1099-MISC and 1099-NEC Due to Recipients 2/1/2021

The revised Form 1099-MISC, Miscellaneous Income, and the new Form 1099-NEC, Nonemployee Compensation, must be furnished to most recipients by Feb. 1, 2021.

Form 1099-NEC is a new form for tax year 2020 for nonemployee compensation of $600 or more to a payee.

 

Posted in IRS

Expanded Paycheck Protection Program (PPP) for Small Businesses and Eligible Non-Profits

The Coronavirus Response and Relief Supplemental Appropriations Act of 2021, provides a second round of payments under the Paycheck Protection Program.  Businesses with 300 or fewer employees that have experienced 25% revenue loss in any 2020 quarter and small 501(c )(6) organizations that have 150 employees or fewer are eligible for a Paycheck Protection Program under the COVID-19 Emergency Relief Package.

The expanded Paycheck Protection Program also broadens the type of business expenses that can be forgiven under the loan to include supplier costs, allows business expenses paid utilizing PPP proceeds to be tax deductible, and simplifies the loan forgiveness process.

Posted in Taxes

CARES Act Special $300 Deduction for People who Claim the Standard Deduction

The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted by Congress last spring, includes temporary tax changes helping charities including a special $300 deduction designed especially for people who choose to take the standard deduction, rather than itemizing their deductions. A cash donation to a qualifying charity before the end of 2020 can earn a deduction of up to $300.

Almost 90% of taxpayers now take the standard deduction and could potentially qualify for this new tax deduction.

This could help taxpayers when they file their taxes in 2021 – and help many organizations across the country as they try to help people coping with the coronavirus. Many charities are struggling this year, and donations for many are down.

The Tax Exempt Organization Search (TEOS) tool on IRS.gov can be used to make sure an organization is eligible for tax-deductible donations.

Under the law, special recordkeeping rules apply to any taxpayer claiming a deduction for a charitable contribution. Usually it means simply getting a receipt or acknowledgement letter from the charity before filing your tax return and retaining a cancelled check or credit card receipt.

Posted in IRS, Taxes, Tips

PPP Forgiveness Update

Although the CARES Act Payroll Protection Program’s (PPP) loan application period closed last August, businesses who received funding and now need to plan for loan forgiveness. The rules changed since the program began.

On June 5, 2020, the Flexibility Act was signed into law amending the CARES Act, changing PPP loan terms and loan forgiveness.

Original Intentions

Because the PPP loan was designed to provide incentives for small businesses to keep workers on the payroll when the pandemic first erupted, the entire loan is forgivable if the retention criteria are met, and the funds are used for eligible expenses. If the whole loan is not used during the maturity period, the borrower must repay the unused portion at an interest rate of 1%. If the borrower uses the loan beyond the scope of the eligible expenses, the part that’s not forgivable must be repaid at the 1% interest rate.

These requirements of the PPP have not changed since the program’s inception. In addition, borrowers don’t have to offer collateral or personal guarantees for the loans, nor do borrowers have to pay any lender fees.

What’s Changed?

Initially, the PPP required borrowers to use the allocated funds within eight weeks of disbursement. Clearly, most people underestimated how long the pandemic would last and how devastating it would be for many small businesses.

For loans issued before June 5, the Flexibility Act expanded loan forgiveness for up to two years.

For loans issued after June 5, loan forgiveness lasts up to five years after borrowers receive the funds.

In addition, the original PPP stipulated 75% of the loan had to be used strictly for payroll costs which are capped at $100K per employee. The Flexibility Act changed the amount to 60%, which helps businesses still struggling under pandemic conditions.

Finally, the PPP Flexibility Act extended the deferral period for the borrower’s payments of principal, interest, and fees on all PPP loans to the date the SBA remits the borrower’s loan forgiveness amount to the lender. If the borrower doesn’t apply for loan forgiveness, the deadline is 10 months after the end of the borrower’s loan forgiveness-covered period. Before the amendments, the deferral period could end after six months.

There’s no need to have the lender modify the promissory note as the extension period is automatically applied to all PPP loans.

The Forgiveness Application

In early October, the SBA released a revised, simpler PPP Loan Forgiveness Application. The forms are either SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or the lender’s equivalent form.

Since the PPP’s goal was to keep employees on the payroll, a reduction in the number of full-time employees could reduce the forgivable amount of the loan.

Businesses have three reference periods available to calculate the number of full-time employees to the number employed after receiving the PPP:

  • February 15, 2019, to June 30, 2019
  • January 1, 2020, to February 29, 2020
  • Twelve consecutive weeks between May 1, 2019, and September 15, 2019 (this accounts for seasonal employers)

 

If a business reduced the number of employees since the PPP disbursement, the SBA offers two safe harbors to avoid having the loan forgiveness amount reduced.

Businesses required to partially or fully shut down
Businesses trying to restore the number of full-time employees but finding it difficult can find safe harbor if the employee numbers were reduced between February 15, 2020, and April 26, 2020. In addition, businesses may find safe harbor if they can get the employee numbers back up by December 31, 2020.

The forgiveness application has a PPP Schedule A Worksheet to help a business determine if they qualify for safe harbor.

If a business tried, in good faith, to rehire the correct number of employees to meet the forgiveness requirements, but was unable to do so due to factors like not being able to find qualified workers or the laid-off employees refused to be rehired, a business may still qualify for forgiveness. Businesses need to keep all documentation supporting the efforts, such as job offers, refusal letters, resignations, or firing an employee for cause.

Another stipulation to receive PPP forgiveness is to ensure employees’ salaries weren’t lowered by more than 25% of what they were paid as of February 15, 2020. However, if a business can raise the impacted employees’ average annual wages by December 31, 2020, or by the loan forgiveness application date (whichever is earlier) to the February 15, 2020 level, the business can still receive forgiveness.

Businesses may be able to use the easy forgiveness application forms (3508EZ and 3508S) depending on how much they borrowed and whether they reduced employee salaries and headcount.

 

Posted in IRS, Taxes

City of Colorado Springs Sales Tax Rate Change

In Colorado Springs, the total combined sales and use tax rate will be lowered from 8.25% to 8.20% starting 1/1/2021:

  • 3.07% City of Colorado Springs (city collected)
  • 2.9% State of Colorado (state collected)
  • 1.23% El Paso County (state collected)
  • 1.0% PPRTA (state collected)
Posted in Colorado, Taxes

PPP Forgiveness for Loans $50,000 or Less

Recipients of Paycheck Protection Program (PPP) loans of $50,000 or less will be able to apply for forgiveness using a simplified application that was released Thursday by Treasury and the U.S. Small Business Administration (SBA).

The new application form, SBA Form 3508S, can be used by PPP borrowers applying for forgiveness on PPP loans with a total loan amount of $50,000 or less, unless those borrowers together with their affiliates received loans totaling $2 million or more. Instructions for Form 3508S also were released.

Borrowers of $50,000 or less still will have to make some certifications and provide documentation to the lender for payroll and nonpayroll costs.

The borrower is responsible for providing an accurate calculation of the loan forgiveness amount. The borrower will attest to the accuracy of the reported information and calculations on the loan forgiveness application.

Whether a borrower submits SBA Form 3508, 3508EZ, or 3508S, or a lender’s equivalent form, the lender is required to confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and nonpayroll costs.

Borrowers of $50,000 or less are exempted from any reductions in forgiveness based on:

  • Reductions in full-time-equivalent (FTE) employees; and
  • Reductions in employee salary or wages.

The application can be found:

https://www.sba.gov/sites/default/files/2020-10/PPP%20Loan%20Forgiveness%20Application%20Form%203508S.pdf

If a company receives an EIDL advance and a PPP loan, proceeds from the advance will be deducted from the loan forgiveness amount.

To illustrate, say a company gets a $30,000 PPP loan and a $5,000 EIDL advance. The amount of the advance would be deducted from the forgivable amount of the PPP loan. So even if the company follows all of the loan forgiveness rules, the most that can be forgiven is $25,000. The company would need to repay the remaining $5,000 to the lender.

The SBA has requested that a company ask for forgiveness for the full amount of the PPP loan. For example, the company would request for forgiveness for $30,000 and the SBA will deduct the $5,000 after receiving the application. If the company requested forgiveness for $25,000, the $5,000 would still be deducted and they would receive forgiveness for a maximum amount of $20,000.

Posted in IRS, Taxes

Connect for Health Colorado

HB20-1236, which was recently signed into law, creates a program that will allow Coloradans to ask on their state income tax returns for Connect for Health Colorado (Exchange) to assess whether uninsured household members are potentially eligible for free or subsidized health care coverage.

If they elect for the Exchange to check their eligibility for insurance affordability programs, the Exchange will receive their information from the Department of Revenue and will check their eligibility.

Posted in Colorado, Taxes

Colorado Workers’ Compensation Insurance

Colorado’s Division of Workers’ Compensation requires workers’ compensation insurance for all Colorado employers with at least one employee (even if the one employee is you, the owner). Workers’ compensation insurance protects businesses and employees from the costs of a workplace injury.

Posted in Colorado

PPP Forgiveness

Small businesses wanting to submit their forgiveness applications for PPP loans may have to wait. According to many banks and experts, while the SBA officially opened its forgiveness portal to lenders August 10, most lenders will likely delay. The potential for new legislation, changing directives, and the desire to adequately prepare give banks little incentive to launch immediately.

Posted in IRS, Taxes

IRS Simplified Tax Accounting Rules for Small Businesses

The IRS issued proposed regulations to adopt the simplified tax accounting rules for small businesses under the Tax Cuts and Jobs Act (TCJA).

For tax years beginning in 2019 and 2020, these simplified tax accounting rules apply for taxpayers having average annual gross receipts of $26 million or less (known as the gross receipts test).

Prior to the TCJA, certain taxpayers could determine whether they were eligible to figure taxable income under the cash method of accounting by meeting a different gross receipts test.  That gross receipts test was met if the taxpayer’s average annual gross receipts for all prior taxable years did not exceed $5 million.

After the TCJA, a taxpayer that meets the gross receipts test can use the cash method if average annual gross receipts for the three-taxable year period ending immediately before the current taxable year are $25 million (adjusted for inflation) or less, can be exempt from the uniform capitalization rules, and can be exempt from the requirement to use an inventory method.

Posted in IRS, Taxes