Department of Transportation, Counties, and Municipalities.

The best-known revenue measure from this act is the Incremental Fuel Tax Increase, whereby state gasoline and diesel taxes will increase by 6 cents per gallon on October 1, 2019. This tax will increase twice more in the coming years, by 2 cents per gallon on October 1, 2020, and 2 cents per gallon again on October 1, 2021.

The new revenues raised through these increases in the gas and diesel tax will be distributed as follows:

66.67% to the State of Alabama,

25% to the Counties, and

8.33% to the Municipalities

Once fully implemented, the total 10 cent per gallon gas tax increase will cost the average driver less than $5.00 a month, and will fund much needed repairs and additions to Alabama roadways.

Are you considering listing your house as a vacation rental site?

If you’re considering listing your house as a vacation rental site, here’s a tax tip to remember for renting out your home on a short-term basis: rentals for 14 days or less in a year aren’t taxed. So, if you don’t mind the idea of strangers staying in your house, you can bring in a little tax-free cash.

 The 14-day rule also plays into rental property deductions. You can’t deduct rental real estate losses when your personal use of the home exceeds the greater of 14 days per year or 10% of the days the home is rented.

DID YOU KNOW: All business expenses must be properly substantiated…

All business expenses must be properly substantiated in order to be deductible for income tax purposes, but certain expenses, including travel, meals, entertainment and vehicle expenses are subject to the special substantiation requirements under Code Section 274 (d). These substantiation requirements include “adequate records” of the amount, time, place and business purpose of the expense.

Vehicle mileage is typically substantiated by mileage logs which record the date of the travel, the beginning and ending odometer readings, the name of the destination and business reason for the trip. Such log entries are supposed to be created at the time of travel, or shortly thereafter (contemporaneously) while the details of the travel are still fresh.

Quite a few cases have been heard by the Tax Court which concern mileage expenses. In almost every case, the mileage logs were deemed to be inadequate substantiation and the auto expense deduction was denied because 1) the mileage logs did not include all of the required details (especially notations regarding the business purpose of the trip), and/or 2) the logs did not appear to be prepared contemporaneously. The courts also investigated toll tickets, gas tickets, credit card receipts and other documents to try to correlate the travel shown in the logs with actual business expenses paid, in order to prove that the trip(s) were actually taken as indicated in the log.

If anyone in your company incurs any travel, meals, entertainment or vehicle expenses, please make sure all of the substantiation requirements of Code Section 274 (d) are strictly followed in order to preserve your deduction. Please note: Due to the changes under the Tax Cuts and Job Act of 2018, these deductions are no longer available to individuals as employee business expenses on Schedule A of their income tax returns.

If you have any questions or need any help in determining how to best follow these substantiation rules, please contact our office at 251-476-7685.

Filing a paper tax return by regular mail can be risky.

Filing a paper tax return by regular mail can be risky. If the Internal Revenue Service doesn’t receive your tax return on time, you have the burden of proving that the return was in fact mailed on time. Your testimony that you put the return into a mailbox at the post office before the deadline isn’t enough.

Registered or certified mail, or the use of agency-approved private delivery services, are the exclusive ways by which a taxpayer can prove that tax forms were delivered to the IRS when the time of filing is in question or if the IRS can’t find a return.

Whew! The tax season rush is nearly over!

The tax season rush is nearly over: the tax deadline is only a couple of days away! If you have been putting off filing your 2018 personal tax return, you have until Monday, April 15th to complete them or to file for an extension. 

The Internal Revenue Service encourages all taxpayers to E-file their returns, and to choose Direct Deposit to get their tax refund faster.  Those taxpayers who expect a refund and have filed using E-file + Direct Deposit will typically see their refund in fewer than 21 days.

 If you mail a paper return instead, it can take 6 to 8 weeks to process your return.

 For more information on E-filing and Direct Deposit of  tax refunds, visit https://www.irs.gov/newsroom/taxpayers-can-get-faster-tax-refunds-with-direct-deposit.

 If you haven’t yet filed your 2018 tax return and would like our help with an extension, give us a call at 251-476-7685.

HAVE YOU EVER WONDERED about the origins of Daylight-saving time?

 Daylight-saving time (DST) is the practice of advancing clocks during summer months so that evening daylight lasts longer. In all countries that use daylight saving, the clock is advanced in spring and set back in autumn.

 The idea was first proposed by George Hudson, a British-born entomologist and astronomer, in 1895. The first city in the world to enact Daylight-Saving time was Port Arthur, Ontario, Canada in 1908; the first nation-wide implementation was in 1916 in the German Empire & Austria-Hungary.

 The majority of the world’s population do not observe Daylight-saving time, including Africa and Asia.

 In the U.S.A., which adopted daylight saving in 1918, DST isn’t observed in Arizona or Hawaii.

 As for the rest of us, we “spring forward” into Daylight-Saving Time this year at 2:00 a.m., March 10, 2019.

Graveyard-shift workers, therefore, will actually work only seven hours that day. Check with your employer to see whether you will be paid for a standard eight-hour shift, or for your actual hours worked.