What a year!
As 2020 comes to a close, our families and our communities are filled with a mix of emotions. Between the pandemic, civil unrest, the economy, and politics, we could all benefit from taking some time to reflect on our thoughts and emotions from the past year.
Let’s not just let this past year pass again without processing some of what has taken place for you. Consider journaling or writing a letter to yourself with the insights and perspectives that you’ve gained over the past 10-12 months.
PPP updates and actions
Many of you are in the midst of the PPP loan forgiveness application filing process. Several banks have opened their online portals so you can submit your forgiveness applications and supporting documentation.
Keep in mind that the application forms vary by loan amount:
- If you borrowed $2,000,000 or more: Submit Form 3508 , and prepare for an SBA audit to ensure compliance with loan requirements.
- If you borrowed $50,000 – $1,999,999: Submit Form 3508EZ provided you maintained your employee count levels the same as of February 15, 2020, and did not reduce wages by more than 25%. If workforces were reduced or wages lowered by more than 25%, you may be required to file Form 3508
- If you borrowed less than $50,000: Submit Form 3508S.
As you may recall, the PPP requires borrowers to spend loan funds on payroll, rent, utilities and business mortgage interest over a covered period of 8 weeks or 24 weeks. For many businesses, the alternative covered period of 24 weeks provided a much better option for ensuring that the funds were put toward the required purposes.
One of the supporting documents your bank may require is your quarterly payroll tax returns. If your covered period extended into October 2020, you may have to wait to apply for forgiveness until you file your 4th quarter 2020 payroll tax return in January 2021. If you have an arrangement with us to apply for this loan forgiveness, we will evaluate these factors and advise you on which form to file and when. We will also compile your supporting documentation to provide a fully documented workpaper support file for your records.
Economic Impact payments (stimulus payments) and 2020 charitable donations
The CARES Act that was passed in March 2020 contained several provisions beyond the PPP loan funding program. There are some additional key aspects to review and consider for your 2020 personal tax planning:
Economic Impact Payments (“Stimulus payments”)
These IRS payments last spring are technically called Recovery Rebate tax credits and will be reflected on your 2020 taxes. Essentially, consider them advance tax credits/refunds that were paid out based on your 2019 or 2018 tax filings. If you did not qualify for a stimulus payment based on your 2019 or 2018 tax returns, but you do qualify based on your 2020 returns, a non-taxable Recovery Rebate credit will be issued.
One unique opportunity here is for taxpayers with college students. If the student files separately for 2020 and claims themselves as their own dependents, they may qualify for a $1,200 stimulus payment.
In addition, for those that did receive an economic impact payment, the IRS mailed to you a letter documenting the amount and timing of your receipt of the payment. Most likely, those letters were mailed out last spring when you received the check or direct deposit in your bank account. This information will be required to be reported as part of your 2020 personal tax returns. Please be sure to maintain a copy of that letter in your tax records for the 2020 tax year.
Charitable giving opportunities:
- For taxpayers who itemize their deductions: A full 100% of your taxable income can be offset with donations to charitable organizations (including Donor Advised Funds).
- For taxpayers who do not itemize their deductions: You can claim donations up to $300 as a deduction against 2020 income. If you have not donated yet in 2020, consider this option before year end.
- For taxpayers with IRA Required Minimum Distributions (“RMDs”): You can make qualified distributions directly to charities, which can lower your overall income thresholds for marginal tax brackets and taxable social security benefits. RMDs are waived for 2020 only, but you can still use this option to make contributions to charities.
- A strategy that continues to make a lot of sense is donating stocks or mutual funds that have a lot of unrealized long-term gains. Donating these securities directly to charities avoids long-term capital gains and gives you a tax deduction for the full fair market value of the security.
We’ve been reaching out to all of our business customers to work on year-end planning for 2020. Thank you in advance for your coordination and cooperation to make the process as smooth as possible and avoid surprises. (We’ve had enough of those this year, right?)
If you’re an S Corporation
Our team will complete the necessary tax reporting requirements for health and fringe benefits before year end to ensure full tax deductibility for the year.
Keep in mind the charitable giving and Recovery Rebate credit options can help make 2020 a little more tax friendly.
From our team
Thanks again for entrusting us and allowing us to share in your business and personal growth. Happy holidays, and cheers to a better, brighter 2021!