Matt Woolfolk

 

25th ANNUAL UCCS ECONOMIC FORUM!

 

BiggsKofford is a proud sponsor of the 25th Annual UCCS Economic Forum!

This is a great opportunity to get important information about the economic health and outlook of the region. The UCCS Economic Forum is the leading source of unbiased and rigorous information for the Pikes Peak region. Data is continuously updated and actively utilized in the community to inform and drive economic development and business decisions.

BiggsKofford CPA Firm is well-positioned to help our clients, our staff, and our community achieve greater success. We’ve planned a number of activities to help everyone comprehend the current state of the economy. This mission has always been and will continue to be critical to our firm’s success. We also collaborate with you to find answers and achieve your goals.

Come celebrate the 25th Annual UCCS Economic Forum with us and have fun!

IRS Sends Out 11 Million “Math Error” Notices

Many Americans are receiving Math Error notices from the IRS resulting in adjusted tax due or reduced refunds for 2020. This is more than five times as many as they sent in 2019 and more than 14 times as many as last year. The majority of the letters (more than 80%) involve taxpayer claims for Recovery Rebate Credits, the term for stimulus payments claimed on tax returns.

This significant increase in tax liability adjustments and Math Error notices seem, for the most part, to be triggered by errors in calculations of the Stimulus Payments. There are a number of possible reasons, from a math error to a missing or incomplete Social Security number to the last name of a claimed dependent not matching IRS records.

However, the most likely reason you’re getting the letter is because of the economic stimulus payments. If your gross adjusted income exceeds $75,000 (or $150,000 if you’re married and filing jointly, or $112,500 if you are the head of household), then you might have to pay some of that stimulus check back.

If you believe the adjustment is in error, the IRS is encouraging taxpayers to call the IRS at (800) 829-8374 to review their account with a representative. You have 60 days to request an abatement for the amount owed. In that time, you can provide additional documentation to the IRS to explain why you shouldn’t have to pay. However, the IRS notes, “if you don’t provide us additional information that justifies the reversal and we believe the reversal is in error, we may forward your case for audit.” If you don’t contact the IRS within 60 days, however, you lose all rights to reverse the charges and cannot appeal it, though you can claim a refund after it’s paid.

If you have additional questions about your specific circumstances, please reach out to your BiggsKofford team member or contact us HERE!

 

Considering an IRS IP PIN? How to Protect Your Identity and Credit

As fraud expands, thieves have more opportunities to steal your financial identity. The Federal Trade Commission reports that as many as half a million Americans have their identities stolen annually, costing them money and affecting their credit ratings.

Identity thieves make their money by co-opting your name, Social Security number, credit card number, or other pieces of your personal information for their own use. Below are just a few of the ways identity thieves operate, according to the FTC:

  • They file fraudulent tax returns on your behalf to get a refund.
  • They open a new credit card account, using your name, date of birth, and Social Security number. When they use the credit card and don’t pay the bills, the delinquent account is reported on your credit report.
  • They call your credit card issuer and, pretending to be you, change the mailing address on your credit card account. Then, your imposter runs up charges on your account. Because your bills are being sent to the new address, you may not immediately realize there’s a problem.
  • They establish cellular phone services in your name.
  • They open a bank account in your name and write bad checks on that account.

Fortunately, there are a number of ways you can protect yourself from identity theft:

  • Opt-in for an IRS IP PIN! To combat identity theft, the IRS since 2011 has aided certain taxpayers by issuing them an identity protection personal identification number (IP PIN), which helps the IRS verify taxpayers’ identity and accept their filed tax returns. After a progressively larger pilot program, the IRS in mid-January opened the program nationwide to allow all eligible taxpayers to opt-in to receive an IP PIN. More taxpayers are now likely to turn to their tax preparers and advisers to help them decide whether to do so. See this Journal of Accountancy article for the Opt-in process HERE.
  • Know who you’re talking to. Before you reveal any personally identifying information, find out how it will be used and whether it will be shared with others.
  • Pay attention to your billing cycles. Follow up with creditors if your bills don’t arrive on time. A missing credit card bill could mean an identity thief has taken over your credit card account and changed your billing address to cover his tracks.
  • Guard your mail against theft. Deposit outgoing mail in post office collection boxes or at your local post office—not in your own mailbox for your carrier to pick up.
  • Put passwords on your credit card, bank, and phone accounts. Avoid using easily available information such as your mother’s maiden name, your birth date, or your phone number.
  • For more tips and information, visit the FTC’s website. Minimize the identification information and the number of cards you carry to what you actually need. Don’t carry your social security card—memorize the number and store the card in a secure place.
  • Do not give out personal information on the phone through the mail or over the internet unless you have initiated the contact and know who you’re dealing with.
  • Keep items with personal information in a safe place. To thwart an identity thief who may pick through your trash to capture your personal information, tear or shred your charge receipts, copies of credit applications, and other financial statements.

For more information, contact you BiggsKofford team member or our main office HERE!

Colorado Department of Revenue Extends Income Tax Filing and Payment Deadline

The Colorado Department of Revenue announced Thursday that it will extend the individual income tax payment and filing deadline. The new deadline will now be May 17, 2021 instead of April 15, 2021, giving individuals an additional 32 days to file and pay.

This provision is in line with a recent announcement by the IRS to extend the federal filing and payment deadline for individual taxpayers. See our previous newsletter covering the IRS announcement HERE.

Similar to the IRS deadline and payment extension, there are some important factors to consider as we understand them now:

  • This does NOT extend other taxpayers such as corporations, trusts, etc.
  • This does NOT extend the first quarter estimate payment which is still due on April 15th.
  • This does NOT extend the extended deadline of October 15.
  • The state tax payment and filing postponement is automatic and does not require any action on the part of individual taxpayers.
  • If you need additional time to file, you may request an extension to October 15 to file, but must still pay by May 17th in order to avoid penalties and interest.

As stated in our previous article, because of the 2021 estimate payment stipulation, we are still recommending all of our clients to plan to file and pay by April 15th.

This is an evolving situation that we are continually monitoring. We will keep you updated as the conditions develop. If you have any questions about your specific circumstance, please contact our team at BiggsKofford. 

Individual Taxpayer Filing and Payment Deadline Extended But Be Cautious

The IRS announced yesterday, March 17th, that they will extend the filing and payment deadline for individual federal tax returns from April 15th to May 17th. A few important points to be aware of as we understand them today:

  • This does NOT extend other taxpayers such as corporations, trusts, etc.
  • This does NOT extend the first quarter estimate payment which is still due on April 15th.
  • This does NOT extend the extended deadline of October 15.
  • This may not extend your state filing deadline. Check with your specific state(s) tax agency for further guidance.
  • Penalties and interest will begin to accrue on May 18.
  • Taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment postponement. If your return is not done by this time, you can ask for an extension until October 15th.

In light of the stipulation regarding the first quarter estimated tax payment for 2021, we are advising all clients to continue under the assumption that we intend to file all individual federal tax returns by April 15th as originally planned.

This is an evolving situation that we are continually monitoring. We will keep you updated as the conditions develop. If you have any questions about your specific circumstance, please contact our team at BiggsKofford. 

The House of Representatives passed the American Rescue Plan Act, H.R. 1319, on Wednesday and President Biden signed it into law on Thursday. This $1.9 trillion rescue package is intended to provide additional support in the fight against the pandemic and economic stimulus.

Here are some of the key provisions:

  • Recovery Rebates

The act creates a new Sec. 6428B that provides individuals with a $1,400 recovery rebate credit ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent (as defined in Sec. 152) for 2021, including college students and qualifying relatives who are claimed as dependents. This credit will be sent out as a cash advance payment, same as the first two stimulus payments.

The adjusted gross income limitation phase out for this credit for single taxpayers is $75,000 with full phase out at $80,000. For joint filers the phaseout begins at $150,000 with full phase out at $160,000. The head of household phaseout begins at $112,500 through $120,000.

  • Unemployment Benefits

The supplemental unemployment benefit of $300 per week provided by the federal government is extended through September 6, 2021. There is also a taxable income exclusion on unemployment benefits for the first $10,200. Applicable for taxpayers with a household income of less than $150,000.

  • COBRA Continuation Coverage

Continued premium assistance for individuals who are eligible for COBRA continuation coverage between the date of enactment and Sept. 30, 2021. The credit applies to premiums and wages paid after April 1, 2021, and through Sept. 30. Continuation coverage premium assistance is not includible in the recipient’s gross income.

  • Child Tax Credit

The Act makes the dependent care tax credit refundable for 2021. The maximum credit has increased from 35% of up to $3,000 qualifying expenses for one child and $6,000 for two or more children to 50% of up to $8,000 of qualifying expenses for one child and $16,000 for two or more children. The credit is phased out for households with incomes from $125,000 to $440,000.

The IRS is directed to estimate taxpayers’ child tax credit amounts and pay monthly in advance one-twelfth of the annual estimated amount. Payments will run from July through December 2021.

  • Student Loan Forgiveness

The Act provides an exclusion from gross income for eligible student loan indebtedness forgiven after December 31, 2020 and before January 1, 2026.

  • Earned Income Tax Credit

The act also makes several changes to the Sec. 32 earned income tax credit. It introduces special rules for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18). The maximum age is eliminated. The credit’s phaseout percentage is increased to 15.3%, and the phaseout amounts are increased. The credit would be allowed for certain separated spouses. The threshold for disqualifying investment income would be raised from $2,200 to $10,000. Temporarily, taxpayers would be allowed to use their 2019 income instead of 2021 income in figuring the credit amount.

  • Child and Dependent Care Credit

The act makes various changes to the Sec. 21 child and dependent care credit, effective for 2021 only, including making it refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual and up to $8,000 for two or more. Credit reduction will start at household income levels over $125,000. For households with income over $400,000, the credit can be reduced below 20%. The act also increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.

  • Employment Retention Credit

The credit is extended through the end of 2021. It had previously been set to expire June 30, 2021. This allows eligible employers to claim a refundable credit of up to $7,000 per employee per quarter. Eligible employers during 2021 include companies that experienced a full or partial suspension of operations as a result of government orders, or those that can show at least a 20% reduction in quarterly gross receipts, compared with the same quarter in 2019.

  • Repeal of Election to Allocate Interest Expense on Worldwide Basis

The American Jobs Creation Act of 2004 provided for an election for US-affiliated groups to allocate interest expense between US and foreign sources to determine the foreign tax credit limitation.  After several delays, the election was scheduled to go into effect after December 31, 2020.  The Act repeals the election for taxable years beginning after 2020.

  • Economic Injury Disaster Loan (EIDL) Grants

Grants received from the U.S. Small Business Administration (SBA) are not included in gross income and that this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase.

  • Restaurant and Venue Assistance

Restaurants impacted by the economic fallout of COVID-19 may be eligible for a grant to cover eligible expenses for the period February 15, 2020 through December 31, 2021.  The amount of the Restaurant Revitalization Grant is equal to the pandemic-related revenue loss which is the difference between the 2020 and 2019 gross receipts.  Grant funds can be used for qualified expenditures related to the operation of the business.  Amounts received from the Small Business Administration in the form of a restaurant revitalization grant shall not be included in gross income.  Deductions are allowed for otherwise deductible expenses paid with the proceeds of the restaurant revitalization grant.

  • Economic Injury Disaster Loans & Paycheck Protection Program Funds

The COVID-19 Targeted EIDL was signed into law on December 27,2020 as part of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. The Targeted EIDL Advance provides businesses located in low-income communities with additional funds to ensure small business continuity. Advance funds of up to $10,000 will be available to applicants located in low income communities who previously received an EIDL Advance for less than $10,000 or those who applied, but received no funds, due to lack of available program funding.  The SBA will first reach out to EIDL applicants that already received a partial advance between $1,000-$9,000. Thereafter, the SBA will reach out to applicants who applied for EIDL assistance before December 27,2020 but did not receive an EIDL Advance due to the lack of funding.

To be eligible: the applicant must be located in a low-income community, the applicant can demonstrate a more than 30% reduction in revenue during an eight-week period beginning on March 2, 2020 or later, the applicant has 300 or fewer employees, the Act directs an additional $7.25 billion in Paycheck Protection Program (“PPP”) funds and also expands eligibility to more nonprofit entities.

  • Vaccinations, Testing Spending

The Act provides funding for vaccine and testing programs for COVID-19, including the creation of a national vaccine distribution program, funding for community vaccination centers and mobile vaccination. The Act also appropriates funds to increase testing capacity and regimes.

  • State and Local Aid

$360 billion will be directed to state and local governments. The funds are intended to help states and cities avoid cuts to public services due to decreased revenues and increased spending caused by COVID-19.

  • Schools

The Act provides $176 billion for education. The funds will be used to help K-12 schools add staff in order to serve decreased class sizes and purchase the necessary resources to open safely. The plan also directs funds to colleges and universities.

  • Health Insurance Premium Tax Credit

The act expands the Sec. 36B premium tax credit for 2021 and 2022 by changing the applicable percentage amounts in Sec. 36B(b)(3)(A). Taxpayers who received too much in advance premium tax credits in 2020 will not have to repay the excess amount. A special rule is added that treats a taxpayer who has received, or has been approved to receive, unemployment compensation for any week beginning during 2021 as an applicable taxpayer.

For more information or to discuss the specifics of your situation, contact the experts at BiggsKofford.

Opportunity for a $10,000 Economic Injury Disaster Loan Grant

The SBA has announced an opportunity to get a $10,000 EIDL Grant. This new round of EIDL Grants is called the “Targeted EIDL Advance”. The eligibility for this next round of loans is based on:

  • Didn’t already get the $10,000 EIDL advance last year.
  • Located in a Section 45D(e) location, which is the same as the Opportunity Zone definitions. Click HERE for an interactive map to see if you’re in the Zone.
  • Need to have a 30% reduction in revenue during some 8-week window starting after March 2, 2020, compared to 2019.
  • Have less than 300 employees.

If a company qualifies, the SBA will be sending an invitation to apply – based on your geographic location. See our Resources page HERE for an example of the letter.  If you receive this invitation and qualify – then you could obtain this $10,000 advance. If you believe you qualify, but didn’t receive an invitation, you can contact the SBA’s Customer Service Center at 800-659-2955 or emailing TargetedAdvance@sba.gov. If you have any questions or want to discuss your specific situation, contact our Team!

More Companies May Now Qualify for the Employee Retention Credit

The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020 as a continued effort to support the economy during the COVID-19 pandemic. One significant adjustment over the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is an expansion to the Employee Retention Credit (ERC).

Prior to the CAA, a business was not allowed to receive the Paycheck Protection Program (PPP) loan and the ERC. Most of our clients were able to qualify for, and received, the PPP loan, so we did not discuss the ERC much. However, the CAA law retroactively altered this provision and now allows for both the PPP loan and the ERC, which means that the credit can be retroactively claimed. While this is true in concept, the IRS hasn’t released the specific rules for coordinating the payroll expenses claimed for PPP forgiveness and the ERC. In addition, they haven’t indicated the exact procedure for making a retroactive ERC claim. Additional guidance is needed and expected.

The CAA also made other important increases to the ERC to allow more businesses to qualify for the credit in 2021. These credits can essentially be viewed as two distinct credits, one for 2020 (CARES) and one for 2021 (CAA).

The CARES Act ERC

This is a refundable quarterly payroll tax credit against certain employer payroll taxes. The ERC is available to employers of all sizes that have experienced either (1) a full or partial suspension in their operations as a result of governmental order (Suspension Test) or (2) a significant decline (i.e., greater than 50%) in gross receipts due to COVID-19 (Gross Receipts Test). The “Suspension Test” will allow many businesses to qualify, but will also necessitate a facts and circumstances evaluation. The IRS has issued preliminary rules to define the Suspension Test, which can be found HERE. We expect additional guidance and interpretations of these rules will develop in the coming weeks and months.

  • The credit is 50% of qualified wages paid or incurred from March 13, 2020, through Dec. 31, 2020
  • Qualified wages are limited to $10,000 per employee for the entire year — allowing up to $5,000 in credit per employee
  • Wages that can be treated as “qualified” hinge on whether an employer is a large (greater than 100 employees) or small employer (100 or less employees)
  • If used with the PPP loan, the credit can’t be used with the same wages (ie. no double dipping)

The rules for using wages in PPP forgiveness and ERC, as well as the process for retroactively applying for the ERC, have not been released by the SBA or IRS yet. We are encouraging our clients to begin reviewing the Suspension Test rules referenced above and determine if they may be eligible for ERC (partial or complete shutdown of operations during 2020).  Then, we will be waiting for further guidance and rules by the IRS and SBA.

The CAA ERC

This version of the credit will be available only for the first and second quarter of 2021. The eligibility criteria has been expanded and the gross receipts test has been relaxed in order to increase the eligibility for the credit.

  • Full time employee threshold for 2019 increased from 100 to 500 for a small employer. This allows businesses up to 500 employees to categorize all wages as qualified.
  • The amount of qualified wages per employee increased to $10,000 per calendar quarter in 2021 from $10,000 per calendar year. This effectively increases the qualified wages per employee to $20,000 for 2021, doubling the prior limit.
  • The credit also increased from 50% to 70% of qualifying wages. This results in a maximum credit per employee of $14,000 ($10,000 of qualified wages per quarter with a 70% credit on those wages equaling $7,000 per quarter for a grand total credit of $14,000 per employee).
  • The gross receipts test relaxed from requiring a 50% reduction to only needing a greater than 20% decline in gross receipts as compared to the same quarter in 2019.
    • For example, a business would qualify for the credit if Q1 2019, gross receipts were $100,000 and Q1 2021 gross receipts were $79,000. The business may also compare Q4 2019 to Q4 2020.
    • Employers may still rely on the Suspension Test for eligibility.

Given that the IRS and the SBA have yet to release formal guidance, we have some time to allow those details to be released before we need to act. For now, the best course of action is to begin considering whether you may qualify for the ERC, either retroactively in 2020 or proactively in 2021.  Please contact your BiggsKofford team member if you believe you are eligible. We are continually monitoring the release of information from the SBA and IRS and we will provide more guidance as it is released. If you have additional questions or need to speak about your specific situation, contact our team!

DID YOU RECEIVE A 1099-G BUT DID NOT FILE FOR UNEMPLOYMENT? 

Unfortunately, the Colorado Department of Labor had a large number of fraudulent unemployment claims this year.  Even after taxpayers have reported this fraud, many are still receiving Form 1099-G(s). Form 1099-G is the form used to report any income received through unemployment, similar to a W-2 for unemployment benefits. What should you do if you receive a Form 1099-G but did not file an unemployment claim?

According to the Colorado Department of Labor:

If you have received a 1099-G document from the Colorado Department of Labor and Employment but did not file a claim for unemployment benefits, you may be a victim of identity theft. Unfortunately, fraudsters steal or purchase private information from illicit data brokers and use that information to file fraudulent unemployment claims. While we have a sophisticated multi-factor program in place to flag suspected fraud, no system is perfect.

Here’s what you should do if you’ve received a 1099-G document from the Colorado Department of Labor and Employment but did not file a claim for unemployment benefits:

  1. Report it to us using the Report Invalid 1099 form.
  2. Contact the three consumer credit bureaus and put a fraud alert on your name and Social Security Number (SSN). Credit Bureau Contact Info: Equifax: 1-800-525-6285 | Experian: 1-888-397-3742 | TransUnion: 1-800-680-7289
  3. Create a file where you can keep records of this identity theft in one place.

Once you follow the link above to the Colorado Department of Labor and Employment website, follow the prompts on the report form and submit in order to notify the state of the issue. You should report the fraudulent Form 1099-G even if you have reported the fraud elsewhere and maintain all related records.

If you have any additional questions or need assistance, our Team is here to help.

HHS Reporting Deadline Postponed

The US Department of Health and Human Services (HHS) announced on January 15, 2021 that they will postpone the CARES Act Provider Relief Fund (PRF) reporting deadline due to the passing of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021.  This was a result of the new requirements issued as a part of the relief bill and to give PRF recipients ample time to prepare and understand the guidance released on January 15, 2021.  Please note that this document supersedes the November 2, 2020 notice.

They have not announced a new reporting deadline but are expected to in the near future once they have released additional guidance.  However, on January 15, 2020 HHS allowed PRF recipients to begin registering for gateway access to the PRF Reporting Portal where they will ultimately submit their information.

If you have any questions regarding this, please do not hesitate to contact the BiggsKofford Team.

Business Preparation for Stimulus #2

What you should do IMMEDIATELY to be prepared

The new COVID Relief bill was signed by the President on December 28th. We covered the highlights of the law in an article you can find HERE.  This Relief Act includes two significant programs that are available to closely-held businesses that are in need of financial assistance.

The two primary programs available to small business are:

  1. Payroll Protection Program – Second Round (PPP-2). We expect applications for this second round to open up within the first couple weeks in January. This second round has been allocated $284 billion, which is less than the initial PPP funding level and may get claimed quickly. As a result, we recommend those in need determine their eligibility now so that prompt application can be made once available.
  2. Employee Retention Tax Credit (ERTC). These credits were originally only available for businesses that did NOT also claim the PPP loan. But, the new Relief Act changed that. You can now qualify for the ERTC and the PPP loan.

To qualify for the PPP-2 loan, your business must show a 25% reduction in revenue in ANY QUARTER of 2020 – compared to the same quarter in 2019.

To qualify for the ERTC: You must show a 50% reduction in revenue in ANY QUARTER of 2020 – compared to the same quarter in 2019. (Then in 2021, this credit only requires a 20% reduction).

As you can see, both of these extended programs are available for qualified businesses that meet quarterly reductions in Gross Receipts. Therefore, we recommend that clients prepare a schedule of gross receipts from each quarter in 2019 vs 2020 to determine their eligibility for either of these programs while we await final application forms.

Here’s an example of what this schedule might look like:

We currently interpret the term “Gross Receipts” to mean cash basis revenues. So, if your business maintains accounting records on an accrual method of accounting (or some other method that is not cash basis), then you’ll need to either calculate your gross receipts from bank statements or by doing a conversion within your accounting system.

Of course, BiggsKofford is available to help, answer your questions, and assist with applications and forms necessary to claim these programs.

Trump Signed the Relief Act:

Key Provisions for BiggsKofford Clients

President Trump has finally signed the coronavirus relief package that was passed by Congress last week. Here are the important things our clients are likely interested in hearing:

1. Second Stimulus Payment

A second stimulus payment will be available, the details of which are as follows:

  • $600 for each individual filer
  • $1,200 for married or joint filers
  • $600 for any dependents age 16 and under

In order to qualify for the full second stimulus payment, you will need to have earned less than $75,000 (for individuals) or $150,000 (for married/joint filers) in 2019.

If your adjusted gross income is higher than those thresholds, then the stimulus payment is reduced by $5 for every $100 of adjusted gross income over those thresholds. As a result, a single tax filer would see no stimulus payment if their adjusted gross income is $87,000 or higher. A married couple would phase out completely with adjusted gross income of $174,000.

Given both the delay in the bill being signed as well as the holiday break, it will likely be several weeks. The first people to get payments will be those that have their direct deposit bank information on file with the IRS. Otherwise, check payments will likely take several months to arrive.

2. New PPP Loans and Rules

The new act the Paycheck Protection Program (PPP) by allocating an additional $285 billion for the program. Small businesses that obtained an initial PPP loan can qualify for a second round of loans.

Eligibility for a second PPP loan is stricter than before. A borrower must have fewer than 300 employees and demonstrate they experienced a 25% drop in gross receipts during the first, second, or third quarter in 2020 relative to that same quarter in 2019. The new act caps PPP loans at $2 million.

The new loan amounts are determined with the same formula that involves payroll costs multiplied by 2.5 (capped at $2 million this time). Although, restaurants and other hospitality businesses may multiply those costs by 3.5, making them eligible for slightly more funding

Forgiveness requirements for the new PPP loan are similar to the original version, with some flexibility and added qualified expenditures.

See a more detailed description of these new loan requirements HERE.

According to the law, the deadline for these new PPP loans is March 31, 2021. The SBA will likely release new application forms and instructions, which will become available through the same participating lenders.

3. Old PPP Loans

More flexible rules have been added to provide for forgiveness of the loans, including clear guidelines that forgiveness of a PPP loan is not taxable.

A few weeks ago, the government simplified forgiveness applications for businesses that got less than $50,000, requiring only a description of how much loan money was spent on payroll, and how many employees the recipient was able to retain as a result. The new bill ups that limit to $150,000. Affected businesses will not need to submit documentation supporting their claims, but should keep it on hand in case of an audit down the line.

4. Unemployment Benefits

The new relief act provides an additional $300 per week for all workers receiving unemployment benefits, through March 14, 2021 (and possibly longer). The act also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage for independent contractors, self-employed individuals, and gig workers. The Pandemic Emergency Unemployment Compensation (PEUC) program was also extended to provide additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.

In addition, the new act increases the maximum number of weeks an individual may claim regular state unemployment benefits plus the PEUC program, or through the PUA program, to 50 weeks.

5. Rental/Eviction Provisions

The new act provides for an extension of the eviction moratorium through January 31, 2021. There is also $25 billion for rental relief, to be used for future rent and utility payments and back rent owed or utility bills.

6. Student Loans

The new act does not include relief or further forbearance with respect to student loans. There has been some press about the possibility of President-Elect Biden canceling some amount of student loans by executive order when his term begins

7. EIDL Grants

The act added $20 billion for certain grants pursuant to the SBA’s Economic Disaster Injury Loan (EIDL) program. Eligible businesses, independent contractors, gig workers, and self-employed individuals are eligible for up to $10,000 in grants (not required to be repaid) if (1) they are located in a low-income community; (2) they suffered an economic loss of greater than 30% during an 8-week period between March 2, 2020, and December 17, 2021, relative to a comparable 8-week period immediately preceding March 2, 2020, or during 2019; (3) they employ not more than 300 people; (4) they are a qualifying business, such as a small business, private non-profit, sole proprietorship, or independent contractor; and (5) they were in operation by January 31, 2020.

8. Aid for Live Venues, Theaters, and Cultural Institutions

$15 billion in aid has been allocated for live venues, independent movie theaters, and cultural institutions.

The full text of the act is 5,593 pages long and contains many other provisions, but the ones I’ve detailed here are those that will have the greatest impact on the majority of Americans in the months ahead.

9. Numerous Tax Law Changes and Extensions

There were numerous general tax provisions in the new relief law. Below are some of the highlights. We will circulate a more comprehensive tax update in a future article.

  • Temporary allowance of full deduction for business meals: The bill temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.
  • Employee retention tax credit (ERTC) modifications. And provides that employers who receive PPP loans may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds.
  • Allows taxpayers to roll over unused amounts in their health and dependent care flexible spending arrangements from 2020 to 2021 and from 2021 to 2022. This provision also permits employers to allow employees to make a 2021 midyear prospective change in contribution amounts.
  • Extends and modifies the $300 charitable deduction for nonitemizers for 2021 and increases the maximum amount that may be deducted to $600 for married couples filing jointly.
  • Educator deduction for protective equipment.
  • And most exciting… The American Samoa economic development credit has been extended for 1-year.

We continue to expect updates and clarifications will be announced frequently over the next few weeks as the details are hammered out. We will continue to update you as the situation develops. If you have questions about your specific circumstance, reach out to our PPP team!

The House of Representatives and the U.S. Senate passed a $900 billion COVID-19 relief bill on Monday night which is expected to be signed in to law by President Trump at some point very soon. We discussed our early impressions of this news in a previous newsletter, HERE. There have been some important updates since then.

This new relief bill includes different elements that are impactful to our clients: Tax law changes as well as a new PPP Loan (PPP2). Once this bill is signed and becomes law, BiggsKofford will be sending separate detailed articles to describe the PPP2 Loan details and highlighting Tax Law changes.

Bill Summary:

The bill has several important provisions initiated in an attempt to stimulate the economy. As summarized in an article by Jeff Drew in the Journal of Accountancy HERE, some of the key points to be aware of:

  • $325 billion designated for struggling small businesses to include: $284 billion to fund another round of PPP loans; $20 billion to provide EIDL Grants to businesses in low income communities; $15 billion to live venues, independent movie theatres, and cultural centers.
  • $166 billion in economic stimulus payments to individuals. $600 to each qualifying adult and dependent child of households who make up to $75,000 a year for single adults or $150,000 a year for married couples.
  • $120 billion to bolster and extend unemployment benefits.
  • $25 billion in emergency rental aid and to extend the national eviction moratorium through January 31, 2021.
  • $45 billion to support the transportation industry to include airlines, highway, trains, and buses.
  • $82 billion to colleges and schools.
  • $22 billion to state and local governments for health-related expenses.
  • $13 billion for food assistance and an increase in Supplemental Nutrition Assistance Program (SNAP) benefits.
  • $7 billion for expanded digital infrastructure.
  • 100% Business Meal tax deduction from January 1, 2021 through December 31, 2022 (currently only 50% deductible)! The only caveat is that the food and drink must be provided by a restaurant.

Original PPP Loan Forgiveness:

The new COVID-19 relief bill will create a simplified forgiveness application for loans up to $150,000.  Borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length. The SBA has been instructed to create a form which will comply with the guidance. Borrowers are still required to retain relevant records related to employment for four years and other records for three years.

Borrowers will no longer be required to deduct the amount of any EIDL advance from their forgiveness amount.

Lastly, and among the most significant provisions, the bill specifies that business expenses paid with forgiven PPP loans are tax-deductible. This provision applies to loans under both the original PPP and subsequent PPP loans.

“PPP2” Loan:

First time applicants and those who previously received PPP funds may apply for up to $2 million as long as they have 300 or less employees, have or will have used all previous PPP funds, and can show a 25% gross revenue decline in any 2020 quarter vs the same quarter in 2019.

PPP2 funds will now also be available to the following organizations provided that they have no more than 300 employees, they do not receive more than 15% of receipts from lobbying, and have cost no more than $1 million in the most recent tax year:

  • Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc.
  • Destination marketing organizations

Also, now available to first-time borrowers from the following groups:

  • Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
  • Sole proprietors, independent contractors, and eligible self-employed individuals.
  • Not-for-profits, including churches.
  • Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

The same eligible costs from the first round of PPP funds still apply which includes payroll, rent, covered mortgage interest, and utilities. To be fully forgiven, the borrower must spend at least 60% of the funds on payroll during the 8 or 24-week covered period. Some additional expenses that are now qualified expenses under PPP2:

  • Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
  • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
  • Covered operating costs such as software and cloud computing services and accounting needs.

The amount available to be borrowed will be calculated by the same formula, 2.5 times average monthly payroll costs in the year prior to loan up to $2 million. However, now borrowers in the hotel and restaurant industries can get up to 3.5 times monthly average payroll, also up to $2 million.

We continue to expect updates and clarifications will be announced frequently over the next few weeks as the details are hammered out. We will continue to update you as the situation develops. If you have questions about your specific circumstance, reach out to our PPP team!

Congress announced yesterday that a new, $900 billion, COVID relief package is coming. This will include another round of Paycheck Protection Program (PPP) loans as well as a defined answer to a burning question for many, expenses paid for with forgiven PPP funds WILL be deductible!

As we discussed in an earlier article, found HERE, the PPP funds were not intended to be included in taxable income. However, the IRS stepped in and found a work around by not allowing ordinary tax deductions for expenses paid with tax free funds. This essentially resulted in the PPP loans being taxable which would have left many small businesses with a large tax bill for 2020. To the relief of many, Congress clarified that the deductions will still be recognized regardless of forgiveness, stating that was the original intent of the CARES Act.

In addition to the deductibility of expenses paid for with forgiven funds, the proposed bill also states that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied”. In short, the provision indicates that any income tax basis increase that occurs as a result of receiving the loan will not be lost upon forgiveness of that loan.

Another Round of PPP Funds

This new relief package will include $284 billion designated for another round of PPP loans for “Eligible Entities” who satisfy the “Necessity Test”.

The necessity test is meant to attest that a second round of funding is “necessary to support the on-going operations of the applicant”. For those receiving less than $2 million, the SBA has stated that they will not questions the necessity issue. Hopefully further guidance will be provided to clarify the necessity test.

Provided that the necessity test is met, to be considered an eligible entity, a business must meet the following requirements:

  • Schedule C taxpayer, an LLC or other entity treated as an S corporation or partnership and;
  • Must demonstrate that there was a 30% reduction from the gross receipts of the entity during the same quarter in 2019 and;
    • For the purposes of this 30% rule, gross receipts will include all revenues from the normal operation of the business before subtraction of expenses but will not include amounts borrowed, including amounts received for PPP loans.
    • There is no guidance yet on which quarters must be compared.
  • The borrower must employ no more than 300 employees, or meet an alternative size standard.

A few other restrictions regarding eligibility for this second round of funding:

  • There will be a maximum amount of new PPP loans for seasonal employers, new entities, and businesses with more than one physical location.
  • Borrowers owned 20% or more by “Chinese Entities” are unable to receive a second PPP loan.
  • Additional loans cannot exceed $2,000,000 per borrower.
  • There must be at least 90 days between loans. Consideration for those who just got their first PPP loan funded.

Aid Focused on Small Businesses

  • Funds for businesses that received the first round of PPP funds but can qualify for another loan if they can show significant losses in 2020 over 2019
  • Funds earmarked for non-profits and news outlets that weren’t eligible in the first round
  • $15 billion for live venues, independent movie theaters, and cultural institutions
  • $20 billion for targeted grants through the Economic Injury Disaster Loan program through the Small Business Administration (SBA)
  • Tax deductions for business meal expenses
  • Funds earmarked for “very small” businesses and lending through community-based lenders like Community Development Financial Institutions (DDFIs) and Minority Depository Institutions (MDIs). This includes $9 billion in U.S. Treasury capital investments in CDFIs and MDIs and $3 billion for the CDFI fund to support low income and underserved communities.

As with the initial PPP loan, we expect updates, clarifications, and policies will be announced frequently over the next few weeks as the details are hammered out. We will continue to update you as the situation develops. If you have questions about your specific circumstance, reach out to our PPP team!

BiggsKofford is again sponsoring a fantastic and powerful planning workshop: Are You Ready to Scale Up Your Business? The program is Wednesday, January 13, 2021 Online/Virtual: Participate from your Computer.

Many BiggsKofford clients have benefited from this program that provides an opportunity to “work on your business”. Our colleague, Chuck Kocher, local business coach and owner of The Transformation Company is hosting this workshop.

Scaling Up Workshop Overview  – (Click here for a link to a PDF with more information) You will learn the essentials that make the Scaling Up system work quickly. Learn best practices through lectures, hands-on exercises, group discussions, and coaching demonstrations. The workshop will also focus on:

  • The 4 Key Decisions that all growth companies must make in the areas of: People/Strategy/Execution/Cash
  • Helping you gain an understanding and then to begin completing a draft of the One Page Strategic Plan.
  • Sharing best practices/tools/models used by the best Scale Up companies in Colorado and all around the world.
  • Getting you and your team aligned on the main priorities to achieve success in 2021 and beyond.

You will benefit massively from this workshop if you are:

  • Either a For-Profit Business or a Non-Profit Organization
  • Committed to scalable and sustainable growth
  • An investor in learning and building your leadership team and culture
  • Looking to disrupt your industry and standout from your competitors
  • Going through massive industry changes and want to leading vs. following that change
  • Already scaling and building a great company and taking your business to the next level.
  • Desiring to/or you are building a stronger leadership team dynamic
  • Looking to learn and follow proven best business practices from the best high growth companies on the planet
  • Desiring deeper clarity of your Big Picture, Strategy, Annual Plan and connecting it back to your whole organization
  • Wanting to be an industry leader in profitability and productivity
  • Determined to truly be the owner/CEO of your company and working on vs. in your business

Chuck also provides an Event Promise that is unconditional 100% money back – guarantee.

To Register or for More Information Click Here or contact traci@thetransformation.company for additional information.

We are confident that this workshop will give you the opportunity to Scale Up your company in 2021 and Beyond!

The IRS has introduced a new Form 1099-NEC, Nonemployee Compensation. It’s a sibling to Form 1099-MISC and replaces it for certain purposes. You must file it for each person in the course of your business to whom you have paid at least $600 during the year for the following:

  • Services performed by someone who is not your employee (including parts and materials) (box 1).
  • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1).
  • Payments to an attorney (box 1).

The IRS has provided additional guidance about what exactly is nonemployee compensation. If the situation meets all four of the following cases, it’s an NEC situation:

  • You made the payment to someone who is not your employee.
  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
  • You made the payment to an individual, partnership, estate or, in some cases, a corporation.
  • You made payments to the payee of at least $600 during the year.

A partial list of payments that belong on a Form 1099-NEC includes the following:

  • Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers, etc.
  • Fees paid by one professional to another, such as fee-splitting or referral fees.
  • Commissions paid to nonemployee salespersons that are subject to repayment but are not repaid during the calendar year.
  • A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer if the fee and reimbursement total at least $600. (To help you determine whether someone is an independent contractor or an employee, see Pub. 15-A.)

This is not a complete list, and the choice between the NEC and MISC forms can be confusing. Be sure to keep clear, comprehensive records so your tax professional can help you decide how various payments should be reported. Form 1099-NEC is due on Jan. 31 or the next business day if that date falls on a weekend or holiday.

As we are able, we will be transferring prior year information from 1099-MISC to 1099-NEC within our software, but if that is not possible, it may take additional time or additional questions to complete the new form.  The information for the recipients that we will need remains the same – name, address, SSN or EIN, and amount of compensation.  We will need to know which payments are for rents, royalties, and other categories of income so that we make sure we report the payments on the correct form.

With the new deadline, we will be requesting that clients provide the information as early as possible with a goal of January 20 to have all necessary information. 

Please contact us if you have any questions or need assistance!

Make a Payment to BiggsKofford

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