Latest News on Tax Deadlines and COVID-related Legislation

Legislation and developments continue to move at a breathtaking pace with regard to tax filing deadlines and COVID-related legislation. Here at Canon Capital, our workload continues to be full as we prioritize getting our clients the help they need – despite being in the middle of tax season. We’ve gathered the latest updates in this blog post.

Federal Tax Deadline Extended to May 17, 2021 for Some Returns

As you may have heard, the deadline for filing individual tax returns and payments for 2020 has been extended to May 17, 2021. Pennsylvania has adopted the May 17 date as well.  However, the April 15 deadline remains for some returns, including C-corporations and trust tax returns. We are still waiting on guidance on gift tax returns. Lastly, and perhaps most oddly, the due date for first quarter estimates for individual returns is still April 15, 2021.

In addition to certain tax return deadlines being extended, the 2020 contribution deadlines for IRAs, Roths, HASs, Archer MSAs, and Coverdell ESAs have also been extended to May 17, 2021.

The AICPA continues to advocate for moving everything normally due on April 15, 2021 to May 17, 2021.  Needless to say, we are hoping for some decisions soon.

Employee Retention Credit

Many businesses don’t realize they are eligible for these substantial, recently expanded credits.  If your business was fully or partially shut down on government order, or you had a “substantial” (either 20% or 50%) decline in gross receipts per quarter compared to 2019, you may be eligible for a credit of up to $7,000 per employee. We have been helping many clients with this credit and its interaction with the PPP loans.  Unfortunately, we are hearing too many stories from business owners that their accountant has de-prioritized work related to the ERC. If you are not getting answers and would like to discuss your potential eligibility, please feel free to give us a call.

PPP2 Applications and Draws

As you may have heard, the deadline for applying for a PPP loan has been extended to May 31, 2021.  However, in a somewhat unexpected announcement, the SBA announced last week that they are projecting the funds to run out mid-April. Thus, we suggest getting any remaining applications in immediately.  There may be a replenishment of funds, but nothing has been announced yet.

Also, at the beginning of March, the SBA changed the formula on how sole proprietors calculate their loans. This change was a huge benefit to schedule C borrowers. There is pressure for Congress to adopt a retroactive law allowing schedule C borrowers funded with applications prior to the change to use the new formula.  Again, there is only discussion at this point and nothing imminent. This would also require additional funds to be allocated to the PPP program.

In addition, the SBA has stated that of the approximate 25M schedule C/sole proprietor businesses in the U.S., only 2.6M have applied and been approved for PPP loans. If you have questions about your eligibility, please contact us immediately.

Forgiveness applications should now be available through most or all lenders and should be considered for filing as soon as possible.

Lastly, if you had a “Draw 1” application in January or February (that is your first borrowing under the PPP program), you may now be eligible to submit a “Draw 2” application.  Again, if you have questions about eligibility, please contact us immediately.

Economic Injury Disaster Loan Update

The SBA has raised the COVID-19 EIDL loan limit to $500,000.  There have also been additional funds made available for the program.

IRS to Recalculate Taxes on Unemployment Benefits

With the American Rescue Plan Act passage in March, there was a retroactive provision that made the first $10,200 of unemployment benefits non-taxable for filers under certain thresholds. The IRS came out with guidance and stated that taxpayers who have already filed their returns should not file an amended return. The IRS will recalculate those returns and issue refunds. The refunds will come in two phases starting in May 2021. The first phase will be for single taxpayers who are eligible for the exclusion. The second phase will include married taxpayers and others with more complex returns. However, the IRS may not calculate returns with additional credits properly, making an amended return necessary after all. Taxpayers need to pay attention to the accuracy of the return.

Other Programs

Other brand-new programs have become available, such as the Shuttered Venue Operators Grant and the Restaurant Revitalization Fund. The funds in these programs will run out fairly quickly, so please make sure you, or your banker or advisor, are ready to apply for these programs when they open.

Affordable Care Premium Tax Credits

The passage of the American Rescue Plan Act also includes a retroactive provision stating a taxpayer does not have to repay any of the advance premium credit for 2020 if they received too much. In this case, taxpayers who already filed their 2020 tax returns will need to file an amended return.

Biden’s Potential Tax Reform

There are currently two bills in Congress that could be part of a Biden tax overhaul. The Sensible Taxation and Equity Promotion (STEP) Act would eliminate stepped-up-basis at death. The bill would allow individuals to exclude up to $1M in unrealized capital gains from tax, as well as provide the opportunity to pay the tax in installments over a 15-year period for capital gains that apply to any illiquid assets like a farm or business. Changes would be retroactive to January 2021. The second, Senator Bernie Sanders’ 99.5 Percent Act, proposes to lower the gift tax exemption to $1M and to limit annual gift tax exemptions.

Needless to say, any Biden tax bill needs to be evaluated seriously. Without Republican support, most likely the earliest any tax plan could pass is late fall or early winter when the reconciliation process becomes available again to Congress.  More to come on this over the next few months.

Biden’s $2.3 Trillion Infrastructure, Tax Plus Plan

This topic has just started to be discussed. There may be a possibility for a bill by the end of the summer, so for now, we’ll have to keep our eye on this as well.

Should you have any questions on any of these topics, or any other items that relate to your situation, do not hesitate to contact us at 215-723-4881 or via email.  We’ll be happy to discuss your situation with you.

Additional Resources

Recording of February 11, 2021 Seminar: The Expanded Employee Retention Credit

Recording of January 12, 2021 Seminar: Unpacking the Latest COVID-19 Relief Package

Recording of December 18, 2020 Seminar: Year-end Planning for a Biden Administration and the SECURE Act

Important News about the Employee Retention Credit (ERC) and the PPP Loan Program

While much of the attention of the Consolidated Appropriations Act, 2021 (CAA 2021) was focused on the second draw PPP loan program, there was a small provision change that could have massive benefits for businesses that qualify. It may be easier to qualify for portions of the provision and should not be overlooked by businesses.

The Employee Retention Credit (ERC) was passed as part of the original CARES Act in March of 2020. The flagship business provision in the CARES Act was the Payroll Protection Program (PPP) loan program. The ERC was also introduced as well but was not very popular with businesses. Most businesses literally rushed out and obtained a PPP loan – and rightfully so. In almost all cases, the PPP loan was a larger dollar amount and was basically promised to be free money, if spent on approved expenses.

Here’s the important part – under the original CARES Act, if you obtained a PPP loan, the ERC was off the table altogether. You could not do both. Originally, both the PPP loan and the ERC were set to expire in 2020.

The ERC is a 50% credit on the first $10K of eligible wages per employee in 2020. To be eligible, your business had to have either a 50% reduction in gross receipts in any calendar quarter of 2020 compared to the same quarter in 2019 – OR – be shut down, or partially shut down, by a government order (federal, state, or local). But again, this was all off the table in its entirety if you took a PPP loan.

However, the CAA 2021, which was signed into law on December 27, 2020 changed everything. If businesses are eligible, they can now take BOTH the ERC and the PPP loan. Since both programs are based on payroll, the same payroll dollar cannot be used for both the credit and PPP forgiveness. We are now seeing guidance come out and define how these two programs, and the wages interact. Remember, these two programs could not interact prior to December 27, 2020.

For example, if you have 20 employees, and you qualified for the ERC in 2020 – you have the potential to receive another $100,000 ($10K qualified wages per employee X 50% credit X 20 employees) in addition to whatever PPP loans you may have or participate in going forward. But this all gets much, much, better.

The CAA 2021 also extended the ERC through June 30, 2021. In addition, the credit has been increased to 70% credit per $10K qualifying wages per employee, per quarter. Lastly, and possibly best of all, a business only has to have a reduction of gross receipts in excess of 20%, instead of the 50% needed in 2020, in either the first or second quarter of 2021 as compared to the same quarter in 2019. So yes, even if you don’t qualify in 2020 – if your business revenue remains 20% off from 2019 – you can potentially have $14,000 credits per each employee for 2021. So that business that received $100K in 2020 for 20 employees, could potentially receive another $280,000 of credits in 2021 for the same employees – again, regardless of their participation in the PPP loan.

Keep in mind, to qualify, you need the applicable reduction in gross receipts OR to be shut down, or partially shut down, by a government order (federal, state, or local). So, every restaurant, café, or eatery; every barber or hairdresser; every theater; every gym; anyone at least partially shut down as a “non-essential” business, anyone forced to operate at a percentage of capacity, would at least partially qualify.

The evaluation of the ERC MUST be calculated BEFORE you prepare your 2020 income tax return, and you CANNOT file for your PPP loan forgiveness or have it granted while you are evaluating the ERC. If you already had your PPP loan forgiven, you may not be eligible to claim any of the ERC for 2020. However, the AICPA is currently advocating to allow businesses that have already applied for PPP forgiveness to be able to claim the ERC credit as well. Please talk to your advisor first.

Lastly, there are a number of special rules for employers over 100 employees, 500 employees, seasonal businesses and businesses that started in 2019. Please talk to your advisor if you think you may be eligible for the ERC for 2020 or 2021.

While we are awaiting further guidance to be issued on this topic, we are tentatively planning a Zoom meeting for those businesses that think they qualify for the ERC. Please contact us if you would like to receive updates about future Zoom meetings or if you have questions.

Year-end Planning for a Biden Administration and the SECURE Act: Zoom Seminar December 18, 2020

2020 saw a lot of tax law changes due to COVID-19. We expect the same in 2021 with the continuing pandemic and a probable change in Administrations.  Are you prepared?

Join Chuck Porter, Jr., AIF, CFMFO and Brent Thompson, CPA CMA CGMA on Friday, December 18, 2020, for a Zoom session from 10:00 a.m. – 11:30 a.m. They will provide you with valuable information as well as the opportunity to ask questions via the Zoom chat feature. This virtual seminar is ideal for business owners and high net worth individuals alike.

Topics will include:

  • Review of the potential Biden tax plan
  • Review of the SECURE Act and other recent tax law changes
  • Planning points to evaluate prior to the end of the year
  • Brief update on PPP loan forgiveness and related recent and pending legislation

Registration is limited to 100 attendees and is available on a first-come, first-served basis. After registering, you will receive a confirmation email containing information about joining the meeting. Please feel free to share with friends and colleagues you feel will benefit from this information.

Register here.

“Your PPP Covered Period is About to End: Now What? – What We Know as of October 8, 2020” – Seminar Recording

Your covered period for your PPP Loan is coming to an end. Now what? On Thursday, October 8, 2020, Steve Moyer, CPA PFS CGMA CSEP and Brent Thompson, CPA CMA CGMA presented a seminar via Zoom featuring the latest information on the status of Paycheck Protection Program loan forgiveness, including:
  • Review of the logistics and timing of forgiveness applications
  • Accounting for the PPP loan
  • How the new Interim Final Rules issued since 6/11 affect the application
  • How the new FAQs issued since 6/11 affect the application
  • Pending legislation that may affect the forgiveness process
  • Review of other miscellaneous updates and planning opportunities, including payroll options

Watch the recording of the seminar and access a PDF file of the presentation.

If you have any questions, please contact us online or via phone at 215-723-4881. We will continue to issues these updates as information becomes available.

COVID-19 Quick Guide to Pennsylvania Unemployment Compensation

Are you unsure if the COVID-19 CARES Act provisions for Pennsylvania Unemployment Compensation apply to you? Here is a quick guide provided by the Pennsylvania Department of Labor and Industry Office of Unemployment Compensation. Complete, up-to-date information is available at the Office of Unemployment Compensation’s COVID-19 page.