Tax Guru – Ker$tetter Letter

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Deducting Expenses Paid With PPP Funds

Posted by taxguru on May 28, 2020

From a Client:

Kerry, Our corp received a PPP loan for $71,200 for payroll – so I take it, if forgiven, this rule applies?

 

My Reply:

As you know, the rules for all of these new pandemic spurred programs are being developed on the fly, so there are constant changes and tweaks to the details.  It’s not as bad as the constant back and forth details of what does or doesn’t spread the virus that we are hit with every day, but it’s close.

What is a bit confusing in the discussions of having a "tax free" debt forgiveness is this twist.  If you are not allowed to deduct the expenses paid from the tax free PPP money, those loan proceeds are in effect being taxed by reducing your deductions and increasing your taxable income.

The tax effects of expenses paid by forgiven loan funds from the PPP program have been and are still being discussed a lot, including on tax message boards and webinars that I take part in.  The current thinking, as explained in that article you sent, is that the ages old concept of not allowing deductions for expenses which have been reimbursed will apply in order to avoid a type of double dipping.

There is some talk about Congress adding a special provision into a future stimulus bill to allow deductions for PPP paid expenses, while maintaining the tax free status of the debt forgiveness.  However, if that were to survive all the way to Trump, it would almost certainly only apply to very small businesses, after the PR fiasco of big corporations scooping up a huge portion of the PPP funds.  Depending on where they set the threshold for qualifying small businesses, there is still a good chance that yours would fall under that limit and be eligible.  With the current lack of cooperation between the political parties, I wouldn’t hold my breath for this to ever materialize.

Since the dis-allowance of deductions only applies if the loan is forgiven, that is still the best way to go if you meet the qualifications for the debt to be wiped out.  Claiming the deductions still only returns a portion of the out of pocket costs to you, while the forgiveness offsets it all.

I hope this helps.  If anything changes in this regard, I will keep you posted.  Hopefully, there will be more concrete guidance on this matter before the 9/30/20 tax filing deadline for your corp’s current tax year.

Let me know if you have any other questions or would like to discuss any of this in more depth on the phone or Zoom.

Kerry

 

ExpertsGoofyPath

Posted in Debt Relief, Deductions | Leave a Comment »

All Ponzi Schemes Eventually Collapse

Posted by taxguru on May 22, 2020

Even the ones that all Americans are forced at the point of a gun to participate in, such as Social Security and MediCare cannot go on forever.  As I mentioned in my earlier post on why grabbing SS benefits ASAP is the only way to avoid being frozen out, the mythical SS Trust Fund is running out of the money necessary to honor the current payment plans. 

The current virus crisis has exacerbated that problem, with millions of fewer people able to contribute to the “Trust Fund” and holidays from this forced participation being proposed as a means of kick-starting the economy that has been devastated by the shut-downs.

From Forbes:

New Analysis Confirms: The Social Security Trust Fund Is In Trouble

Posted in ponzi, social security | Comments Off on All Ponzi Schemes Eventually Collapse

Schedule For IRS Paper Stimulus Checks

Posted by taxguru on May 13, 2020

For those individuals who haven’t provided IRS with their personal bank account info to allow direct deposits of the up to $1,200 per person stimulus checks, IRS has to send out paper checks via the USPS.

With millions of such checks required, this will be taking a number of months.  Rather than mailing them in random order, IRS is doing so based on the amount of AGI (Adjusted Gross Income) that was reported on 2018 or 2019 1040s.  This begins with the lowest income individuals, which does make a lot of sense in this time of financial crisis, and increases by $10,000 each week

Here is the current IRS mailing schedule, courtesy of Forbes:

Here is the planned weekly schedule for the IRS to mail stimulus checks based on annual adjusted gross income, as first reported by The Washington Post. All dates represent the “week ending” (for example, the week ending April 24) and the IRS could change this schedule at any time.

Less than $10,000: April 24

$10,001 – $20,000: May 1

$20,001 – $30,000: May 8

$30,001 – $40,000: May 15

$40,001 – $50,000: May 22

$50,001 – $60,000: May 29

$60,001 – $70,000: June 5

$70,001 – $80,000: June 12

$80,001 – $90,000: June 19

$90,001 – $100,000: June 26

$100,001 – $110,000: July 3

$110,001 – $120,000: July 10

$120,001 – $130,000: July 17

$130,001 – $140,000: July 24

$140,001 – $150,000: July 31

$150,001 – $160,000: August 7

$160,001 – $170,000: August 14

$170,001 – $180,000: August 21

$180,001 – $190,000: August 28

$190,001 – $198,000: September 4

Remaining checks: September 11

Posted in IRS, stimulus | Comments Off on Schedule For IRS Paper Stimulus Checks

Banks Encouraging Loan Fraud

Posted by taxguru on May 11, 2020

Whenever trillions of dollars are being tossed around, you can be sure that the scammers and fraudsters will all be out in full force to glom onto as much of that loot as they can.  That should have been obvious to everyone when the special loan programs for the current virus crisis were rushed through Congress. 

Banks have been busy enticing everybody, whether they are eligible or not, to take out these loans and are even calling it “Free Money” because of the promise of tax free loan forgiveness. Banks have seen this as easy money for themselves, and it’s not just openly corrupt banks, such as Wells Fargo, that are doing this.  They have already received billions of dollars for processing these risk-free loans and are still trolling for more borrowers with bogus promises.

Here’s what I wrote as a reply to a client’s email, stating that his banker was encouraging him “to try and get some of the free money everybody else seems to be getting.”

I would be very very careful about taking part in these special loan programs that have been set up to combat the economic slowdown.  Bankers are making billions of dollars in fees for setting up these risk-free loans and are lying to borrowers as to the benefits, such as tax-free forgiveness. 

With all of this new money, people who are being egged on by fee-seeking bankers, are swarming to it like flies to a pile of poop.  This has not been missed by those in power and it is guaranteed that these loan applications and future requests to forgive the loans will be scrutinized even more closely than IRS does with tax returns.  If you were to apply for your loan to be forgiven, they will demand tight documentation of how the loan money was used

I just did a quick internet search and found some Forbes articles that I put into your Qbox folder on this issue.  There will be many more all over the media, as the government increases their examinations and prosecutions and publicizes those who are caught as a scare tactic. 

One big question: after a borrower is busted for illegally participating in one of these special loan programs, will the bankers who processed those loans also be charged with fraud?  My money is on a big fat “No.”  Too many congress-critters are on the banks’ payroll to allow such a thing to happen.  They will pass laws indemnifying all banks from any legal liability from these loans, if they haven’t already done so.  Just like everyone in Congress, I don’t have the time to read all of the legislation that they pass.

Posted in banks, COVID-19, Fraud | Comments Off on Banks Encouraging Loan Fraud

A Tax Season Unlike Any Other…

Posted by taxguru on April 23, 2020

WeirdTaxSeason2020 

TrumpStimulusCheck

CuomoTaxingVirus 

people-jokes-stimulus-check

Posted in comix, TaxSeason | Comments Off on A Tax Season Unlike Any Other…

Receiving Stimulus Payments

Posted by taxguru on April 17, 2020

From a Client:

Kerry,

Hello. We were wondering about the stimulus payment so we checked it and they have nothing filed on us that they can determine our eligibility for a payment.

Is there something they don’t have because we usually don’t have any returns direct deposited, just mailed to us. But we get our SS checks direct deposited.

Thank You for information

 

My Reply:

As you may know, this stimulus payment program is so new that the details are constantly evolving. I did take a webinar on Wednesday that discussed the details as they currently stand.

There are actually a couple of issues at play with your situation.

1. Eligibility For Stimulus Payment
Only people with an expected 2020 income below a certain threshold ($99,000 per person or $198,000 per couple) are supposed to receive these special IRS payments. To guesstimate the 2020 income, IRS is using the income that was reported on the latest filed tax return, which for most people would be their 2018 or 2019.

While most people have fairly consistent incomes year to year, that wasn’t the case for you between 2018 and 2019. If you did, as we discussed, hold off mailing in your 2019 returns until closer to the July 15 due date, IRS will use what was reported on your 2018 1040 and will send you a check for the full $2,400.

If, however, you did send in the 2019 return and IRS was able to process it before it shut down all of its activities, the large capital gain that is on that return will make your total income well above the eligibility limit.

If IRS does have your 2019 income in their computer, even though you won’t be receiving a stimulus check now, you will receive it when you file your 2020 tax return and show them that your actual income for this year is under the limit. While the actual mechanics of this process are in the design stage, most tax pros are predicting that it will be handled in a similar manner to the $300 per person rebate checks sent out in 2008, where any over or under-payment was fixed with the filing of the actual 2008 1040.

2. Payment Logistics
IRS has already started direct depositing stimulus payments into some accounts where it has the bank info from what was reported on 1040s. While SSA does direct deposit their payments into recipients’ bank accounts, that system is separate and is not shared with IRS. Since we didn’t set you up for direct deposit of refunds with IRS, they will be sending you a check, most likely in the next few weeks.

You are in the exact same scenario as Sherry and I are. We have our SSA benefits deposited directly into our bank, only because they don’t give us any other option. With IRS, we don’t use their direct deposit option because there is always a possibility that those bank details could be used, intentionally or accidentally, to take money out of our account. It’s a rare occurrence, but it does happen often enough to make me wary of revealing too much personal info to IRS.

I hope I have explained the situation clearly. If anything does change in regard to the stimulus payments that would affect you, I will let you know.

Kerry

Posted in IRS | Comments Off on Receiving Stimulus Payments

IRS Broadens Application of July 15 Filing Date

Posted by taxguru on April 9, 2020

IRS has just published a press release moving more deadlines to July 15 than just the ones covered in their earlier pronouncements. 

IRS extends more tax deadlines to cover individuals, trusts, estates corporations and others

Of key interest to me:

The due date for the second installment of 2020 estimated taxes for individuals has been moved from June 15 to July 15.  No surprise there; except what took them so long to fix that screw-up?

Other tax returns and payments that would normally be due in between April 1, 2020 and July 14, 2020 now have until July 15.  This applies to some fiscal year C-corps, such as those with a tax year ending 1/31/20 (normally due 5/15/20) and those with a tax year ending 2/29/20 (normally due 6/15/20).

Posted in TaxDay | Comments Off on IRS Broadens Application of July 15 Filing Date

Making the Best of House Arrest

Posted by taxguru on April 9, 2020

Even though 2019 tax returns aren’t due in until July 15, it’s not a bad idea to use this time to get them done as soon as you can.  Of course, my usual advice still applies.  Don’t rush tax returns in until you have all of the information.  Amended returns do receive more IRS scrutiny than do original ones; so it is safest to be completely confident in the completeness and accuracy of your returns before sending them in.

TaxesDoneEarly

Posted in TaxDay | Comments Off on Making the Best of House Arrest

IRS Tries To Explain the New July 15 Tax Day Details

Posted by taxguru on March 25, 2020

As is almost always the case with the wonderful tax systems in this country, even the simplest of concepts is more complicated and twisted than necessary.

Moving the 2020 Tax Day for 2019 tax returns to July 15 has already created a lot of confusion among taxpayers and tax practitioners.  To remedy, or add to, the confusion, IRS has already published 24 FAQs related to this new date.

Filing and Payment Deadlines Questions and Answers

The University of Illinois TaxSchool has posted this video explanation of the IRS FAQs.

As the presenter says, these FAQs are fluid and will almost certainly be changed before July 15 comes around and as a result of items in the massive stimulus bill that is working its way through Congress.

One of the craziest answers from IRS is Q16 regarding the due date of the second estimated tax payment for 2020.

A16. No, second quarter 2020 estimated income tax payments are still due on June 15, 2020. First quarter 2020 estimated income tax payments are postponed from April 15 to July 15, 2020.

The second quarterly payment is due a month before the first payment.  Does this make sense to anybody?  In the Bizarro world of Washington DC, it probably does.

Posted in IRS, TaxDay | Comments Off on IRS Tries To Explain the New July 15 Tax Day Details

State Tax Filing Dates

Posted by taxguru on March 24, 2020

While most state tax agencies do their best to mirror IRS due dates, that isn’t always the case, for various reasons  During this time of unprecedented uncertainty, it is even more confusing than ever.

The AICPA has assembled a 123 page pdf chart with the State rules as of now on the special section of their website dealing with this virus panic.  It is supposed to be updated daily, which will most likely be necessary as the end date of this mess continues to be pushed outwards.

Luckily, this chart and the website are available to anyone, not just AICPA members.

I learned about this from a comment on the very informative TaxBook Message Board.

[Updates 3/26/2020] – The AICPA chart of state details is being updated and expanded daily, with the same URL.  Today’s version is up to 169 pages.

As of today, the AICPA has not yet picked up the status of Arkansas tax deadlines, so I checked on the DFA’s website and I was glad to see that they have matched the IRS’s July 15 due date.  Since we prepare a lot of Arkansas returns, this will make things so much easier than having to deal with two separate filing deadlines.

Posted in AICPA, StateTaxes | Comments Off on State Tax Filing Dates