New Employee Retention Credits – A Huge Tax Gift for Your Business

Congress has passed a new tax Act in 2021 which provides a huge tax gift to employers.

The CARES Act created the Employee Retention Credit (ERC) for 2020 to help businesses keep employees during the COVID-19 crisis.

Now congress has:

  1. 1. extended the credit through June 2021 as part of the Consolidated Appropriations Act (CCA) of 2021.
  2. 2. revised CARES to provide qualifying employers with a refundable credit against certain employment taxes equal to 70% (up from 50% prior to 2021) of the qualified wages that an eligible employer pays to employees after March 12, 2020, and before July 1, 2021 (original end date of December 31, 2020.)
  3. 3. Under the following circumstances, the new legislation makes an employer eligible for the ERC even if they received a PPP loan.
  4. 4. An eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness.
  5. 5. Any wages that could count toward eligibility for the ERC or for PPP loan forgiveness can be applied to either of these two programs but not both.

Employers, including tax-exempt organizations, are eligible for the 2021 credit if they operate a business between January 1, 2021, and June 30, 2021, and experience either:

  1. 1. A Significant Decline in GROSS receipts for 2021, defined as receipts for a calendar quarter less than 80% of its receipts for the same calendar quarter in 2019.
  2. 2. full or partial suspension of the operation of their business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19.
    • Companies can also elect to apply the gross-receipts test using the immediately preceding calendar quarter. For example, instead of comparing gross receipts of the first quarter of 2021 with that of the first quarter of 2019, you can elect to compare the gross receipts of the first quarter of 2020 to the gross receipts from the fourth quarter of 2019.
    • Business that did not exist at the beginning of the same calendar quarter in the calendar year 2019, can substitute “2020” for “2019.”

     

    The credit applies to “Qualified Wages” as further defined below, paid during this period or any calendar quarter when operations were suspended. Eligible health-plan expenses are the amounts paid by the employer to provide and maintain group health-plan coverage, to the extent that the amounts are nontaxable to the employees.

    Qualified Wages – The definition of qualified wages depends on the number of employees an eligible employer has. For the 2021 credit, if an employer averaged more than 500 full-time employees during 2019 (versus 100 for the 2020 credit), qualified wages are generally the wages, including eligible health-care costs (up to $10,000 per employee per quarter) paid during that quarter to employees who were not providing services because they were laid off or furloughed.

    If an employer averaged 500 or fewer full-time employees during 2019 (versus 100 for the 2020 credit), qualified wages are wages, including eligible health-care costs (up to $10,000 per employee per quarter), paid to any employee during the quarter when operations were suspended or for which the decline in gross receipts applies, regardless of whether its employees were providing services.

    The rules for claiming credits based on the payment of “qualified health plan” expenses for eligible employees are retroactive to March 23, 2020. If, as a result of these changes, additional credits are due to an employer for prior calendar quarters based on the payment of qualified health-plan expenses, then those credits are to be claimed when filing IRS Form 941 for the fourth quarter of 2019.

    If the employer’s employment tax deposits are insufficient to cover the credit, you may get an advance payment from the IRS by filing Form 7200, Advance of Employer Credits Due to COVID-19. For each employee, up to $10,000 in wages (including certain health-plan costs) per quarter (versus $10,000 per year in 2020) can be counted to determine the amount of the 70% credit.

    An eligible employer’s ability to claim the Employee Retention Credit is impacted by other credit and relief provisions as follows:

    • Under the old CARES act, an employer that received a Small Business Interruption Loan under the Paycheck Protection Program was ineligible to receive the Employee Retention Credit in 2020. However, the CCA changed this rule, retroactive to March 23, 2020, and borrowers of PPP loans are now eligible to claim the Employee Retention Credit. However, eligible employee’s wages used to substantiate the forgiveness of a PPP loan, cannot also be used to claim the Employee Retention Credit.
    • Employees are not counted toward this credit if the employer is allowed a Work Opportunity Tax Credit.
    • Wages counted for this credit cannot be counted toward the credit for paid family and medical leave.
    • Wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the Families First Coronavirus Response Act.

    Claiming the Credit – To claim the new version of the Employee Retention Credit, eligible employers must report their total qualified wages and the related health-insurance costs for each quarter on their quarterly employment tax returns. The credit is taken against the employer’s share of Social Security tax, and the excess is refundable under normal procedures.

    If you are unsure if you qualify or have questions about how these credits apply to you, please call us at 516-482-7777 to discuss your specific situation.

10 Tax Saving Tips for the New Year

tax saving tips 2021A dollar saved is a dollar earned. By adopting a few simple ideas, you can tackle the tax advantages that come with savings and do so with confidence. Use these top ten tax saving tips in the New Year to help you lower your taxes, save money and avoid penalties.

1. Claim a home office tax deduction
The eligibility rules for home office deduction have been substantially relaxed to allow more filers to claim a tax break. You don’t need to own your home as long as you’re adhering to the “regular and exclusive use” and “principal place of business” stipulations. You can also claim a home office deduction even if you don’t meet clients there. Continue reading

Home Office Deductions for Small Businesses

If you are a small business owner or you’re self-employed and work from home, you will likely be able to take advantage of the home office deduction in 2020. According to the IRS, small business owners are leaving money on the table each time they file their taxes. Of the 23.4 million returns filed by sole proprietors for tax year 2011 (the latest year for which statistics are available), 7.6 million filers claimed a home office deduction. Continue reading

How to Prepare for Potential Tax Increases in 2021

 

The economic turmoil of 2020 has many worried about their savings. COVID-19 has lead to the second-highest unemployment rate in American history, with about one in five people collecting unemployment benefits. State governments are reportedly experiencing extreme budget problems, and the US GDP was down 32.9%, the largest quarterly drop since the Great Depression. 

Many of these economic indicators are causing wealthy families to think carefully about how to protect their wealth. COVID-19 may cause the government to raise taxes to try to cover unemployment programs as well as the expenses that states are facing in the battle to contain the pandemic. The president has not yet revealed a tax plan for meeting rising government spending, but his opponent, Joe Biden, has released his strategy. Here’s what wealthy families need to know to protect their income and savings from higher taxes. 

Biden’s Proposed Tax Policy

It’s impossible to know the outcome of November’s election, but Joe Biden has already released some details as to his proposed tax policy. The policy, which was formed by a task force coordinated with Bernie Sanders, is 110 pages long. Perhaps the biggest change Biden has proposed is to raise the top individual tax rate from 37% to 39.6%. Americans who earn more than $1 million would also experience a rise in long-term capital gains tax, to 39.6%, from 20%.

Biden’s policy proposes the following actions: Raise the highest tax rate on high-income taxpayers from 37% to 39.6% 

  • • Tax long-term capital gains and qualified dividends as income for taxpayers making over $1 million (at a rate of 39.6%). 
  • • “Step up in basis,” a tax break that allows beneficiaries who inherit assets to sell off those assets and pay little to no taxes, would be repealed. 
  • • Begin phasing out the Sec 199A pass-through deduction for households with taxable income in excess of $400,000. 
  • • Bring back the Pease Limit on itemized deductions. Note that in 2017, the final year in which the Pease Limit was applicable, the phase-out threshold was $261,500 for single filers and $313,800 for married taxpayers filing jointly. 
  • • The benefit for itemized deductions would be limited to 28%. 
  • • Bring back the 12.4% Social Security payroll tax once earnings reach $400,000. (Note that in 2020, this tax only applies to the first $137,700 of compensation. Employees and a company split the tax 50/50; self-employed individuals also pay into the program. Biden’s plan, if it were active this year, would apply the payroll tax to the first $137,700 of earnings and resume when a worker’s earnings reach $400,000, creating a gap between $137,700 and $400,000 in which this tax wouldn’t apply.)

“A guiding principle across our tax agenda is that the wealthiest Americans can shoulder more of the tax burden, including in particular by making investors pay the same tax rates as workers and bringing an end to expensive and unproductive tax loopholes,” said the text of the plan

These changes have many Americans thinking ahead – and looking for ways to start saving on taxes now. 

How to Prepare for Tax Increases

Remember: the presidential election is just one piece of the puzzle. Democrats would also have to control the House and the Senate to push these reforms through. 

President Trump in a press briefing on August 10 proposed cutting the capital gains tax; his tax policies in the past have shown interest in protecting the wealthy. However, the IMF is recommending governments worldwide consider a “solidarity surcharge,” increasing taxes on “income, property and wealth” to protect the global economy. There may be higher taxes hitting wealthy families regardless of who wins the November election.

If you’re earning an income that places you in the crosshairs of this tax reform, there are some ways you can start to prepare ahead of time. 

  1. 1. Take advantage of lower capital gains taxes in 2020 and sell appreciated stocks you have held for more than one year. If you wish to maintain a position in this stock, repurchase the equity immediately – wash sale rules don’t apply to gains.
  2. 2. Close any sale of real estate or rental property in 2020 to avoid the top capital gains rate tax rising to an ordinary income rate of 39.6%.
  3. 3. The self-employed and private business owners should look for ways to charge more income in 2020 and shift expenses to 2021 to avoid higher income tax rates in 2021. 
  4. 4. Are you newly working from home? Some wealthy taxpayers are taking advantage of their new location independence to move to states with no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Others are relocating to a state with lower taxes. 

Also to note: historically, Democrats have proposed dropping the lifetime state tax exclusion from $11.58 million (or, for married couples, $23.16 million) to $3 million. If you’re worried about your estate taxes, gift money to family members and other beneficiaries to utilize the current lifetime exemption and avoid paying an estate tax of 40%. 

It’s also important to know that if you choose to change your tax residency, the process could take more than a year. Speak to your accountant before making that decision, as the formal process of changing your permanent residence isn’t as simple as buying a home elsewhere. 

Every financial situation is different. If you’re not sure whether or not to sell off an asset, or if you’re looking for more ideas to improve your tax situation, speak to an expert at CPAservices.com who can help you understand what actions you can take in 2020 to avoid a bigger tax burden in the future. 

How to Maximize Your Social Security Retirement Benefits

As you get closer to retirement, you may start to think about collecting social security. According to the Social Security Administration, 68 million US citizens collected Social Security benefits in June 2019. Many people, however, plan to keep working at least part-time after they can begin collecting Social Security benefits. This can impact your taxes significantly – here’s what you need to know about the financial consequences of working during retirement. Continue reading

How To Plan for Retirement Financially

For many Americans, retirement feels like a far-off and distant dream. The most common age to retire in the US is 62 years old, which is also the minimum age to collect Social Security.

However, as demographics change in the US, Social Security will become less and less of a dependable, viable source of full income for future generations of retirees. It is of paramount importance that young people begin to plan and save for retirement sooner, rather than later.

There are several ways to predict and budget for the money you will need in retirement. Here’s how to estimate how much you need to save to live comfortably in your later years.

How much money do you need to live on after you retire?

The first step is establishing what your general living costs are and trying to adjust how much you will need to live on in retirement. The overall goal is to get a clear picture of how much you need, and then finding the sources of retirement income to match that result. Continue reading

What You Need to Know About the 529 College Savings Plan

There are many misconceptions about the 529 college savings plan. This tax-advantaged savings plan is a great option for saving for college expenses; yet more than 70% of Americans are unfamiliar with the advantages it presents.

College costs – as well as student loans – are on the rise. The average in-state college tuition, room, and board bills at $20,770, while private college costs are nearly $188,000. It can take years to pay off student debt or college loans. Parents (or grandparents) who own a 529 plan are making a smart investment in their student’s future.

To clarify some of the confusion around the 529 plan, read our guide on who should own the 529 plan, the tax benefits and types of plans available, as well as how to set one up.

The 529 Plan: Background

The 529 plan is an education savings plan that is sponsored by a state or a state agency. It’s named after Section 529 of the Internal Revenue Code (IRC) which authorizes tax-free status for “qualified tuition programs.” The section was added after Michigan established the first prepaid tuition plan, the Michigan Education Trust, in 1986. Continue reading

Get Your Tax Refund Quicker

Income tax-filing season started on January 28 and the tentative government shutdown and reopen has tax returns on everyone’s mind, especially when the IRS is one of the agencies that is unfunded while our government is closed. Despite the uncertainty of a future shutdown, the IRS will still pay tax refunds, according to the White House.

Many American families rely on getting money back in their annual tax refund. The average refund was more than $2,890, according to the IRS. And, by some estimates, more than 70% of Americans expect to get money back.

Following these tips will help you to get your tax refund quicker.

Get your tax return filed ASAP

The faster you get your taxes filed, the sooner you’ll see your return. Filing as soon as the window opens lowers the risk of refund theft. Tax refund theft has been on the rise in recent years. A fraudster steals personal information and then uses it to file a fake tax return, taking the refund amount for themselves. Then, when the real taxpayer goes to file their return, they’ll get an error message saying they’ve already filed. It could take months for the IRS to verify your identity, sort out the fraud, and get you your actual tax refund. It’s better to file early and avoid the risk altogether.

File your taxes electronically

Paper tax returns are time consuming for the IRS to process. An employee at the agency has to manually input and process your records. The IRS estimates that it takes roughly two weeks to process an e-filed return – versus six weeks to process a paper tax return. Continue reading

New Updates for 2019 Taxes – Part 2

In part 1, we covered changes to taxable income brackets and tax rates for individuals and married filing jointly. In part 2, we will cover deductions and other updates.

Changes to Standard Deduction Amounts

A standard deduction is the dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status. At the beginning of 2018, the new tax plan brought higher standard deductions with the intention of helping families keep more of what they earn. Higher standard deductions often benefit middle-income families who see their income subject to lower tax rates.

This coming tax year, new standard deduction amounts will increase to: $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly and surviving spouses.

There are also a few specific standard deduction changes you need to know for 2019:

  • Additional standard deduction amount for the aged or the blind: $1,300 (increases to $1,650 for unmarried taxpayers).
  • The standard deduction for an individual claimed as a dependent by another taxpayer cannot exceed $1,100 OR the sum of $350+ the individual’s earned income, whichever is greater.
  • There will be no personal exemption amount for 2019 per the Tax Cuts and Jobs Act.
  • Alternative minimum tax (AMT) exemption amounts will be adjusted for inflation. The AMT exemption is a mandatory alternative to the standard income tax for taxpayers who make more than the exemption.

Continue reading

New Updates for 2019 Taxes – Part 1

As 2018 winds down, it’s time to look ahead to the new year and the changes coming to your 2019 federal tax rates. The IRS recently announced changes to more than 60 tax provisions, including tax rate schedules, cost-of-living adjustments, and more. Many of the changes announced for 2019 align with the Tax Cuts and Jobs Act passed in 2017. These new policy regulations take effect starting January 1, 2019 – meaning they’ll impact the tax return you prepare for April 2020. Nevertheless, plan ahead and avoid surprises when tracking your finances.

Here are the key changes the IRS is making to your taxes in 2019.

New 2019 Taxable Income Brackets and Tax Rates

Just as in 2018, there are seven tax rates the IRS has bracketed out for 2019. These tax rates are set at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The taxable income ranges have changed slightly from 2018. Here’s how these rates break out by filing status:

Source: https://taxfoundation.org/2019-tax-brackets/

In comparison to 2018, the income brackets have shifted upward slightly. For example, in 2018, incomes of 0 – $19,050 were taxed at 10%; now, the IRS includes incomes up to $19,400. Continue reading