Paycheck Protection Act looks like the way to keep your business afloat.

The Paycheck Protection Act the cornerstone of the CARE act is finally online.  I strongly encourage your to take advantage of it. 

Below is a discussion from the Intuit folks about the Paycheck Protection Act that they provided me to forward to you.

One word of caution, some of the links in the article are not working.  Here is the primary link to the U S Department of Treasury web site dealing with the Assistance for Small Business resource page.

This link should have everything you need to start the process.

The Paycheck Protection Program (PPP) is a cornerstone of the $2 trillion Corona virus Aid, Relief, and Economic Security (CARES) Act. The program provides $349 billion in Small Business Administration (SBA) loans for small businesses with 500 or fewer employees. The goal of this loan program is to encourage businesses to keep workers employed during the corona virus pandemic.

Typically, SBA loans are for businesses that cannot find credit through other lenders, but the CARES Act waives that requirement. And while SBA loans require borrowers to post collateral and sign a personal guarantee that they’ll repay the loan, PPP loans require neither. Instead, the federal government is providing loan guarantees to lenders.

All businesses—including nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors—with 500 or fewer employees can apply. Businesses in certain industries with more than 500 employees that meet applicable SBA employee-based size standards can also apply.

Determining Paycheck Protection Program loan eligibility

Lenders must determine if a business was operating as of February 14, 2020, and if it was paying employees on that date. Proof of your payroll costs is the biggest factor in determining the size of your loan. “Employees” includes full- and part-time workers. Independent contractors paid through 1099s are also included in the payroll calculation. Criteria for loan eligibility include:

• The business has 500 or fewer employees.
• The owner certifies that the uncertainty of economic conditions makes the loan necessary to continue operations during the pandemic.
• The loan proceeds must be used to fund payroll, rent or mortgage payments, interest on debt, and utility payments.

How much can an eligible small business borrow?

Eligible small businesses can borrow up to $10 million. The maximum loan amount is based on the business’s average total monthly payroll costs for the prior 12 months, multiplied by 2.5.

Loans will cover annual payroll, up to $100,000 per worker, but cannot exceed $10 million. If your business has operated for less than a year, your loan will be based on employee payroll between January and February 2020. The SBA is paying origination fees to lenders, so borrowers don’t receive additional fees.

What are the taxes and loan terms?

After eight weeks, borrowers must submit to lenders detailed reports on how they used funds. But to streamline the process and keep small businesses running, all PPP loans have identical terms:

• Interest rates of 0.5%
• Maturity of two years
• First payment deferred for six months after approval
• 100% guarantee by the SBA
• No collateral or personal guarantees from borrowers
• No borrower or lender fees payable to the SBA

What can I pay for using Paycheck Protection Program funds?

Since the program is designed to help businesses keep employees on the payroll, the primary use of Paycheck Protection Program funds should be used to cover payroll-related expenses. Eligible expenses include:

• Salaries
• Wages
• Commissions
• Expenses
• Vacation, sick, parental/family/medical pay
• Retirement contributions
• Group health coverage premiums
• State and local taxes

Federal taxes are not included, nor are payroll costs for employees making over $100,000 a year. However, the program covers the first $100,000.

Paycheck Protection Program funds may also be applied to administrative costs like:

• Utilities (electricity, gas, water)
• Communication (phone or internet access)
• Insurance premiums or other healthcare costs
• Rent, provided borrowers signed their lease before February 15, 2020

If small business owners use the PPP funds to cover qualified expenses over eight weeks, they may be eligible for loan forgiveness.

How is a Paycheck Protection Program loan forgiven?

Loans may qualify for forgiveness under some circumstances:

• The loan is only used to cover qualified expenses.
• You pay 100% of payroll dollars to employees during the eight weeks after the loan is approved.

The amount of the loan eligible for forgiveness will be reduced if:

• You reduce the number of full-time workers you employ over eight weeks.
• You reduce payroll costs by 25% or more.

Forgiveness is determined by the banks that grant the loans. Banks will have 60 days to approve or deny a business’s loan forgiveness request.

Normally, when a bank approves loan forgiveness, the borrower is taxed on the dollar amount of the loan, as if the loan was business income. The CARES Act does not tax the borrower when the loan is forgiven.

What if the loan is not forgiven?

If a portion of the loan is not forgiven because at least 75% of the loan did not cover payroll costs, the remaining loan must have a maturity date of 10 years or fewer. And the interest rate will be no more than 4%. There will be no penalty for loan prepayment, and the federal government will continue to guarantee the loan.

Does the Paycheck Protection Program cover sole proprietors and independent contractors?

Yes! Sole proprietors and independent contractors meet the definition of a small business under SBA size standards. Professionals in this category must also document their income and expenses.

You can document your income using bank statements and 1099s received from clients. Contractors may not receive 1099s for smaller payments. Expenses can be supported using bank statements and credit card documentation. Much of this information should be filed with your 2019 tax return.

How to apply for the Paycheck Protection Program

On April 3, 2020, small businesses and sole proprietorships can apply for these loans. On April 10, 2020, independent contractors and self-employed individuals can apply.

Complete the SBA’s Paycheck Protection Program sample application, and submit the document to any existing SBA-approved lender. Federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions may also be participating as SBA lenders. Check with your bank to find out if they’re participating in the program.

When you apply for the loan, your lender will consider both your personal credit score and your FICO score. The SBA uses the FICO business score for all business loans. Both credit scores evaluate your use of credit and if you make debt payments on time. To maintain a good business score, you must pay vendors and suppliers on time.

You will need to have the following documentation to apply:

• Articles of incorporation for each borrowing entity
• By-laws or operating agreement for each borrowing entity
• Copies of each owner’s driver’s license
• Payroll expense verification
• Certification that all employees live in the United States
• A detailed list of employees who do not live in the U.S., with corresponding salaries
• A trailing 12-month profit and loss statement
• Proof of expenses like rent or mortgage payments, interest payments on debts, and utility payments.

Potential borrowers must also provide payroll details to the lender to obtain loan approval. You’ll also need to provide payroll data during the eight weeks after the loan is finalized. If you use accounting software or a payroll processor, the payroll data will be easy to access. Otherwise, you’ll need to provide documentation for:

• Gross pay. This includes gross wages as well as paid time off, vacation pay, and family medical leave pay for the last 12 months.
• Tax withholdings. This includes the last 12 months of federal, state, and local income taxes withheld.
• 2019 FUTA taxes. This includes IRS forms 940 and 941 for federal unemployment taxes.
• 1099s. This includes 2019 payments to independent contractors.
• Health insurance premiums. This includes company-paid premiums for group health insurance for the last 12 months.
• Retirement plan funding. This includes business contributions to employee retirement plans over the last 12 months.

Your business will still have to withhold federal and state income taxes, Medicare, and Social Security. Check with a CPA to determine the dates to file payroll tax reports and submit withheld payments.

Where to go from here

Contact your bank and find out if they’re participating in the SBA lending program. If they don’t, ask for a referral for another institution. Then gather your records, complete the application, and submit the data to an SBA lender as soon as possible. A CARES Act loan can serve as a lifeline for your business. Explain the application process to your workforce, so they understand the direction you’re headed. Finally, give yourself some credit for taking action.

One additional note, we are reading that some banks may not be set up yet to start the loan application process.  Chase is not up yet, but Bank of America is for example.  Anything put together in a week in government inefficiency world has got to have a few bumps in the road.

Covid 19 Tax return filing and payment relief

COVID-19 - Tax Return Filing & Payment Relief

Does the deadline postponement apply to return filing and payments?

Yes. Both the filing and payment deadlines have been automatically postponed from April 15, 2020 to July 15, 2020 for individuals, trusts, estates, corporations, or any type of unincorporated business entity. Interest and penalties will begin to accrue after July 15.

Do taxpayers need to file any additional forms to qualify for relief?

No, taxpayers do not need to submit any additional forms; the new July 15, 2020 deadline applies to all taxpayers with a Federal income tax return or payment formerly due on April 15, 2020. Individual taxpayers, who need additional time to file beyond July 15, can request a filing extension until October 15 by filing Form 4868 before the July 15 due date. Corporate filers use Form 7004 to request additional time.

Has the filing deadline for all state returns been postponed to July 15?

State filing and payment deadlines vary by state. Check with each state to get an accurate due date for filing and payment or visit our State Response to Covid-19 page.

I have already filed returns with a scheduled payment date of April 15, 2020. Will this payment be automatically rescheduled for July 15, 2020?

No, the payment will not automatically reschedule. The payment will be made on the date selected unless the payment is rescheduled. Follow the instructions below to reschedule or cancel a payment.

• IRS Direct Pay – Use the confirmation number from scheduled payment to access the Look Up and Payment feature.
• EFTPS -  Access the EFTPS website, then click on Payments and login. Click on Cancel a Tax Payment from the left menu and follow the instructions. 
• Schedule Electronic Funds Withdrawal – Electronic withdrawal payments scheduled when tax returns are filed can be revoked by contacting the U.S. Treasury Financial Agent at 888-353-4537.
• Credit/Debit Cards – Cancel scheduled payments by contacting the card processor.
  

Are first quarter 2020 estimated tax payments still due on April 15, 2020?

No, the April 15 estimated tax payment due date is also postponed until July 15, 2020.

Have the second quarter 2020 estimated tax payments, due on June 15, 2020, also been postponed?

No, the postponement only applies to the April 15, 2020 payment. The June 15, 2020 estimated payment due date remains the same.

Does this relief provide more time to contribute money to an IRA, HSA, or Archer MSA for 2019? 
Yes. Contributions may be made for a particular year, at any time during the year or by the due date for filing a return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to IRA, HSA, or Archer MSA for 2019 is also extended to July 15, 2020. 

I have tried calling the IRS for help, but I have been unable to reach anyone by telephone. What should I do?

Limited live telephone customer service assistance is currently available due to precautions taken to protect IRS employees from the coronavirus. High demand has created very lengthy wait times. The IRS encourages people to use IRS.gov for information.

How can I keep up with the IRS response to the Coronavirus and COVID-19 legislation?

For the most up-to-date information, visit the IRS Coronavirus page https://www.irs.gov/coronavirus. As information is released regarding stimulus payments and legislation, it will be posted to this page. More FAQs can be found at https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers.

They took on giants, and changed how you shop

In the February 2, 2020 I highlighted the New York Times Article, "They took on giants, and changed how you shop."

Here is a link to the article reprinted at the Chicago Tribune Website.

New episode of "Talking about your taxes" podcast talking about guess what.

Here is the link to our latest podcast, "Talking about your taxes."



Alice Foss and Don Fuener talk about your taxes.  Guess what we talk about?

Please listen.  

2020 Tax Refund Chart Can Help You Guess When You Could Receive Your Refund.

Forbes Magazine published this month a tax refund chart listing when you might receive your refund by filing date. 

Maybe.

If you file a tax return that includes a refundable credits....eitc or child tax credit.  The IRS will delay all refundable credit refunds until February 15, 2020.

Here is the link to the article. 

Last minute tax strategies for 2019 and good news your corporate filing fee is going down.

Senate Bill 689, which was signed by Illinois’ Governor Pritzker on June 5, 2019, is more than 300 pages long.
Buried inside is some good news. Specifically it provides for the phase out of Illinois’ franchise tax on domestic 
and foreign corporations. Currently, Sec. 15.35 of the Illinois Business Corporation Act imposes 
a franchise tax on domestic corporations for the privilege of exercising their franchise and Sec. 15.65 imposes 
a franchise tax on qualified foreign corporations for the privilege of exercising their authority to do 
business in Illinois. The tax is measured by the paid-in capital – which is basically the funds raised 
when a corporation issues stock. There is an initial tax, an annual tax, and a tax upon changes in paid-in capital.

Bottom line, the annual report fee to the Secretary of State is now $75. A savings of $25 for most clients.  
And who says Illinois is so business unfriendly ...wait not so fast old man. On January 1, 2020 Illinois’ 
minimum wage increases to $9.25 per hour.  On July 1, 2020 the minimum wage increases to $10. 
New employees (first 90 days of employment) and employees under age 18 may be paid up to 50 cents 
less per hour. Tipped employees must be paid 60% of the hourly minimum wage. That means your servers 
wages starting the first of the year is $6 per hour.

We will see what the effects of the increased minimum wage has with the now shaky Illinois economy.
The experts say that an increased minimum wage will reduce employment in the long run, and less
employment opportunities for low-skilled workers. 

How are you going to handle your increased labor costs?  I don’t see any other option but to consider
yet again a price increase. 

Don’t forget we will be calling you asking about your health insurance premiums this month. 

We know your thoughts are on the holiday and not tax savings ... but taking actions in the next few weeks 
specifically designed to reduce your 2019 tax liability will prove to be rewarding when you file your taxes next year.

Here is our list of last minute tax strategies for 2019:

1.  Increase your contributions to your 401(k) or IRA retirement investment plans.  A retirement plan is 
an easy deduction.  If your employer is not participating in your retirement plan, you should consider an IRA 
or participate in the self funded 401(k) if at all possible.  Also, while some employers require a wait time or 
require employees to wait until open enrollment to start up payroll deductions, some companies will let you start 
at the end of the year or even on the next paycheck.  It’s worth looking into, since the money contributed to a 
retirement account is typically not subjected to income taxes.

2.  Charitable giving.  Not only are donations good for your taxes, they're good for society as a whole.  While 
there may be no large tax benefit for some donations, please consider the social benefits to making donations to 
charitable organizations.

Even older computers and cell phones can be useful for training or other charitable causes -- it doesn't have to 
be an iPad.  You're entitled to fair market value for clothes and furniture, among other things, so take time right 
after Christmas to clean your closets and head to your favorite charity. 

The little things add up too, and you can write off out-of-pocket costs incurred while doing good works. 
For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you 
buy for your school’s fundraising mailing count as a charitable contribution. You can also deduct any out-of-pocket 
travel expenses for charitable causes, which includes everything from mileage for travel, taxis or parking expenses. 

3.  Choose stock donations over cash.  If you're thinking about making a large cash donation, you might want
to think about using stock in a company that has done well. Make a donation of those shares; if you sell the 
shares to make a large donation you have to pay taxes on the profit. However, if you donate the shares then you 
receive a tax deduction for the fair market value of the stock.

4.  Paying next semester’s college costs early and counting the costs toward the American Opportunity 
tax credit.  Simple and easy.  Works best for freshmen who started college in the fall of 2019.

5.  Sell losing investments.  Capital losses are first used to offset capital gains, and then up to $3,000 of the 
net loss can be deducted against income, such as your salary. Any excess loss is carried forward to future years.

8.  See if you can deduct any medical costs.  You have to itemize to qualify for this deduction and expenses 
have to be more than 7.5% of your adjusted gross income, but if you have a lot of doctors' visits and medical 
procedures, it may be worth checking out. Will you need surgery in the near future? If so, try to get it in before 
the end of the year.

I hope this helps your planning!

Five Myths About the IRS.

As we return to blogging from a very long vacation.....

The Monday October 21, 2019 Wall Street Journal Wealth Management section lead article featured “Nine Myths About Credit Scores.” I won’t list all nine myths.  Frankly some myths are stating the obvious. “Credit reports are accurate” and “Selecting credit while using your debit card for a purchase is good for your credit score.”  I learned something though.  

From the article:

 MYTH: If I pay my bills on time, that’s all I need to worry about

“For many consumers, the assumption is that on-time bill payment is all that matters when it comes to a good credit score. But that assumption forgets about the importance of credit utilization, which is the percentage of debt you owe compared with the total available credit that’s been granted to you.

Utilization is one of the most important components of your score. If your credit cards are maxed out, your score won’t look good even if you’re paying promptly. A rule of thumb is to use less than 30% of your available credit each month and ideally less than 10%.

Another key strategy to consider is calling your card issuer to ask for a higher credit limit. If successful (and 85% of the time it is, according to CreditCards.com, a credit-card comparison site), the request would instantly lower your utilization.

“This is one of the fastest, easiest, no-cost ways that anyone can help their score,” says industry analyst Ted Rossman of CreditCards.com.”

Which got me to thinking.  There is no organization that strikes more fear than the IRS. After all it is the largest, most powerful collection agency in the world.  The IRS has powers to take your money and / or property without a court hearing. Come to think about it, so does the Illinois Department of Revenue and the Illinois Department of Security for that matter.  In my opinion no agency deserves a myth list than the IRS.    

Five Myths About the IRS.

1. The IRS is an all powerful, all watching, efficient organization, watching everything you do.  Nothing could be farther from the truth.  Saddled with 1960s era computer systems, reduced budget, a smaller workforce, and an impossible Obamacare mandate to monitor every American’s health care coverage on a monthly basis, efficiency is not an IRS trait by any measure.  I like to tell clients that patience is required when they receive an IRS notice. IRS doesn’t open their mail. Doesn’t answer their phone 30 percent of the time. No longer lets you walk in their offices without an appointment. There is no longer a revenue officer based in Springfield.  It seems that IRS moves at glacial speed. Examinations take years not months to settle. And the tax court system is so clogged, if you have the nerve to wait the IRS out, you have a very high chance of a favorable settlement because the IRS does not have the means to prepare or conduct a trial for us small fish.  Despite all of this, because of their lien and levy powers, IRS is an agency that remains all powerful, and requires respect. It is just not that efficient doing the stuff that they do.                                                                                                                                                                                                                                                        
2. If you owe the IRS a significant amount of money, the Offer in Compromise Program (OIC), so much advertised in the media, sure seems the way to go.  Well not really. Any taxpayer that files for an OIC stops the clock. IRS has ten years to collect past due taxes. Every tax return has an official statute date.  That statute date starts the ten year clock. (In contrast, Illinois has a much longer collection period ...25 years. This extraordinary time period to keep a debt valid, and collectible, is so bad for the Illinois taxpayer, clogging the collection bureaucracy at the Illinois Department of Revenue, and frankly, is just unfair for a non judicial ordered debt, that may or may not be correct. By the way the statute of limitations for Illinois consumer debt is either five of ten years. But I digress.) Filing the OIC stops the collection clock. Considering the chances of qualifying for an OIC are not very good.  Less than 40 percent of offers are accepted by the IRS. It takes a very long time to get IRS to work your OIC. Two to three years by our experience. See number one above. You might be better off trying to make your account either uncollectible because of your financial or health situation or consider an IRS payment plan. But caveat emptor.
3. IRS offers a payment plan to pay past due taxes that you should take advantage of.  By law if you owe $5,000 or less, IRS will have to set you up on a payment plan. In reality IRS offers payment plans for taxpayers that owe up to $100,000. See number one above. Again because it has such problems getting things done, $100,000 payment plans are easier to administer than enforced collection.  Payments are based on your finances. IRS liens may be filed on balances over $50,000, or maybe not. (Liens pretty much destroys your ability to buy or sell real estate, but interestingly enough are no longer listed on consumer credit reports. Principally because liens are notoriously reported inaccurately. Like credit reports. Hear that Illinois?)  If you enter into a direct debit payment agreement with the IRS, your bank account is debited automatically by the IRS. Make five payments successfully, the IRS will withdraw the tax lien they filed, and life becomes good again. Sounds great. What is the rub? Owing the IRS is not like owning any other creditor. That is because the principal increases while you are paying off the debt.  Any IRS debt includes tax owed...the principal…, interest set by law, and penalty. It is the penalty or should I say penalties, that cause the problem. IRS assesses penalties, whether it is for failure to file, failure to pay, underpayment penalty, or even negligence penalties for example, on a monthly basis for as long as the tax liability remains unpaid. IRS says that the average taxpayer will pay 140 to 150 percent of the original tax owed under their payment plans.  If you ever find yourself in the unfortunate situation of owing taxes, please do everything you can to find other sources to pay the IRS. It took me more than 30 years to figure it out. The system is fixed. You have to pay your taxes. If you don’t, you will pay dearly. 
4. IF you cannot pay the IRS on April 15th you should file an extension.  This tax season we filed more extensions than ever before. Some taxpayers had record keeping issues, others had personal reasons, some just can’t their things together, however the primary reason for filing an extension seems to be a lack of funds to pay current tax liability. An extension to file is not an extension to pay.  Your taxes are due and payable on April 15th. Not filing creates additional penalties that you wouldn’t have to pay if you had filed on April 15th. Creating an additional liabilities when you are struggling with money right now doesn’t make a lot of sense. The IRS is the most expensive creditor you will ever borrow money from.  See number four. 
5. An office in the home deduction means instant audit.  There was a time when this myth was actually pretty close to the truth. However, with home offices becoming increasingly prevalent, this one-time fact has become predominantly fiction. Back in 2013 Congress changed the law and created a safe harbor calculation for taking a home office deduction. The home office has become legit.  A real victory for the taxpayer. There’s no need to be afraid of claiming a legit deduction. The one thing to be wary of is making sure your claim actually falls within the IRS definition of a home office. We have a link to the IRS discussion of the home office safe harbor discussion on our website 1taxes.com. Speaking of audits, currently the IRS audits less than one half of one percent of the taxes filed. 244 million tax returns were filed in 2015. 1.2 million returns have been or will be audited.  So .6% of all returns filed in 2015 were or about to be examined by the IRS. Less than one percent. In all honesty the odds are with you.