IRS Spotlights Online Tax Resources for Small Business Week

IRS Spotlights Online Tax Resources for Small Business Week

The pandemic has affected everything in American life, even National Small Business Week. This year, the Internal Revenue Service spent all three days of the event highlighting online resources that can help small businesses dealing with coronavirus-related difficulties.  

What is National Small Business Week?

The Small Business Administration (SBA) established National Small Business Week to celebrate American small businesses, honoring the accomplishments of select small business owners and recommending resources that can help small businesses across the country.

The SBA has held Small Business Week annually for more than 50 years, but the “unique challenges” of 2020 resulted in “[recognizing] the small businesses who have navigated the coronavirus pandemic while supporting their employees and communities.”

For its part, the IRS issued press releases providing resources that can help small businesses during the COVID era: Internet-accessible tax help for small businesses: links to small business-focused tax resources, rules for claiming the home office deduction, and employer tax credits.

What small business resources are available on IRS.gov?

The IRS kicked off small business week with a list of links to helpful resources, including:

Another key takeaway is that the IRS is expanding the number of languages it supports in online resources and tax forms. The Small Business and Self-Employed Tax Center added support for Chinese, Korean, Vietnamese, and Russian, and the IRS is translating basic tax information in 20 different languages.  

Who qualifies for the home office deduction?

Taxpayers who have dedicated part of their home as the primary location for running a business may qualify for the home office deduction. While this deduction is available for self-employed taxpayers—including freelancers and independent contractors—employees who are working from home do not qualify.

Most buildings that would commonly be considered a home qualify for the home office deduction, but the IRS defines what does and does not constitute “home” to reduce potential confusion:

  • Includes a house, apartment, condominium, mobile home, boat, or similar property
  • Includes structures on the property, like an unattached garage, studio, barn, or greenhouse
  • Doesn’t include any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business

When it comes to actually determining how much they qualify to claim, the IRS outlines two methods:

  1. Simple: Take the $5-per-square-foot rate explained by Revenue Procedure 2013-13
  2. Normal: Calculate the deduction based on how much of the home is used business on Form 8829, Expenses for Business Use of Your Home

Once the amount is determined, taxpayers will need to file Schedule C, Profit or Loss from Business (Sole Proprietorship).

What coronavirus-related employer tax credits are available?

On the final day of Small Business Week, the IRS recommended employer tax credits that are intended to help businesses deal with the pandemic fallout.  

The Employee Retention Credit was created to prevent a tidal wave of employee layoffs and furloughs. “The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19,” the IRS says.

While state and local governments and businesses receiving small business loans do not qualify, the IRS says all other businesses are eligible if they meet either of these criteria (calculated each calendar year):

  1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter. 
  2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

The Paid Sick Leave Credit and expanded Family Leave Credit provide tax relief for businesses with employees that have been directly impacted by the coronavirus. Employees who are unable to work due to coronavirus-related quarantine or needing to providing primary care for family and children may qualify for the following tax relief:  

  • Employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay up to $511 per day and $5,110 in total.
  • Employees who are unable to work due to caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the coronavirus … are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay, or up to $200 per day and $2,000 in total.
  • Employees are also entitled to paid family and medical leave equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted toward the Family Leave Credit.

The IRS reminds employers that they “can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.”

For more information about National Small Business Week—including additional online resources—visit the IRS “Small Business Week” webpage.

Sources: IR-2020-218; IR-2020-220; IR-2020-221; SBA “National Small Business Week” 

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AICPA Renews Call for PPP Extension and Expansion

AICPA Renews Call for PPP Extension and Expansion

The American Institute of CPAs is adding its voice to others calling for an expansion of the Paycheck Protection Program (PPP) and seeks to extend the program’s lifespan.

The PPP provides critical relief for small business hard-it by the COVID-19 pandemic.

“From the beginning, we have advocated for the support of small businesses, their survival and their ability to employ people,” said AICPA President and CEO Barry Melancon, CPA, CGMA. “It’s apparent that to increase the odds of many small businesses getting through this crisis, more governmental support is essential.”

The program has proved to be an effective bridge for many companies affected by workplace restrictions forced by the pandemic, but more resources are urgently needed to help Main Street businesses that are continuing to struggle.

Melacon and the AICPA say there’s plenty of reason—as shown by recent reports—to expand and extend the PPP.

  • Data from Yelp, the restaurant and services review site,  shows a 34 percent increase in business closures since mid-July, according to CNBC.
  • Politico, citing Drexel University statistics, reported that small businesses with 50 employees or less lost nearly 18 million jobs in the pandemic, with close to half of those jobs returning as states reopened – yet the recovery unmistakably tailed off in mid-June.
  • Colder temperatures are expected to exacerbate challenges for restaurants, bars and hospitality businesses, many of which will continue to face restrictions on indoor seating

Erik Asgeirsson, president and CEO of CPA.com, the AICPA’s business and technology arm, adds his voice to those pushing for expansion of the PPP.

“Money still remains unspent from the last PPP authorization, but businesses can’t currently tap those funds,” said Asgeirsson. “We need to allow new loan applications and add additional resources to help small businesses during this critical time. We support efforts to enact PPP 2.”

Asgeirsson made his remarks at a AICPA Town Hall, a weekly virtual update that focuses on the PPP and related topics and draws an audience of as many as 5,000 CPAs. The AICPA issued six recommendations for pandemic relief-related legislation in July, several of which touch on the Paycheck Protection Program.

AICPA says CPAs have played a key role in assisting small businesses with PPP applications and the program’s loan forgiveness process. The AICPA supports streamlining and simplifying the PPP process through recommendations from a small business funding coalition it leads.

AICPA, CPA.com, and Biz2Credit have also created a free tool for borrowers and CPAs that helps automate the loan forgiveness process: pppforgivenesstool.com.

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Drought-Stricken Farmers, Ranchers Get Tax Relief from IRS

Drought-Stricken Farmers, Ranchers Get Tax Relief from IRS

American agriculture is in the grip of a major drought, with many farmers and ranchers forced to sell off major portions of their herds to avoid starvation.

While the Internal Revenue Service can’t make it rain, the IRS can give struggling livestock producers other kinds of relief.

New measures give producers more time to replace the livestock they were forced to sell off while deferring tax on gains from the forced sales.

Who qualifies?

To qualify for relief, the farm or ranch must be in a county or other jurisdiction that’s been designated eligible for federal assistance, or contiguous to a designated county. Notice 2020-74 lists applicable regions in some 46 states, the District of Columbia, and four U.S. territories.

Generally, the relief applies to capital gains realized by eligible farmers an ranchers on sales of livestock held for draft, dairy, or breeding purposes. Sales of other livestock – such as animals raised for slaughter or held for sporting purposes, or poultry – aren’t eligible.

Qualifying sales must be solely due to drought, flooding, or some other severe weather that caused the region to be designated as eligible for federal assistance.

Livestock generally has to be replaced within a four-year period, rather than the usual two-year period. The IRS is also authorized to extend the replacement period even more if the drought continues.

The notice outlines that the one-year extension gives eligible producers until the end of the tax year after the first drought-free year to replace livestock lost in forced sales. Details – including an example of how the provision works – is available in Notice 2006-82, available on IRS.gov.

What is the window of eligibility?

The IRS provides the extension to farms and ranches located in the applicable region that qualified for the four-year replacement period if any county included in the applicable region is listed as suffering exceptional, extreme or severe drought during any week between Sept. 1, 2019, and Aug. 31, 2020.

The determination is made by the National Drought Mitigation Center

The upshot of all this is that qualified farmers and ranchers whose drought-sale replacement period was slated to expire at the end of this year, Dec. 31, 2020 in most cases, now have until the end of their next tax year.

Because the normal drought-sale replacement period is four years, the extension immediately impacts drought sales that took place in 2016. The replacement periods for some drought sales before 2016 are also affected, due to previous drought-related extensions affecting some of those localities.

For more information on reporting drought sales and other farm-related tax issues, check out Publication 225, Farmer’s Tax Guide, on IRS.gov.

Source: IR-2020-219

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Final Regulations for Estate and Non-Grantor Trust Deductions, 100 Percent Bonus Depreciation

Final Regulations for Estate and Non-Grantor Trust Deductions, 100 Percent Bonus Depreciation

Anyone who has prepared tax returns professionally knows that change is the rule, not the exception. When tax laws change, the Internal Revenue Service has the unenviable task of making sense of legislation or executive actions that directly impact the tax industry.

Yesterday, the IRS announced the publication of two sets of final regulations that each address a change implemented by the Tax Cuts and Jobs Act (TCJA): estate and non-grantor trust deductions, and 100 percent bonus depreciation.

What are the final regulations on deductions for estates and non-grantor trusts?

The final regulations on deductions for estates and non-grantor trusts explain which deductions can be used to figure adjusted gross income. The IRS notes that this clarification is needed because “the TCJA prohibits individuals, estates, and non-grantor trusts from claiming miscellaneous itemized deductions for any taxable year beginning after December 31, 2017, and before January 1, 2026.”

Despite the TCJA temporarily taking miscellaneous itemized deductions off the table, the IRS identifies a number of deductions that are allowed in the final regulations:

  • Deductions for costs paid or incurred in connection with the administration of the estate or trust which would not have been incurred if the property were not held in such estate or non-grantor trust.
  • The deduction concerning the personal exemption of an estate or non-grantor trust.
  • The distribution deductions for trusts distributing current income.
  • The distribution deductions for trusts accumulating income.

In section 1.642(h)-2(a) of the final regulations, the IRS notes that succeeding beneficiaries of terminated estates may also be allowed to deduct from their individual returns “last taxable year deductions … in excess of gross income.”

Review TD-9918 for full details.

What are the final regulations on 100 percent bonus depreciation deductions?

The TCJA allows an additional 100 percent bonus depreciation deduction for qualifying business property the year it’s placed in service. In the press release announcing the final regulations for this deduction, the IRS identifies some qualifying property:

  • Appliances
  • Computers
  • Equipment
  • Furniture
  • Machinery

“The deduction applies to qualifying property (including used property) acquired and placed in service after September 27, 2017,” the IRS explains. “The final regulations provide clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property.”

The IRS says the final regulations also include “rules for consolidated groups and rules for components acquired or self-constructed after September 27, 2017,” as well as “for larger self-constructed property on which production began before September 28, 2017.”

Review TS-9916 for full details.

Sources: IR-2020-216; IR-2020-217

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IRS Reminds Taxpayers About Extension Deadline

IRS Reminds Taxpayers About Extension Deadline

The IRS suggests electronic filing and payment options.

More than 150 million tax returns have been sent to the Internal Revenue Service, but many taxpayers still need to file for tax year 2019. That’s why the IRS recently reminded taxpayers that the extension deadline is less than a month away. (Those serving in combat zones or living in federally declared disaster areas may have more time to file.)

The deadline for taxpayers who requested an extension for their tax year 2019 individual income tax return have until October 15, 2020 to file with the IRS. As in years past, the agency recommends electronic filing and payment services. But in the pandemic landscape, convenience takes a back seat to safety.

“Taxpayers and tax professionals should continue to use electronic options to support social distancing and speed the processing of tax returns, refunds and payments,” the IRS says. Punctuating their recommendation, the IRS is temporarily allowing even more tax forms to be electronically signed.

What electronic payment options are available?

As for making payments, the IRS outlines a number of available electronic options, ranging from official applications to third-party payment processors. Here’s the full list—complete with explanations—from the press release:

  • [Taxpayers] can pay when they file electronically using tax software online. If using a tax preparer, taxpayers should ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.
  • IRS Direct Pay allows taxpayers to pay online directly from a checking or savings account for free, and to schedule payments up to 365 days in advance.
  • Taxpayers can choose to pay with a credit card, debit card or digital wallet option through a payment processor. No fees go to the IRS.
  • The IRS2Go app provides the mobile-friendly payment options, including Direct Pay and Payment Provider payments on mobile devices.
  • Taxpayers may also enroll in the Electronic Federal Tax Payment System and have a choice of paying online or by phone by using the EFTPS Voice Response System.
  • Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, access their tax records online, review their payment history and view key tax return information for the most recent tax return as originally filed.

Those who are unable to pay their tax bill—whether in full or at all—also have options. The IRS has a number of online resources explaining installment payments, offers in compromise, and temporary collection delays under the “Can’t Pay Now?” heading of their “Payments” page.

Time is running out for non-filers to get an Economic Impact Payment in 2020.

Americans who don’t normally file a tax return need to send their information to the IRS in order to receive an EIP, and that deadline is also October 15, 2020. The IRSsays the easiest way for non-filers to, well, file, is by using the aptly named “Non-Filers: Enter Payment Info Here” tool on IRS.gov.

Source: IR-2020-213

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