Gray & Harasym, LLP

Dear Clients: In last month’s newsletter we mentioned that the IRS is now allowing PPP expenses to be deducted. As a follow up to this, California has determined that they will NOT be allowing the deductions. Therefore, while the change by the IRS is a win-win for us, California has tempered the celebration somewhat with their more aggressive position. We do not expect California to change this stance, but will keep you updated in case things do change. The updated legisla...tion also extended the employee retention credit until July 1, 2021. In addition, it made PPP recipients eligible for the credit. This federal credit is applicable to employers who paid wages and saw a reduction in revenue, when compared to 2019. It is a payroll credit, so your payroll processor would handle the paperwork for you. If your business dropped off in 2020 and you think you may be eligible, contact your payroll provider directly for guidance. More info can also be found here: https://www.irs.gov//faqs-employee-retention-credit-under-. For all taxpayers, we will need to know whether or not you received any economic impact payments from the IRS. For those who received payments, we need to know the exact amounts you received each time (April/Mary of last year and/or this past month). The IRS supposedly mailed Notice 1444 to every recipient with this information. We need to see a copy of that notice or some other documentation from you verifying the amount(s) that you received. We will be unable to complete your tax returns without this information, so please remember to include it with your other tax paperwork. All of our engagement letters and organizers were mailed out at the beginning of January. If you have not received your paperwork, please let us know. As a reminder, in order to meet the April 15th deadline for individual income tax returns, we will need your tax information by March 1. Upcoming due dates: March 15th: Filing deadline for partnerships and S-corporations April 15th: Filing deadline for C-corporations, fiduciary returns, and individuals May 17th: Filing deadline for exempt organizations As always, if you have any questions, please do not hesitate to contact us. We are here to help. Celeste & Mark

Dear Clients: Happy New Year! With the President’s signature on the second COVID relief bill, it looks like there will be a second round of Paycheck Protection Program (PPP) loans. Details are still trickling out but it looks like these funds will be earmarked for businesses that have seen at least a 25% decline in revenue from 2019 to 2020. Stay tuned for more info as the 5,000+ page legislation is digested and translated.... One of the bigger aspects of the new legislation is the deductibility of the expenses that are paid with the PPP funds. Previously, the IRS had ruled that since the PPP was free money, then the expenses paid with those funds could not be deducted. Congress corrected this in the new legislation, so the PPP money itself is non-taxable and the expenses paid are deductible. A rare win-win for the taxpayer! As a reminder, there’s a new 1099 for 2020. For money paid to non-employees, the new 1099-NEC should be used to report the payments to the IRS and the recipient. This information was previously reported on 1099-MISC. The 1099-MISC will still be used to report rents and royalty payments, but the IRS has decided to handle non-employee compensation via this new 1099-NEC going forward. As a reminder, 1099s need to be issued to all recipients by the end of this month. As always, if you have any questions, please do not hesitate to contact us. We are here to help. Celeste & Mark

Dear Clients: We hope everyone is doing well and staying healthy. We have been receiving questions regarding the PPP loan forgiveness application. As things stand now, taxpayers have 10 months after the end of the 24 week window to apply for forgiveness. Given this timeframe, and the semi-fluid nature of these regulations, we are recommending that clients wait to file the forgiveness paperwork. There has been word that low dollar loans (less than $150,000) will be automati...cally forgiven without having to file the required paperwork and forms to the SBA. The SBA recently streamlined the application process for loans that are less than $50,000, but this application still requires supporting documentation. Our hope is that all of this paperwork will be eliminated once the final regulations are issued. Stay tuned. Regarding PPP loan proceeds, businesses should remember that the expenses funded by the PPP loan proceeds are currently non-deductible. The IRS’s position is that since the forgiveness of the loan is non-taxable, then the expenses that were paid by that loan should be non-deductible. There is hope (and pressure) that the IRS will change this determination before the 2020 tax filing season, but we’ll have to wait and see. For now, business owners should be separately tracking their PPP funded expenses so we can correctly categorize them on their 2020 tax returns. Only one due date left for 2020: - November 16th: Extension deadline for tax-exempt organizations As always, if you have any questions, please do not hesitate to contact us. We are here to help. Celeste & Mark

Dear Clients: We hope everyone is doing well and staying healthy. The House passed a new stimulus bill this week. It includes money earmarked for the airlines, along with provisions for another round of stimulus payments for taxpayers, plus an extension of the Paycheck Protection Program. Word on the street is that it’s a long shot to get approval from the Senate and the President, but negotiations continue. We would not be surprised to see something before November. Stay... tuned. Since many of us have been working from home for part of 2020, we are getting questions regarding home office deductions. If you are employee, there is no deduction for home office use on your federal taxes (it was eliminated in 2018). You may get a benefit on your state taxes, though, depending on your state of residence. If you are eligible, generally we deduct a portion of the costs of running your home (utilities, rent, mortgage interest, property taxes, etc.) with the allocation based on square footage of the office relative to the footage of the entire home. And remember, the space you use must be exclusively and regularly used for business in order to be eligible. So, this means that the dining room table does not qualify (since it is not used exclusively for business). Upcoming due dates: - October 15th: Extension deadline for C-corporations and individuals - November 16th: Extensions deadline for tax-exempt organizations As always, if you have any questions, please do not hesitate to contact us. We are here to help. Celeste & Mark

Dear Clients: The President’s Executive Order deferring the employee’s portion of social security taxes takes effect today. This change is only a deferral and only available for employees who make less than $104,000 annually. Any amounts that are deferred from now until the end of the year will need to be repaid (via payroll, we presume) from January through April 2021. So, while employees will see higher than normal paychecks for the next four months, they will see lower ...than normal ones for the first four months of 2021 as they repay the deferred taxes. We are still awaiting specific guidance from the IRS regarding this, so our understanding is subject to change pending any additional clarification by the government. The IRS is still behind on mailings they have received the last several months. It is not uncommon this year for some taxpayers to still be waiting on refunds (especially if they paper-filed their tax returns). For those who have received refunds, the IRS may be including some interest with the refund. In a typical year, the filing date is April 15th. With the delay to July 15th this year, the IRS is paying interest on returns filed by July 15th to account for the delay. The bad news is that this interest income is taxable in 2021. The IRS giveth and taketh away. As we come into the final stretch of what has seemed like a really long tax season, the following are the remaining due dates: September 15th: Extension deadline for S-corporations and partnerships September 30th: Extension deadline for calendar year trusts and estates October 15th: Extension deadline for C-corporations and individuals November 15th: Extension deadline for tax-exempt organizations As always, if you have any questions, please do not hesitate to contact us. We are here to help. Celeste & Mark